With the recent fluctuations in the economy and the shake up in the dot com industry, many are wondering what the future holds for high-tech companies. Just like the economy, opinions for the future fluctuate. Some see it simply as a 'blip' on the high-tech radar screen; others see it as a more serious shaking out period -- with only the strong surviving. Southeast Real Estate Business decided to investigate further by speaking with developers involved in high-tech office development in some of the Southeast's hottest high-tech markets to talk about their new developments as well as their views on the future.

Current Market Trends

South Florida, also dubbed the 'Internet Coast' by the area's business leaders, has been experiencing explosive growth in recent years, becoming a center for wireless computing, software development and internet traffic. The area's vast network of phone, voice and data traffic and fiber-optic infrastructure has made it all possible.

South Florida will also soon become one of the world's largest Internet hubs, connecting four continents with massive fiber optic installations. To do this, a Tier-1 Network Access Point (NAP) is being developed privately by a group of major carriers who formed a consortium called the NAP of the Americas, LLC. This will be only the fifth NAP in North America and will be built in downtown Miami where the supply of telecommunications carrier facilities, international cable landings and multiple power grids is plentiful. It is slated to be completed in the second quarter of this year.

"Miami is a point of convergence between North and South America," says Jorge San Miguel, managing director of Beacon CyberPort, Codina Group's new high-tech business park in West Miami-Dade. "Most of the communications traffic that is switched between North and South America switches here in Miami."

"The Southeast is an incredible alternative to the Northwest," says Stephen Smith, president and CEO of Florida-based The ComReal Companies. "A lot of people have flocked to the Silicon Valley area, seeking its lifestyle. But as those communities have filled, a next very viable lifestyle has become South Florida."

Smith also says that South Florida is recognized as an upcoming hub of international business in the eastern part of the United States. "Considering the area's proximity to South America, and the fact that the population base directly south of Miami exceeds the population base of everything north of it, no one can deny the importance of the South Florida marketplace as a distribution hub," says Smith.

Atlanta is a city that has become well known for its technology companies. When asked how Atlanta has emerged as a center for high-tech development, Casey Neel, associate director at Insignia/ESG's Atlanta office, says, "We have a great labor force, a lower cost of living as opposed to New York or San Francisco and a lower cost of doing business in general. We also have Georgia Tech, which is on the leading edge of technological development."

Despite all of these factors, the recent economic slump and failure of many of the area's dot com start-ups is being felt in Atlanta, according to Bob Chapman, executive vice president of Duke-Weeks' southern region. "Things have definitely slowed down. There is a cleansing going on in the economy and it's going to stay slow," he says. Chapman also points out that his company's strategy in Atlanta is to build out and lease up projects that are already in the works. "Two years ago we would have started a spec building on the Georgia 400 corridor. This year we won't," says Chapman.

In the past, in markets like the Georgia 400 corridor, technology companies were leasing half of the available space. "This year, there is none of that happening," says Chapman. "In fact, it's the complete reverse of that." In the historically popular submarkets for high tech companies -- the central perimeter, the 400 corridor and Midtown - Chapman says that the first quarter numbers are staggering in regard to the amount of sublease space that's now available. "It's not as bad as San Francisco or northern Virginia, but it's enough to take the vacancy rate, counting sublease space, from 2.5 to 5 percent in the 400 corridor. Without sublease space, it goes to well over 10 percent," he says. The upside is that a smaller company willing to sign a 3- to 5-year lease and take space as it exists without any improvements can cut a good deal, he adds.

Recognized by Business Week as one of the fastest growing high-tech centers in the country, Orlando is no longer simply the home of citrus fruit and Walt Disney World. According to the Economic Development Commission of Mid-Florida, Metro Orlando has 3,800 high-tech companies that employ 80,000 people and produce $8.8 billion in sales.

Ken Simback, senior vice president of The Pizzuti Companies, says one of the driving forces behind Orlando's technology market is the telecommunications industry. Orlando is one of the largest producers of computer chips that are used in the cellular telephone industry, he says. And that because of the long-standing military presence in Orlando and its proximity to the Space Coast, the area has also been an incubator for optical research and simulation -- initially for military simulation and eventually, for the gaming industry and computer applications.

The Lake Mary/Heathrow submarket is experiencing the majority of high-tech growth in the Orlando area, according to Simback. "Six years ago that submarket didn't exist," he says. "Now it's the third largest submarket in all of Central Florida and has increased almost a thousand fold in the last five years - from about 385,000 to 3.5 million square feet."

