Tech Office Leasing Jumps 17% in SF, Half Driven by AI Firms

Tech leasing us up in San Francisco, half driven by artificial intelligence firms, but a far cry from the boom years before the pandemic.

Tech office leasing in the city reached 3.6 million square feet, 47 percent of the 7.6 million square feet of offices leased this year, the San Francisco Business Times reported, citing preliminary figures from CBRE.

AI tenants represented close to half of all tech leasing for the year, or 21 percent of the office total — marking the only sector growing its footprint in the city. Other tech leasing, and leasing generally, has depended on expiring leases.

The report follows a CBRE tally last month of 3 million square feet of tech absorption through November, compared with 3.08 million square feet for all of last year. The latest results show a year-over-year rise of 16.8 percent.

At the dawn of the pandemic in 2020, tech tenants accounted for 22 percent of all leasing activity, below the past decade’s average between 50 percent and 60 percent, Colin Yasukochi, executive director of CBRE’s tech insights center, told the newspaper.

In 2019, tech companies leased 7.27 million square feet of offices across the city, out of 12.7 million square feet of offices leased. A year earlier, tech firms snapped up 9.27 million square feet, when office leasing activity totaled 15.7 million square feet.

After taking up 41.4 percent and 34.3 percent of all leasing in 2021 and 2022, respectively, tech fell but began to recover its share last year, when the sector represented 49.3 percent of all leasing activity.

That the figure has persisted into this year follows the cyclical nature of tech sector leasing, according to Yasukochi.

“Once the tech industry starts to grow and ramp up, you’ll see the leasing activity rise. That has been typical of the last three tech booms, each one defined by a new emerging technology driving growth,” Yasukochi told the Business Times, alluding to the dot-com boom in the early 2000s, the mobile internet and app economy in the 2010s and the current rise of the AI sector.

During the past two technology booms, smaller tenants grew their footprints first, Yasukochi said, followed by large leases that came to define the later part of the 2010s for blocks of offices from 300,000 square feet to 500,000 square feet.

That era included mammoth deals such as Facebook’s 755,100-square-foot lease at Park Tower, the largest office lease in San Francisco’s history.

The majority of AI companies in San Francisco are startups, with the average lease by an AI firm this year at 15,000 square feet, according to JLL.

That average is skewed by OpenAI and ScaleAI, which signed 315,000-square-foot and 180,000-square-foot leases this year, respectively. The vast majority of AI companies are taking space under 10,000 square feet.

AI leasing helped make the end of this year the first positive quarter for San Francisco’s office market in five years.

Office vacancy fell to 36.7 percent in the fourth quarter, from 36.9 percent in the third, according to CBRE. Office availability, a measure of all available workplaces, vacant or not, declined 0.2 percent to 38.9 percent.

Yasukochi said a market recovery appears to be underway, but that it is likely to be “uneven and segmented,” with the highest quality buildings performing best, and vacancy expected to remain stable through summer.

— Dana Bartholomew