San Francisco Office Space: AI Boost

San Francisco Office Space Revival: AI Startups Lead the Way

San Francisco’s office space market is showing signs of recovery, driven by the rapid expansion of AI startups. Despite recent setbacks, including high-profile exits by major tech companies, the city’s vacancy rate is projected to decrease, thanks to the growing presence of AI firms.

According to real estate firm JLL, San Francisco’s office vacancy rate stood at 35.4% in the first quarter of 2025. However, this rate is expected to drop by one to three percentage points by the third quarter, marking the first significant improvement since the COVID-19 pandemic. This positive trend is largely attributed to AI companies establishing or expanding their operations in the city.

Mayor Daniel Lurie has expressed confidence in San Francisco’s future, citing the city’s robust ecosystem as a key factor in its resurgence. “Those who doubted San Francisco were mistaken,” Lurie said. “Our city’s strength lies in its unique blend of talent, innovation, and entrepreneurial spirit.”

Challenges and Opportunities

The road to recovery has not been smooth. Social media giant X, formerly Twitter, recently announced it would close its San Francisco headquarters and relocate some employees to San José and Palo Alto. This move follows a series of departures by other tech companies, raising concerns about the city’s ability to retain major corporate tenants.

However, the AI sector is providing a much-needed boost. JLL reports that AI leases in San Francisco’s commercial real estate market have surged from just two in 2020 to 167 in the first quarter of 2025. The office space occupied by AI companies has also grown significantly, reaching 4.8 million square feet in 2024, up from 2.6 million in 2022.

Alexander Quinn, senior director of economic research for JLL’s Northwest region, highlighted the Bay Area’s advantages. “The region’s talent pool, entrepreneurial environment, and venture capital ecosystem make it a global leader in AI,” he said. “San Francisco’s concentration of AI companies like OpenAI and Anthropic is attracting other businesses seeking collaboration and innovation.”

AI Companies Investing in San Francisco

OpenAI, one of the most prominent AI companies, has established a significant presence in San Francisco. The company leases approximately 1 million square feet across five locations and employs around 2,000 people in the city. Earlier this year, OpenAI opened its new headquarters in Mission Bay, leasing the space from Uber.

Chris Lehane, OpenAI’s vice president of global affairs, emphasized the company’s commitment to San Francisco. “We were founded as a nonprofit research lab in 2015, and our team was drawn to San Francisco for the same reasons as previous generations of technologists,” he said. “This is a place where people are open to new and unorthodox ideas.”

Databricks, another major player in the AI industry, is also expanding its footprint in San Francisco. Valued at $62 billion, the company announced plans to move to a larger space in the Financial District next year, increasing its office footprint to 150,000 square feet and more than doubling its San Francisco workforce in the next two years.

Patrick Wendell, co-founder and vice president of engineering at Databricks, noted the city’s appeal. “San Francisco attracts AI talent and is a desirable city for employees,” he said. “We are expanding where our employees are.”

Public Safety and Business Confidence

Mayor Lurie’s administration has prioritized public safety and creating conditions that show San Francisco is open for business. “We are focused on ensuring that our streets and public spaces are clean, safe, and inviting,” Lurie said. “Our administration’s efforts have helped attract and retain businesses, including an office tax credit offering up to $1 million for new or relocating companies.”

Laurel Arvanitidis, director of business development for San Francisco’s Office of Economic and Workforce Development, echoed this sentiment. “The city’s policy and tax reforms have been instrumental in attracting and retaining businesses,” she said. “We are committed to supporting the growth of AI companies and fostering a vibrant ecosystem.”

Looking Ahead

While San Francisco faces ongoing challenges, the city’s future looks promising. Nvidia, a leading AI hardware company, is reportedly seeking office space in San Francisco, further bolstering the city’s AI credentials. According to Nvidia Chief Executive Jensen Huang, “San Francisco is thriving again because of AI.”

As AI companies continue to invest in San Francisco, the city is poised to reclaim its status as a global innovation hub. “There is still work to be done, but San Francisco is on the rise,” Lurie said. “We are creating the conditions for arts, culture, small businesses, innovators, and entrepreneurs to thrive.”