Another area in Orlando that is experiencing growth is the southwest market around Universal Studios, which has begun to see some development along the John Young Parkway. This is due, in part, to the fact that Lockheed Martin was located there and some spin off technologies have stayed in that area, according to Simback. He also notes that there is some development on the east side of town around the University of Central Florida. "A lot of the military-inspired technology has also come from this area and the university has its own research park there as well," he says.

On the flip side, the high-tech market in northern Virginia is feeling the economy's effects much more strongly. "It's the biggest shake down we have had since 1990. And it's sending some huge tremors through the Dulles corridor," says Catherine C. Jones, senior managing director at Insignia/ESG. She says that a major concern is that 60 percent of all office buildings constructed in northern Virginia since 1998 house high-tech companies.

The result of this, she says, is the large amount of sublease space on the market. In the Tyson's/Dulles Corridor, according to Jones, it's approaching 11million square feet, which works out to a vacancy rate of approximately 13 percent.

"The dot coms over extended themselves, and when the stock market started its plunge down, they started laying off workers," says Jones. "And once the venture capital sources dried up, they had no way to sustain themselves."

"It does afford a wonderful opportunity for some, though," she says. "For example, last September I had three or four tenants, and the vacancy rate was so tight that I couldn't find any place for them to move into in northern Virginia. That's how quickly it happened. The speed at which the market dropped is startling."

New Developments

In South Florida, there are several high-tech developments underway. Beacon CyberPort, a high-tech business park in West Miami-Dade County, was acquired by Miami-based Codina Group as a 47-acre parcel in the Miami Free Zone, an exclusive foreign trade zone in Miami-Dade county. "We are unique in Dade County in that we are the only operating foreign trade zone," says San Miguel, the park's managing director. The company is currently working on a multi-million dollar refurbishment of the property's 750,000 existing square feet and also has plans to build two new buildings, one of which is already fully designed. Beacon CyberPort is a partnership between Codina Group and Prudential Real Estate Investors, and the companies purchased the property jointly.

According to San Miguel, Beacon CyberPort has numerous fiber optic providers on its periphery, and a brand new Florida Power and Light substation is across the street. He also notes that the physical layout of the facility makes it very convenient for companies to operate their businesses. "We have space on the periphery as well adjacent to their space in order to locate all of the extra gear and hardware that they require to operate their businesses," says San Miguel.

The ComReal Companies, a player in the South Florida market for over a 25 years, is developing SunWest Business Center in the City of Sunrise. "We chose this area because it is the next stop up the road from Miami. It's close enough to downtown Miami, yet the lifestyle is much more relaxed," Smith says.

SunWest Business Center is a two-phase project that will total 147,000 square feet, the first of which will include 84,369 square feet and be under construction in about 30 days. Phase II will be underway this summer and consists of 62,646 square feet. "The thing that differentiates this property from others is a serious dedication to parking," says Smith. The company has planned for about 6 spaces per 1,000. Smith also says that the development will have a people-friendly atmosphere. "We're coming back to our roots, which is to build a building that will house people first and technology as an ancillary benefit."

Douglas Development Group has two developments under way. Doral eCommerce Park in Miami is an entire telecommunications campus, according to Paul Douglas, president of Douglas Development Group. The project is situated on 36 acres and will consist of 620,000 square feet, 400,000 of which are already finished. "The first building has been completed, and the second will be finished in a few months," says Douglas. He notes that the development includes tenants from around the world, including Europe and Latin America.

"Many people are getting away from the downtown areas, the congestion and the pricing, and they are seeing us as a viable alternative in the West Miami-Dade market," says Douglas. One of the advantages, he says, is that the development is not in an evacuation zone for hurricanes, whereas anything east of I-95, which is all of downtown Miami, is.

The company's second development, the 135,000-square-foot Interstate Telecom Center (ITC) at Center Port in Pompano Beach, Florida, will be available in the second quarter of this year. ITC at Center Port will have the added dimension of telecom suites, says Douglas, which will address mid-size users from 1,000 to 10,000 square feet. "We're trying to hit all segments of the markets," says Douglas. "At the Doral facility, we've primarily been looking at larger tenants. Our smallest tenant there is 31,000 square feet. At ITC, tenants will be from less than 1,000 square feet to 130,000 square feet."

