In only a few years, AI companies have extended their real estate footprint across the city by leasing millions of square feet, enough to fill a modern San Francisco skyscraper several times over.

The emerging sector, from newly formed startups to more mature companies, has collectively gobbled up 4.7 million square feet of office space, chipping away at the city’s historically high office vacancy.

AI firms could total as much as 5.5 million square feet by the end of this year, according to commercial real estate services giant JLL. By 2030, their imprint on the city may reach 12 million square feet.

Since mid-2022, AI has bolstered office leasing activity, accounting for up to 15% of deal volume, according to real estate services provider Colliers. The scope is broad and various across the urban core. Big leases since mid-2023 have included OpenAI in Mission Bay and Scale AI in SoMa. Some AI startups needed only a few thousand square feet. Some preferred older, industrial districts. Others have tapped the sublease market.

San Francisco AI companies fuel city’s recovery

Their expansion is delivering a counterpunch to the blows San Francisco has absorbed since the pandemic. This includes the highest office vacancy of any U.S. city and widespread adoption of work-from-home policies that undermined foot traffic at stores and restaurants.

Alexander Quinn, JLL’s director of economic research, Northern California, said without the AI sector San Francisco would have faced even higher vacancy. It still hovers between 33% and 35%, but the office market has likely bottomed out, according to real estate data. Before the pandemic, vacancy was closer to 4% to 5%.

Recent activity coincides with the most positive three months of net absorption San Francisco has seen since 2020. By the end of the fourth quarter, businesses occupied 200,000 to over 300,000 more square feet than they did in the prior three months, according to real estate data.

AI firms embrace old-school startup culture

If the expansion continues, it may rekindle street life that evaporated during the pandemic lockdowns and hasn’t fully returned. Chris Roeder, an executive managing director with JLL, said AI companies feature an old-school startup mentality, one that asks employees to be in the office five-plus days a week, eight hours a day.

That echoes OpenAI CEO Sam Altman’s attitude toward work-from-home policies. He called them a “mistake.”

Jeremy Harper, a senior research analyst with Colliers, said the AI companies “seem like they want people in the office.”

Venture capital is fueling the AI boom. During the first half of 2024, the Bay Area captured 76% of all U.S. AI funding, according to CBRE. In the fourth quarter alone, San Francisco landed more than $25 billion, according to Colliers.

VC firms are also signing new leases across the city. Their partners like proximity to the AI startups they are funding, in the belief that face-to-face meetings and chance encounters foster more deal flow than a calendar full of Zoom calls.