San Francisco Industrial Landlords Make Play for Gen AI
AI startups are moving into warehouses in Mission, Potrero Hills.
During the last tech boom in San Francisco, more than a decade ago, the city protected light industrial spaces in its eastern part by generally prohibiting office uses.
Today, as the generative AI boom accelerates in San Francisco—now the leading global hub for Gen AI—industrial landlords are hoping an expansive definition of where generative artificial intelligence falls as a CRE use will give them a significant piece of the action in the red-hot sector.
If Gen AI can be considered an industrial use—think film production studios, auto repair shops and production, distribution and repair (PDR) facilities—landlords south of downtown believe they can draw droves of Gen AI startups to the Mission District, Potrero Hill and adjacent neighborhoods, according to a report in the San Francisco Business Times.
City officials told the Times they are taking a “case-by-case” approach when it comes to defining Gen AI startups and matching them to zoning uses. This probably means they’re defining it broadly to let the tsunami of AI startups flow into San Francisco at a rapid clip.
Landlords are reporting an influx of tenant interest in industrial spaces in Mission and Potrero Hills. Gen AI startups are zeroing in on warehouse properties on Utah Street, which traditionally has been a magnet for startups of all types, the report said.
Landlords in SoMa are trying to lure generative AI startups to Howard Street in a zoning district that allows low-scale PDR uses mixed with housing and small-scale retail—which offers a live-where-you-work option to the Gen AI teams.
JLL has mapped more than 80 AI companies that currently are operating in San Francisco. While most are located downtown, about two dozen companies have located near the intersection of the Mission, Potrero Hill, Showplace Square and West SoMa, which is becoming known as “Area AI,” according to the Business Times.
There’s also a large Gen AI magnet in their midst: ChatGPT pioneer OpenAI is headquartered at 3180 18th Street in the heart of the Mission District.
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 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.
“There are at least 10 companies now in search of almost a million square feet of office space as we speak,” Mayor London Breed told Bloomberg. “We’re seeing a huge increase in the need or more office space for certain companies. And so that’s going to start taking flight.”