Harbour Centre Associates is underway with Harbour Centre in Aventura, a 230,000-square-foot, 11-story Class A office building with direct ocean and bay views. The development is scheduled for occupancy in Spring 2002. It will offer cutting edge technology, a high parking ratio and on-site amenities, which include a restaurant on the water. Designed by Arquitectonica, it also features 17,500 square feet of ground-floor retail space.

A recent development in Atlanta is the AtlantaXchange (formerly the Macy's building) located in the heart of downtown at 180 Peachtree Street. The upper floors of this historic building, originally built in 1927, have been repositioned as a telecom hotel, according to Casey Neel, associate director at Insignia/ESG's Atlanta office. Although the upper floors house high-tech tenants, the lower floors continue to house Macy's. "The retail is still active, which attracts people to the building and to the area," says Neel.

The building's success has been phenomenal, according to Neel "We closed on it in August 2000 and are now 80 percent leased," he says. He also notes that one floor of the building has recently come online and is ready to lease.

Part of AtlantaXchange's success is due to the fiber optic infrastructure in close proximity to the building. "When the Olympics came through in 1996, a lot of providers came in and built an extensive infrastructure, and we've benefited from that. It's one of the main reasons why Atlanta is a hot market for high tech tenants."

Features of the building include 15-foot-high ceilings, 60,000- and 90,000-square-foot floor plates, heavy duty upgraded power, and its proximity to amenities such as restaurants, hotels and the MARTA system. Insignia/ESG represented Taconic Investment Partners and Benenson Capital Company in the purchase of the building.

The Pizzuti Companies is underway with Heathrow International Business Center (HIBC), a 370-acre Class A, master-planned office park, in Orlando. "As far as greater Orlando is concerned, HIBC is ground zero for the high-tech, white collar office employment market," says Simback. "Five years ago, when high-tech employers in as well as outside of this area, began to look for expansion space, we were the only developer who was building buildings and had a site under development at that time."

Pizzuti originally purchased HIBC in 1995 when it had only two buildings up and a third under construction. It is now on its 12th building, which is under construction right now. When it's finished, the company will have completed 1.6 million square feet of new office and data center space, according to Simback. A 300-room Marriott hotel and 90,000 square feet of retail and entertainment space is also under construction. "We have just under 1 million square feet left to go, so we are about two thirds of the way through," he adds.

Today, some of HIBC's tenants include Convergys; London Bridge, a software development company out of England; InterVoice Brite, which initially developed voice recognition systems for cell phones and cars; Veritas; First USA; Fiserv, a software development company; and HTE, Inc.

Looking Toward the Future

When gauging the future of high-tech office development, San Miguel says, "We're not oblivious to the shakeout that some of the players in the industry have gone through in the past few weeks. But in the long run, we believe that communications is something that will continue to grow, and that Broward county and especially the southern part of Palm Beach County, will continue to see significant growth." Smith agrees: "Technology is here to stay. Anyone who didn't think that would be crazy." He predicts its growth to be at about 10 to 12 percent per year for the next 4 to 5 years.

In Atlanta, Neel is hopeful that things will start coming back by the third or fourth quarter of this year. "I think there is unlimited growth and potential here. Right now people are taking a step back, but there is no question that Atlanta is going to continue to be a focus for high-tech development," he says.

Jones feels it might take a little longer for northern Virginia to rebound. "I think it's going to take us 24 to 36 months to climb out of this," she says. "I certainly see this as nothing as deep as it was in 1990, but I also see it as something that is going to be around for a while, just because of the sheer size of it." The upside, she notes, is that a strong tenant can capture some great space at a fabulous price.

"The challenge for Central Florida and The Pizzuti Companies," acccording to Simback, "is to stay abreast of all the technology and be out there fighting to get a fair share of the market."

Several companies also believe that the key to staying afloat for most high-tech companies is a viable business plan. "We've suffered as a community to some extent, but what we've not seen is the disappearance of companies that have viable business plans," says San Miguel. He cites AOL Latin America, which is rolling out the AOL model that has been so successful in the United States into Latin America.

"I think the companies that are better capitalized and have solid business plans will be able to take advantage of this situation and continue to expand their operations," says Douglas. "In the next 6 to 12 months, business will be slow and people will be cautious. But I think some companies will still roll out their programs and thereafter, things will regain their former glory and continue to expand."


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