SF AI Office Boom Meets Immigration Labor Warning

San Francisco is poised to hit yet another post-pandemic record to start 2026, as office tenants are projected to lease roughly 3 million square feet in the first quarter, according to preliminary numbers from global real estate services firm JLL.

Total net absorption is projected to land around 1.6 million square feet. Artificial intelligence companies accounted for nearly 40 percent of that deal volume, and now occupy 7 million square feet in the city — about 7 percent of San Francisco’s office stock. That number is expected to only grow through the end of this decade, analysts say. AI’s footprint inside city offices is projected to double by the end of this decade and reach roughly 14 million square feet according to the JLL report.

The data points to San Francisco’s hosting the densest collection of AI companies in the country, Alexander Quinn, JLL’s head of research for Northern California, told The Real Deal. The closest city is San Jose, with 4 percent. In New York City, AI takes up less than 1 percent of office space.

San Francisco is already near the top in terms of overall presence of AI–the 1 percent rate in New York would also come to around 7 million square feet. SF’s growth prospects, however, look strong enough to get it well ahead of the Big Apple by 2030.

That would continue a trend that has depleted the availability of high-end office space in San Francisco’s most desirable neighborhoods as AI tenants arrived in recent years. Now, with availability shrinking in hot spots like Showplace Square, Mission Bay and Jackson Square, areas such as SoMa and the Financial District are beginning to see renewed interest for office leasing.

Economists warn about immigration crackdown

Depleted labor pools have been one of the downstream impacts of the federal government’s immigration crackdown. The development pipeline in Minnesota has slowed considerably since the high-profile raids carried out by officers from the U.S. Immigration and Customs Enforcement. Mass deportations, and fear of leaving one’s house has meant more and more absent workers on the construction site.

Although similar raids have not been carried out in the Bay Area, a new report from the Bay Area Council Economic Institute warns that a mass deportation effort could cost the region $67 billion in economic impact.

“Unlike downturns caused by interest rate hikes or market uncertainty, the impact would be long-lasting: layoffs, stagnant wages, and reduced opportunities would follow the removal of these workers,” the report said.

The local construction industry stands to endure one of the more significant blows. Undocumented immigrants make up more than 13 percent of the Bay Area’s construction workforce, higher than the state average.

Despite all of the headline momentum San Francisco has enjoyed over the last 18 months, developers seem to unanimously agree that construction costs and timelines make it still next to impossible to break ground on new office or residential projects. A labor shortage could thwart development plans for a long time, one anonymous construction firm owner told the Bay Area Council Economic Institute.

“A mass raid would not only remove workers from job sites immediately, but it would also ripple outward,” the owner said. “Projects would shut down, safety risks would increase, insurance costs would rise, and smaller contractors could go out of business entirely.”