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Jul. 3, 2013

San Francisco’s Appeal Slightly Wanes as Market Seeks Stability Over Continued Growth

By Alex Girda, Associate Editor

As the massive appeal of San Francisco’s office market seems to dwindle, there still are some noteworthy deals that keep the city’s spirits raised, such as the recent move completed by Terracotta. The company, owned by software developer Software AG, has completed a lease for 25,000 square feet of office space with Stockbridge Capital Group and Wilson Meany, the San Francisco Business Times reports. The company will be taking up the space at the former Pacific Telephone & Telegraph Co. building, when it reopens this fall.

Software AG will join a tenant roster already boasting well-known names such as Knoll and Lumosity at the 26-story tower. The company will move a workforce of around 100 to the 14th and 15th floors of the buildings once the facility officially opens.The 140 New Montgomery office tower has now hit an occupancy rate of around 85 percent, which considering the city’s current market, puts it just above the area’s recorded vacancy rates.

After months and months of positive activity in San Francisco’s office market, leasing has now slowed down with only 131,000 square feet of space being absorbed during 2013’s Q2. SFBT also pointed out that with half of 2013 already gone, no 100,000+ square-foot lease has been completed in the city. It seems that the growth spurt that the office market saw due to the rise of the tech sector is now stabilizing as companies take their time easing into their new office space and headquarter locations.

Data provided by Marcus & Millichap Real Estate Investment Services indicates that while rent and sales trends are definitely up, vacancy rates are now finding a safe spot around the 10-11 percent mark. With no major leases completed and no major office projects set for immediate completion, 2013 looks to become a year of calm in what has been a very dramatic decade for real estate in the area.

Chart courtesy of Marcus & Millichap Real Estate Investment Services at marcusmillichap.com