|
|
6/02/25
|
This report provided by real estate services firm CBRE
Artificial intelligence (AI) development likely will be a sizable driver of U.S. office demand over the next decade considering the impact it is already having on the country’s tech epicenter of San Francisco. AI-related companies have leased more than 5 msf of San Francisco office space over the past five years and are projected to take up to 16 msf between now and 2030 or 2.7 msf annually.
The AI era represents the third tech and real estate market boom over the past 30 years, each of which has been concentrated in San Francisco. Dot-com era companies’ San Francisco office footprint grew to 11 msf between 1995 and 2001, which caused the market’s vacancy rate to fall to 1% from 10%. The mobile-app era was even bigger and lasted longer, with 31 msf growth of tech companies’ San Francisco office footprint between 2008 and 2019 lowering the vacancy rate to 4% from 16%. This analysis included companies founded five years prior to the start of each era and excluded renewals or space that companies abandoned when signing a new lease for larger space. Both eras ended in a downturn and companies ended up vacating large amounts of surplus office space as business conditions and future expansion plans changed.
While each tech era is different, many aspects relating to office market demand are similar. Given the unprecedented demand during the last boom, we’ve assumed the AI era will generate 50% to 75% of the mobile-app era’s office space growth. AI companies are also likely to achieve greater workforce efficiency by using AI and widening the geographic distribution of workers, resulting in more conservative San Francisco office leasing.
AI companies in San Francisco have received $103 bil in venture capital (VC) since 2020, according to Pitchbook, more than the two other tech eras combined and providing fuel for future growth. Venture capital funding and the Nasdaq stock index are highly correlated with tech industry employment and office space growth. AI companies across the U.S. received $239 bil in venture capital funding between Q1 2020 and Q1 2025. San Francisco-based companies received 43% of that funding and another 28% went to companies based elsewhere in the Bay Area, showing the region’s central role in the AI industry.
Office leasing activity and VC funding in San Francisco have similar trends. Typically, companies receive VC funding to grow future business capacity. This results in employee hiring and demand for additional office space. Both the mobile-app and AI eras demonstrate this trend. While AI companies spend considerable capital on computing capability, their people are typically in the office four or more days per week, often requiring dedicated workstations.
San Francisco has a history of tech industry boom-and-bust cycles, and another boom may be dawning after the largest office space occupancy bust in history. The city’s current office vacancy rate of 35.8% in Q1 2025 would be cut in half if 16 msf is absorbed by AI-related companies through 2030 and other companies maintain their current level of occupancy. If the AI industry catalyzes broader growth among office-using companies, vacancy could further decline. On the other hand, if the AI boom proves to be less robust than anticipated, San Francisco will need more time to reduce its historically large supply of available space.
|
|
 Return to the previous page
|
|
|
|
|
Printer-friendly Version
Email an Associate
