New technology companies down, but not out.

All in all, it's been a tough year for technology and Internet-related companies. Wall Street valuations have fallen dramatically and venture funding has become significantly more difficult to secure. As a result, many of last year's hottest start-ups are struggling to survive, and some have begun to close their doors.

Despite the ongoing shakeout, which will likely produce more casualties before the year is out, the new technology sector remains critically important to New York City's economy and real estate market. This industry has not only attracted new talent and business to our region, it has continued to occupy space at a greater pace than traditional industries throughout 2000.

A comparison of the performance in Manhattan's technology, financial and legal sectors reveals the role technology is likely to play in upcoming years -- the stock market correction of 2000 notwithstanding. In the first half of this year, tech companies leased more than 4 million square feet of space, which is more than double the space leased in the first half of 1999 and more than four times the space leased in 1998. During the same period, the amount of space leased by financial and legal industry companies decreased.

Technology companies taking space include new start-ups and existing companies that are expanding. At the same time, less fortunate members of the technology industry are beginning to give space back to the market. However, far from having a negative impact on the real estate industry, this shakeout is returning much-needed inventory to the market.

Under current market circumstances, customized space is a hot commodity. In fact, dot-com office leases -- which have increased in value during the companies' brief lives -- are often listed among a failed start-up's largest assets. There are many reasons that tenants are lining up for this space.

* There is virtually no space on the market, with vacancy rates in New York City and major cities throughout the U.S. at historic lows.

* In most cases the space is fully wired and built out to meet the infrastructure and atmosphere needs of technology related companies or those that require a high level of communications wiring.

* Built-out space means immediate occupancy without the wait for improvements.

* Tenants may have to pay a higher rent, but they do not have to come up with the hefty up-front cash to pay for the improvements. This is especially attractive for dot-com start-ups, which are being more frugal with cash.

With an overall availability rate of three percent in Manhattan in the Third Quarter, owners find themselves in a very strong position. In many cases, they not only have the former tenants' large security deposits, but they have the luxury to market the space at much higher rates than the original lease.

The strength and size of the technology industry will shift during the next several years, but it has already become an important component of New York City's real estate market, and it will likely increase in stature and stability as it progresses past the early stages of its evolution.