One of the largest local flex sales currently taking place is the Archon Group’s disposition of four research-and-development properties in Marlborough and Hopkinton, including this building at 259 Cedar St. in Marlborough.

It proved a resilient product type initially, but Greater Boston’s research-and-development sector has seemingly hit a wall in recent months, with so-called flex buildings experiencing a sharp increase in vacancies and the need for such product uncertain over the near term.

“It’s a tough market right now,” Richards Barry Joyce & Partners Research Director Katie Kelly acknowledged last week. “There just hasn’t been a lot of activity out there, and it doesn’t look like it’s going to get better anytime soon.”

RBJ&P currently lists 25.3 million square feet of the 183 million-square-foot suburban real estate market as flex product, compared to 91.4 million square feet of office space and 58.1 million square feet of industrial supply. While it may contain the least amount of space of the top three suburban product types, flex buildings sport the highest vacancy at present, with RBJ&P estimating the first quarter 2003 vacancy for that market at 19.3 percent, and an availability rate of 30.4 percent. That compares to vacancy/availability rates of 17.8 percent and 26.8 percent for office space and 12.9 percent and 16.4 percent for industrial buildings.

‘A Gray Area’

Kelly said the biggest obstacle facing flex buildings has been a lack of demand among users, rather than an oversupply of inventory. Dependent upon the high-technology industry for most of their business in the late 1990s, flex buildings had begun to attract attention among life sciences companies until that market also began to experience a slowdown late last year. Properties that are especially vulnerable to the downturn are second-generation buildings in off locations, said Kelly, who is nonetheless bullish that the flex market will recover quickly once the economy rebounds.

One issue that has always made it difficult to track flex space is the vague concept of what an R&D building entails. Broker Mark Stevens explained that such buildings straddle the office and industrial markets, often depending on such physical characteristics as ceiling height, the number of floors and the amount of office space built out. Unlike a warehouse/distribution building, which today are being constructed with ceilings as high as 30 feet, Stevens said the typical R&D property is usually one or two stories tall, with ceilings 16 feet or less. A warehouse building usually has an office component of no more than 10 percent or 20 percent, compared to 30 percent or 40 percent office build-out for an R&D structure.

“It can be kind of a gray area,” said Stevens. “But flexibility is important.” In some instances, he said, there might be tailboard loading docks, as well as an area for light manufacturing or assembly. Windows are an element that also can separate an R&D building from an industrial property. In any event, Stevens agreed that flex space has entered a difficult stretch, especially in technology-heavy areas such as Route 3 and Route 495 North and West. “It’s been hit really hard,” he said.

According to RBJ&P, the hardest-hit market for flex space has been Route 128 West, which currently has an availability rate of 45.8 percent. Route 495 North is at 35.5 percent, while Route 495 West has an availability level of 38.3 percent.

Spaulding & Slye Colliers is reporting similar trends, estimating that the availability rate for flex space in suburban Boston is now at 30.9 percent overall, up from 22.8 percent after the first quarter of 2002. The flex market had negative absorption of 4.9 million square feet last year, and has started off in the red in 2003 as well, with a first-quarter negative absorption of 199,000 square feet. Average per-square-foot rental rates have receded by nearly a dollar, from $14.35 last year to $13.39 at the end of the first quarter of 2003, according to Spaulding & Slye.

As a result, few owners are testing the investment waters for flex buildings, said James M. Belli, a principal with The Codman Co. “It’s very difficult to get financing right now, and that is making owners sensitive about putting anything on the market,” he said. Codman is helping some flex building owners evaluate what they might garner in a sale, Belli said, but thus far, it appears many are willing to sit on the sidelines.

“There is product out there for sale, but I don’t think there are a lot of buyers focused on that market,” Stevens added. “It’s kind of tough to price it right now.”

Codman Co. principal Thomas Powers is presently helping the owner of an industrial building in Canton determine whether the 80,000-square-foot structure can be repositioned as an R&D use. “We’ll take any and all comers,” Powers said last week, explaining the current owner only has a need for a portion of the two-story facility. One issue is whether to add windows to the building at 780 Dedham St. to attract a higher-end user, Powers said, while the property’s limited parking also has to be addressed.

As for existing product, one of the largest flex sales currently taking place is the Archon Group’s disposition of four R&D properties in Marlborough and Hopkinton. Gary J. Lemire of CB Richard Ellis/Whittier Partners is brokering the 350,000-square-foot portfolio, which has already found a buyer in a New York company and is in the final stages of closing. As Belli suggested, Lemire said there are only a few flex buildings on the trading block, helping garner interest in those properties that are being offered for sale. The portfolio includes 257 and 259 Cedar Hill St. in Marlborough and 25 and 45 South St. in Hopkinton. Lemire declined to discuss the buyer or the sales price until the deal is finalized.

Joe Clements may be reached at jclements@thewarrengroup.com.