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There’s one bright spot for San Francisco’s office space market

BBG News

Recently, the friendly business environment that San Francisco was known for has faced some setbacks.

Some prominent tech companies like Dropbox and Salesforce, as well as retailers such as Nordstrom and Anthropologie, have minimized their urban presence by leasing secondary office spaces. Additionally, a social media company once known as Twitter, now under Elon Musk’s ownership, abandoned its Mid-Market headquarters in favor of Texas, citing concerns over encountering groups of violent drug addicts when trying to enter and exit the building.

Despite the city continually playing defense, one positive aspect is the surge of new artificial intelligence businesses emerging.

In the third quarter, San Francisco’s high vacancy rate of 35.4%, one of the highest in the country, is projected to decrease by 1 to 3 percentage points. This positive shift is attributed to AI firms either expanding their existing operations or establishing new offices within the city, as per JLL, a real estate brokerage firm. It’s worth noting that San Francisco last saw a decline in its vacancy rate during the fourth quarter when it dropped by 0.2%. This was the first decrease since the COVID-19 pandemic, also according to JLL.

As a proud San Franciscan, I’d say the naysayers underestimated us, which was clearly a miscalculation. The reason for our success? Our unique ecosystem, unrivaled anywhere globally. It’s an exhilarating era we find ourselves in.

Business

Previously recognized as Twitter, the company is relocating its main offices from San Francisco to both San José and Palo Alto. Some of their San Francisco staff will be transferred there. This decision is another setback for a city that has been affected by numerous major businesses deciding to leave.

Five years ago, there were very few AI leases in San Francisco’s commercial real estate market, with only two leases signed in 2020 as reported by JLL. However, this number has dramatically increased to 167 leases in the first quarter of 2025. Additionally, the office space occupied by AI companies has significantly expanded, accounting for 4.8 million square feet in 2024 compared to 2.6 million square feet in 2022 as per JLL’s data.

According to Alexander Quinn, the senior director of economic research for JLL’s Northwest region, having a strong talent pool, a vibrant entrepreneurial environment, and a robust venture capital ecosystem is crucial. He noted that these three elements are all present in the greater Bay Area, which makes it the undisputed leader.

1) It’s noted that many AI companies are drawn to San Francisco due to its abundance of skilled workers. This city is where innovative firms like OpenAI (the creator of ChatGPT) and Anthropic (known for chatbot Claude) are based, making it an attractive destination for businesses looking for collaboration opportunities. Moreover, the Bay Area boasts prestigious universities such as UC Berkeley, UC San Francisco, and Stanford University, which attract both entrepreneurs and researchers, further enhancing the region’s allure.

Investment firms are heavily funding Artificial Intelligence (AI), which is leading to expansion in workspaces and team size. Notably, OpenAI recently secured the biggest venture capital investment ever, a staggering $40 billion, as reported by the research company CB Insights.

Business

The latest $40-billion investment round will bring the ChatGPT’s valuation to $300 billion.

OpenAI rents approximately 1 million square feet of real estate distributed among five urban sites, and it boasts a workforce of around 2,000 individuals within San Francisco. Earlier this year, they unveiled their fresh headquarters in Mission Bay, securing the premises from Uber.

In a recent interview, OpenAI’s Vice President of Global Affairs, Chris Lehane, stated that when the organization was established as a nonprofit research lab in 2015, its members were attracted to San Francisco for the same reasons that previous generations of tech pioneers and boundary-pushing individuals have been drawn to this city in the United States.

In San Francisco, instead of dismissing an idea as absurd or unconventional, the response is often, “That’s an intriguing concept! Let’s explore if we can make it happen.” That encapsulates Lehane’s view.

Inside the freshly built San Francisco headquarters of OpenAI, located in the vibrant Mission Bay area. (By OpenAI)

Databricks, with a valuation of $62 billion, is growing further in San Francisco. Back in March, they announced their intention to relocate to a bigger office space in the Financial District next year. This move will increase their office area to approximately 150,000 square feet and plans to grow their local workforce by more than doubling it over the next two years. Moreover, they have committed to hosting their annual Data + AI Summit in the city for the next five years.

The company currently occupies approximately 57,934 square feet of space in its Embarcadero office in San Francisco, as reported by CoStar, a service that monitors property market developments.

As a movie reviewer, I’d put it this way: “Databricks’ Vice President of Engineering, Patrick Wendell, points out that San Francisco is a beacon for AI talent. The city’s charm makes it an ideal place for both living and working, so we’re simply mirroring where our employees choose to settle.

Back in the day, I pondered over my company’s potential expansion in the bustling cityscape of San Francisco. The pandemic had cast a shadow of uncertainty on whether folks would return to office life, and some businesses were wary about the cleanliness and safety issues prevalent on the streets of this iconic city. However, I was reassured by city leaders’ promises, which ultimately led my company to invest more in San Francisco.

Lurie stated that the current administration is concentrating on ensuring public safety, maintaining clean streets, and establishing an environment conducive to growth. Moreover, he has consistently emphasized the need to foster our arts, culture, small businesses, innovators, and entrepreneurs in order to prosper here since his election last November, defeating incumbent mayor London Breed.

Laurel Arvanitidis, head of business development at San Francisco’s Office of Economic and Workforce Development, pointed out that the city’s business-friendly policy adjustments and tax reforms have played a significant role in luring and retaining businesses over the past few years. One such incentive is an office tax credit offering up to $1 million for newly established or relocating businesses within San Francisco.

California

Daniel Lurie, the newly elected mayor, positioned himself as a non-politician aiming to rejuvenate San Francisco City Hall. However, despite being new to politics, Lurie, who hails from one of the city’s distinguished wealthy families, is hardly a stranger to the city’s power circles.

Last Thursday, Lurie took to social media to share the news that Coinbase, a cryptocurrency platform, will be establishing a new office in San Francisco following a four-year absence from the city.

Coinbase’s CEO expressed enthusiasm about resuming operations in San Francisco, acknowledging there’s still much to be done to make the city better (it’s had its share of mismanagement for quite some time). Nevertheless, they want to acknowledge your outstanding efforts and thank you sincerely for them.

Based in Santa Clara, Nvidia is reportedly seeking office space in San Francisco as well, according to a source who preferred anonymity. This information was initially published by the San Francisco Chronicle. However, when approached for comment, Nvidia chose not to provide any details on this matter. Besides its offices in Santa Clara and San Dimas, California, Nvidia also has an office in Sunnyvale.

Jensen Huang, CEO of Nvidia, stated during a recent Hill & Valley Forum podcast that AI is responsible for San Francisco’s resurgence. Previously, many people had left the city, but now it’s experiencing a revival.

Although San Francisco’s streets have seen improvement, there are more hurdles on the horizon since businesses are urging employees back to their offices. Maintaining this momentum is crucial for the city’s continued progress.

Lurie stated that upon taking office, his team faced the greatest budget shortfall the city had ever seen, which needed addressing. He also emphasized that their responsibilities included ensuring our streets and community areas were clean, secure, and appealing.

Lurie stated, “There’s no denying we need to get things done, but it’s clear our city is heading towards greater heights.

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2025-06-01 13:37

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