San Francisco’s long-depressed office market is approaching a level of leasing activity not seen in three decades, due in large part to an influx of artificial intelligence firms.
Tenants leased about 6.4 million square feet across the city in the first half this year, including 2.1 million square feet in April and May alone, the San Francisco Business Times reported, citing data from Newmark. At that pace, leasing volume could hit 15.3 million square feet by year’s end — a high that compares to a 1996 peak.
The surge is being driven largely by AI startups flush with venture capital and eager to expand. Venture funding in San Francisco reached $252 billion in the first five months, more than double the $117 billion raised during all of last year, according to Newmark. That capital is translating directly into office demand as companies rapidly outgrow their spaces. It also aligns with past trends.
“Historically, when you look at San Francisco, especially from a tech standpoint, venture capital funding has been one of the strongest drivers of tenant demand,” Newmark’s Mo Spikes told the publication.
Tenant requirements have climbed to roughly 9.7 million square feet, up 50 percent from last June. Tech firms account for about half of that demand, while AI companies alone make up roughly a quarter.
The scramble for space is reshaping tenant preferences. Rather than chasing discounts, many venture-backed firms are prioritizing fully built-out offices that can be occupied immediately. That shift has helped absorb a large share of San Francisco’s sublease inventory. Available sublease space has fallen from nearly 10 million square feet in mid-2023 to about 3.4 million square feet today.
OpenAI and Anthropic, two of the biggest players in the booming sector, both crossed the 1-million-square-foot threshold this spring. OpenAI has consistently been leasing property in Mission Bay over the past three years, while Anthropic has been growing near its South of Market headquarters.
The AI boom is exerting pressure on the local housing market as more tech workers move into town, especially those looking for residences at the higher end of the market. Rents and home prices are on the rise and supply is tight, while the ongoing mansion shortage has trophy homes trading at a rapid clip, often for well above asking prices.
— Chris Malone Méndez
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