AI companies seeking ready-made SF office space - San Francisco Examiner

For artificial-intelligence companies shopping for San Francisco office space, the most important consideration — according to local real-estate experts — is speed.

As they outgrow their old offices, such companies are looking to move to new ones right away, experts said. That means they’re largely focusing on already furnished spaces that don’t need renovations — even if such officers aren’t in the most desirable buildings or locations, or if they don’t have the best amenities.

It’s not uncommon for an AI company to go from touring a space to occupying it in 60 days, said Charlie Cutler, a partner at local brokerage Calco Commercial who focuses on representing such companies. That’s a fairly short time period, considering that renovations alone can often take months or even up to a year.

“Everything is very sped up,” Cutler said.

“The nature of this market is tenants want things now,” he said. “No one’s really waiting to overdesign or have a huge lead time on the move.”

San Francisco is ground zero for the AI industry. In the first half of this year, nearly 40% of the $560 billion invested by venture capitalists globally went to just two AI businesses based in The City — OpenAI and Anthropic. Startups based in the San Francisco metro area — many of them in the AI sector — accounted for 65% of all venture funding nationwide in the second quarter.

That funding windfall is starting to lead to a jump in hiring by AI companies. Companies that are receiving funding and hiring new people quickly search for new space, Cutler said.

San Francisco’s office-vacancy rate is still sky-high at about 29%, but demand from AI companies has already helped make a significant dent in that rate. Such companies have accounted for 47% of the more than 7 million square feet of office space rented in The City so far this year, said Colin Yasukochi, a research director at commercial real-estate brokerage CBRE.

Thanks to the surge in AI-company leasing, the most in-demand properties have become all but unavailable, market watchers say.

San Francisco has more than 90 million square feet of office space citywide, 27.4 million of which is available to rent, according to numbers from real-estate services firm JLL. But of that available space, only about 52,000 square feet remains of the most in-demand kind — pre--furnished, move-in-ready spaces in top-tier buildings with views and modern amenities, said Chris Pham, a research manager at JLL.

“There’s almost nothing available there,” Pham said.

Demand for office space from the AI companies is centered on the area around the LinkedIn building at Second and Howard streets and the nearby Salesforce Park, the real-estate experts said. But the coveted area stretches from the Financial District through SoMA down to Mission Bay, Yasukochi said.

That area is attractive to companies because it has lots of office space, plenty of transportation options and other amenities, he said.

Across The City, the office-vacancy rate now stands at 29.2%, down from the record high of 36.9% set in the third quarter of 2024, according to CBRE. But the vacancy rate in the South Financial District — which CBRE defines as the area between Market and Folsom Streets stretching from Third Street to the waterfront — is 24.4%.

That area encompasses not just Salesforce Park and the LinkedIn building, but AI giant Anthropic’s burgeoning campus that now spreads from the 300 block of Howard Street to the 500 block.

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When AI security startup C1 went out looking for new space earlier this year, it focused on SoMa and the southern Financial District, CEO Alex Bovee told The Examiner.

Bovee had worked at several startups based in the neighborhood, including Okta. C1’s first headquarters was at Second and Mission streets and its next space — the one it was moving out of — was on Shaw Alley, half a block from the Salesforce Transit Center.

Its new space is on Folsom Street between Second and New Montgomery streets.

“SoMA’s just a great location, because there’s a lot happening and there’s high energy and great people, and you can throw a stone and hit an awesome tech company,” Bovee said.

Other neighborhoods in the area AI companies are focusing on have even lower vacancy rates.

In Mission Bay, where Anthropic rival OpenAI has set up shop, the rate is 17%. In Jackson Square — the area just north of the Financial District that’s home to LoveFrom, ex-Apple executive Jony Ive’s design firm — it’s 20.3%.

The buildings immediately surrounding Salesforce Park have availability rates — which includes spaces that are occupied but are available for lease — of 16% to 17%, according to Pham.

“Those buildings have been leasing quite well over the past year,” he said.

One of the reasons why SoMA has been popular for many AI companies is that it was home to plenty of tech companies during the last boom. There are plenty of recently renovated and furnished offices in that district that those companies barely used before abandoning them during the COVID-19 pandemic, he said.

“Those are the kind of properties that are also in high demand,” he said.

While there remains plenty of demand for premium spaces in that broader downtown area, there’s increasing demand for space in class B and class C buildings, Pham said. And demand is spreading from the core swath to more outlying areas such as the Dogpatch and Showplace Square, he said.

Those latter two areas, which were formerly home to warehouses and industrial space, have become particularly attractive to the growing number of companies that are working on robotics or other kinds of physical implementations of AI, he said.

Companies are focusing on furnished, ready-to-go spaces rather than premium spots in top-tier towers because it saves them time and refurbishing money, Yasukochi said.

“Space matters, because some spaces in those better quality buildings are not really adequate, because it would take too long for it to be refitted out,” he said.