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When software executive Duane Bell drives across the Bay Bridge toward San Francisco, he is delighted to see the sun gleaming off the South of Market high-rise office building where his company has leased its new home. It reminds him of how fortunate he was to be shopping for commercial space this year in San Francisco. We can afford to be in the city now, said Bell, chief financial officer of Golden Gate Software, which moved from cozy digs in Sausalito to an office tower near the Transbay Terminal earlier this fall. Companies that never could afford to be here or stay here are now moving in. After an unparalleled three-year period of soaring vacancy rates and falling rents, the San Francisco commercial real estate market is heading into 2004 on a brighter note. Firms are leasing more space, buildings are being bought and sold, and retail outlets are once again opening in Union Square, the citys bellwether shopping district. We are seeing very attractive rental rates in San Francisco allowing tenants who were waiting to make deals to make them, said Ken Rosen, chairman of UC Berkeleys Fisher Center for Real Estate and Urban Economics and the owner of a consulting firm. Retail sales have started to come back because tourism has come back.
Prime office space that leased in excess of $60 and $70 per square foot during the tech bubble now can be had for less than $30 per square foot. The downtown office vacancy rate is 22 percent, while some of the most coveted retail space in the city - such as the former Rizzoli bookstore at Post and Kearny streets - remains empty. But Golden Gate Softwares lease on the 20th and 21st floors of a Howard Street high-rise shows that nimble companies can take advantage of the conditions. Golden Gate signed its seven-year deal at around $25 per square foot, real estate sources said. We have great views, our cubes are bigger, theres lots of natural light, and theres mass transit right outside the door, said Bell, whose company has 65 employees. And we are a tech company, and South of Market is still the place our clients associate with tech. According to real estate services firm Grubb & Ellis, the San Francisco commercial market will have leased an additional 625 million square feet of space by the end of the year, a 15 percent increase over 2002 and 30 percent more than in 2001. There is a heavy amount of transactions going on, said Dan Cressman, a senior broker at Grubb & Ellis. Now the talk is about how many people to hire and whether to look for new space. In addition to office leasing, the market for buying and selling buildings has heated up after a period of sparse activity. Divco West Properties, a Palo Alto management and investment firm, recently agreed to buy the 555-575 Market St.
Mont Blanc, Anne Fontaine, Longchamp and Tumi all opened boutiques this month on the ground floor of the development. Only one retail space in the project is still available for lease. I think the economy is going to continue to improve and well see more retailers coming into San Francisco, said Mark Stefan, a principal with the City Center developer. Elsewhere in the district, Williams Sonoma has already moved into its new home on Post Street, directly on the square, vacating its smaller location down the street on Post, which remains empty. And a new 17,000-square-foot Apple store is under construction on Stockton Street. The huge Bloomingdales project, stalled for years, finally broke ground earlier this month on the site of the old Emporium store. Retail broker Seth Nodelman of Cushman & Wakefield said his outlook is cautiously optimistic for the first time in recent memory. These are very positive developments, and things are looking up, Nodelman said. If there is a strong holiday season, youre going to see a lot of new retailers next year in Union Square. Signs of improvement Here are some recent indicators of a recovery in San Franciscos battered commercial real estate market: Office leasing: Fifteen percent more activity this year than in 2002 Retail activity: Mont Blanc, Tumi, Anne Fontaine and Longchamp stores open on Grant Avenue;
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