High-tech/flex market will remain strong.

With speculative office development at a virtual standstill, new construction in the high-tech/flex segment of the commercial real estate marketplace appears to be dominating the industry. The activity in flex 'spec' building is a direct response to steady leasing, the pace of which appears to be accelerating as we enter 1994.

We believe this is the result of increased versatility and diversified uses of flex space. Tenants are finding suitable facilities for sales and service operations, home health care offices, and distribution centers for high-tech products such as electronics and computer items.

Prices in this market niche have remained fairly stable, and we've noticed a trend for longer-term leases as tenants seek to lock-in at today's competitive prices. In some areas, we believe the lack of new construction is actually starting to stimulate price increases.

In particular, during the past two years we've noticed stepped-up inquiries from brokers and principals for units in the 2,000- to 3,000-square-foot range. These companies include many smaller, service-oriented organizations that need high-end space but cannot be in pure office buildings because they require loading facilities. At the same time, industrial buildings lack the image that these tenants want to project. The average blend of use if 40 percent office and 60 percent industrial, a ratio that is also very difficult to achieve in small industrial blocks of space.

We've also noticed a better caliber tenant in the marketplace. For example, at our 47-acre Commercenter/-Totowa flex park, two major corporations recently leased space. The transactions demonstrate the versatility of flex environments such as ours.

Ericsson/G.E., an international leader in the telecommunications industry, with 66,000 employees worldwide, moved its main northern United States regional office into 26,900 square feet at 45 Commerce Way. The company manufactures advanced systems and products for wire and mobile telecommunications and is a leading supplier of electronic defense systems. The Commercenter/Totowa space combines executive and sales offices, warehouse space, and an electronics service laboratory previously located in three facilities.

The move involved four divisions, and Ericsson/G.E. evaluated 40 hightech/flex and office properties in northern New Jersey before choosing Commercenter/Totowa. The company considered breaking-up the office and warehouse/laboratory space into separate locations, but cited the park's central location and the convenience of combining executive and sales offices with warehouse space as the key attractions.

In addition, Fujitec America Inc., a leader in the manufacturing and service of elevators and escalators, leased 10,900 square feet at 29 Commerce Way for its regional operations. The move to Commercenter/Totowa combined warehouse and administrative/sales offices which were previously housed separately in Manhattan and New Jersey.

The steady activity has prompted us to continue to move forward with new construction at Commercenter/Totowa. We are currently developing two new speculative structures that will be divisible from 2,700 square feet. While similar in design to the existing flex structures, the new buildings will offer reduced sizes in order to respond to the immediate needs of those businesses looking for smaller, high-quality space.

To date, six flex buildings have been completed at the park, totalling more than 350,000 square feet. Units feature their own loading docks and large bay areas, separate entrance ways, individually controlled HVAC systems, 20-foot ceiling heights, heavy power and abundant on-site parking. The park also contains a three-story office building which is 100 percent leased.

As new markets open up for small users, we expect demand for flex/industrial space to continue into 1994. We are confident in the New Jersey business environment and feel that this segment of the market will remain a steady and growing area of the commercial real estate industry.