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BOSTON-The region’s flex market sent a mixed message to users and investors during the second quarter of 2005 as vacancies declined 0.8% while negative absorption increased by 36,000 sf. This marks he fourth consecutive quarter of such negative absorption in the area’s flex market.

Brendan Carroll, an analyst with Richards Barry Joyce and Partners, tells that the decline in vacancies was due in large part to the conversion of several obsolete flex buildings to residential units, which reduced inventory. A recovery of the manufacturing segment has not hit New England. “The region is not benefiting from an uptick in demand for products and services to the extent the rest of the nation is,” says Carroll, noting that the high cost of production in New England has left that segment stagnant. “The office segment is seeing those benefits,but in terms of flex property, we’re just not seeing the growth we’re seeing with other property types.”

The Route 128 and Interstate 495 corridors, which contain over half of the area’s inventory, experienced positive absorption rates for the first time in four quarters but in the overall market, 22.6 % of all flex properties remained vacant. The numbers show that flex properties experience 3.3% more vacancies than warehouses, the second most vacant property type in the region, the report prepared by the company says. Owners also suffered from the high vacancy as lease rates dropped slightly by .05 cents to $9.96 per sf and tenant concessions increased.

Observers had expected flex facilities to face a quicker recovery due largely to the spillover from the state’s thriving biotech industry, Carroll notes, but that anticipated growth has not yet occurred. Carroll says that interest in older vacant flex buildings is increasing as developers eye them for conversion into residential and office properties.

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