Google to expand San Francisco office space

Google, owner of the world's biggest search engine, bought a San Francisco office building and agreed to lease space at a nearby tower as it expands its real estate presence in the city.

Google purchased 188 The Embarcadero from Ares Management and USAA Investment Management for US$65 million in a transaction completed last week, said two people with knowledge of the deal, who asked not to be identified. The company also will lease 250,000 square feet at the 42-storey Spear Tower in the One Market Plaza complex.

"We are excited to expand in San Francisco, and we will continue to work hard to be a good neighbour in the communities where we work and live," said Caitlin Adair, a Google spokeswoman, who confirmed the purchase and lease but declined to give details.

The deals give the company a cluster of offices within blocks of each other near San Francisco's waterfront. The eight-storey Embarcadero property sits at the corner of the bayside boulevard and Howard Street, within view of the landmark Ferry Building. It's about two blocks from Hills Plaza, Google's main offices in the city.

Margot Olcay, a spokeswoman for Texas-based USAA, confirmed the Embarcadero building was sold and declined to comment further. Bill Mendel, spokesman for Los Angeles-based Ares, declined to comment, as did Ted Koltis, senior vice-president for Paramount Group, Spear Tower's majority owner.

San Francisco office properties are in demand from investors as leasing climbs among technology-industry tenants. Prime rents in the second quarter rose 9.6 per cent from a year earlier to an average US$60.07 per square foot in a "rapidly rebounding, tech-centric marketplace", according to brokerage Cushman & Wakefield.

JP Morgan Chase's asset-management unit paid US$415 million last month for 22 Fourth St, which includes offices, a hotel, retail space and a development site. In May, Shenzhen-based Genzon Property Group acquired a 95 per cent stake in 225 Bush St office building in a deal that valued the property at US$350 million.

It is not clear what Google's plans are for the new space. The Embarcadero property has about 88,000 sq ft and is two-thirds empty, said a source.

At the Spear Tower building, Google will occupy floors two to 16, according to a person with knowledge of the lease. The tower is the biggest component of the One Market Plaza office complex. Blackstone Group bought a 49 per cent stake in the property earlier this year.