Correction in Technology-Based Office Space Expected

BOSTON-As high tech companies nationwide face reorganizations, unpredictable stock prices and shakedowns, the Boston real estate industry may have to rethink its future.

Route 128 and Interstate 495 have been witness to an unprecedented boom in office space and lease rates, most of it from high-tech companies. At one time, $40 per sf was thought to be the barrier rate on 128 but since then rates have shot past that up to $50 per sf.

“We’re going to see a rolling technology correction,” says Stephen Coyle, director of market research at Boston–based Property & Portfolio Research in an interview with Globest.com. “The artificial exuberance will pull lease rates down somewhat. “

With financing running dry, a number of start-ups have been forced to dump their office space on the market. At Watertown Arsenal, a trio of firms put empty offices up for rent. CMGI Inc. has been scaling back on its network of Internet companies. CA-based Cisco Systems, which has plans for nearly two million sf of office space along 495, recently took a big hit in the stock market. New Jersey-based Lucent Technologies’ plans to build a large office complex on 495 have recently become less clear.

“Boston will see less of an impact than Silicon Valley,” notes Coyle. “Boston had a delayed development cycle so now it’s at the point where it could go ahead with all its projects. The question is, do you go ahead when you have some shakeout?”

There is still a pent-up demand for space Downtown, says Coyle but the suburban office market is different. High tech on Route 128 has a high concentration of dot comers making it more vulnerable to a correction in the market. “The shakeout will be felt there,” he says. The diversification of companies along 495 makes it less vulnerable.