Silicon Valley vies with SF as “AI capital of the world”

South Bay leases by artificial intelligence firms tend to cover more square feet than in city

Silicon Valley Vies With SF as “AI Capital of the World”

(Photo Illustration by The Real Deal with Getty)

Last summer, Mayor London Breed declared San Francisco “the AI capital of the world” — a moniker it will have to share with Silicon Valley.

The nation’s tech hub accounted for more than half of artificial intelligence tenant demand last year across the Bay Area, the Silicon Valley Business Journal reported, citing figures from Cushman & Wakefield.

The Bay Area was by far the national hot spot for AI companies on the hunt for offices, holding the highest concentration of AI firms.

But while San Francisco had AI firms snagged major leases last year such as OpenAI’s 486,000-square-foot deal in Mission Bay, there were more active tenants in Silicon Valley as of October, according to a Cushman & Wakefield report.

The demand in both regions was the same for much of last year, rising and falling as large tenants like OpenAI entered the market, John McWilliams, senior research analyst at Cushman & Wakefield, told the Business Journal.  

Before OpenAI signed its lease in October, San Francisco had about 150,000 square feet more in tenant demand than Silicon Valley, according to the Cushman & Wakefield report.

But then the larger leases within a wider area allowed Silicon Valley to catch up, and barely surpass San Francisco.

Typical San Francisco AI tenants take up 64,000 square feet of offices, while Silicon Valley companies occupy more than 131,000 square feet.

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Median occupancy for San Francisco was 15,000 square feet and Silicon Valley’s was 53,000 square feet. The total volume of AI leases in San Francisco and Silicon Valley last year were not disclosed.

“There’s a higher concentration of large tenants in Silicon Valley that bring that number up,” McWilliams said. Omniva signed a 56,000-square-foot lease in San Jose last year, and Eightfold AI inked a deal for 32,000 square feet in Santa Clara.

The market in Silicon Valley is geographically much larger than San Francisco, stretching from Menlo Park to Newark, whereas San Francisco’s market is more concentrated. There’s also more research and development space, which some AI firms want.

The spurt in leases by AI firms was a boon for San Francisco, where offices are 35.9 percent vacant, according to CBRE. The volume of offices leased by AI firms rose 46 percent last year to 3.6 million square feet, according to Quartz.

Alexander Quinn, the San Francisco-based senior director of research at JLL, predicted that number will reach 12.5 million square feet by 2030.

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Austin, New York City and Seattle are also well-established markets for AI tenants because of their talent pools, according to the Business Journal. Demand for AI-related workers is high, with an average 5,500 open job postings across the nation.

“You see companies that didn’t exist two, three years ago that are all of a sudden getting some major, meaningful scale,” Kevin Waldman, executive director at Cushman & Wakefield, told the newspaper. “It’ll be interesting (to see) what’s happening a year from now as there’s additional funding and additional scale.”

— Dana Bartholomew