AI Startup Demand for Large San Francisco Offices Surges
They want 50K SF or more, with 10 firms seeking nearly 1M SF in the city.
The monthly real estate statistics for San Francisco, most of which are lagging indicators, still paint a grim picture of a deserted downtown, with overall office vacancy rates in the city approaching 32%.
The monthly tally of VC billions flowing into generative AI startups in San Francisco and the non-stop flurry of startup launches are leading indicators of an economic tide that points to San Francisco regaining its footing as the global leader of tech innovation.
The generative AI gold rush in San Francisco was the primary driver behind a 10% surge in office demand in the second quarter, according to new data from VTS.
VTS tracks demand by measuring tenants touring office properties and looking for space in key US markets. Its report says that prospective tenants—generative AI companies—have been hunting for large spaces of more than 50K SF, VTS CEO Nick Romito told Bloomberg.
“We feel like it’s the bottom,” Romito said. “They still have a long way to go because they’ve started at the bottom. While it’s a glimmer of hope, they have to be consistent quarter-over-quarter for a while to get back to where they were.”
Most of the other major urban markets tracked by VTS, including NYC, Los Angeles, Chicago and Boston, showed a quarterly decline in new office demand in Q2 2023.
The bottom line: the moribund office market in San Francisco has bottomed out and is about to take flight, led by the birth of what is now the world’s leading global generative AI hub.
Mayor London Breed gave a series of interviews to national news outlets on Wednesday to broadcast the news that San Francisco, the global tech leader, is on its way back.
“There are at least 10 companies now in search of almost a million square feet of office space as we speak,” Breed told Bloomberg. “We’re seeing a huge increase in the need for more office space for certain companies. And so that’s going to start taking flight.”
In an interview that was broadcast on NBC Nightly News, Breed declared that San Francisco was the generative AI “capital of the world.”
“They’re coming to San Francisco because this is where the talent is,” the mayor declared.
Regarding a revival of downtown, Breed doubled down on her proposals to reimagine downtown with a range of new projects including a university campus and a soccer stadium.
“Anything is possible,” Breed said. “It’s not to say problems aren’t happening, [but] there’s a reason why people keep betting on San Francisco.”
While tech companies in general have been reducing office footprints in San Francisco as they’ve embraced remote work, generative AI startups are highly collaborative enterprises expected to draw workers to large offices.
This is literally a new tech sector materializing before our eyes over the framework of the existing tech infrastructure, in a place that’s done that before. Hint: Tony Bennett left his heart there.