AI Firms Drive Surge in San Francisco Office Demand

It’s a comeback story for San Francisco.

The City by the Bay is experiencing a significant boom in office demand lately, driven largely by an artificial intelligence-fueled expansion in leasing in the technology sector, according to a new report from software company VTS.

Office demand in San Francisco was up 107 percent annually in August, VTS found. Plus, office demand is up 356 percent since generative AI engine ChatGPT was released in November 2022 — a key metric that for many marks the beginning of the AI wave. VTS measures office demand by the size and nature of new tenants entering the market.

“I think there’s a precedent [for tech] certainly in San Francisco,” Max Saia, vice president of investor research at VTS, told Commercial Observer. “Even before there was a tech mecca, it was a very innovative, forward-thinking city. So I think in San Francisco, we’re just seeing the next wave of what we’ve historically seen in past tech booms.”

Some of the largest AI leases signed recently in San Francisco include workforce management company Rippling’s 123,000-square-foot lease at the Union Bank building at Downtown’s 430 California Street in April 2024, as well as AI software company Databricks’ deal for 150,000 square feet at 1 Sansome Street this spring.

And those were only the tip of the iceberg, as brokerage CBRE predicted that AI-driven firms will likely lease 16 million square feet in San Francisco between May 2025 and 2030, or roughly 2.7 million square feet annually. That comes after AI firms took more than 5 million square feet in the city over the last five years.

The surge in tech leasing, plus tenants’ steady appetite for high-quality space, is certainly helping San Francisco on its rebound, especially after the city’s office market suffered during the COVID pandemic and was projected to do poorly again last year.

“In the last five months, we’ve just seen a whole new paradigm in terms of office demand in the market,” Saia said.

Overall in San Francisco, 2.71 million square feet of office space was leased during the second quarter of this year — the largest total leasing volume since 2.85 million square feet were leased in the third quarter of 2019, according to Avison Young.

However, the city is still not quite at pre-pandemic levels in terms of vacancy rates.

During the second quarter of 2019, before COVID hit, San Francisco saw a record-low office vacancy rate of 4.7 percent, according to city government data. By the end of the second quarter of 2025, the city’s vacancy rate was 34.8 percent, Cushman & Wakefield found.

But if tech office demand and leasing continues on its positive path, Saia said it’s pretty much a sure bet the vacancy rate will follow.

“In terms of just the massive growth in tech demand this year in San Francisco, especially the last five months, [if] the slight increases in tech over the past couple of years keep going up and up, we’re going to see a material chunk taken out of that vacancy rate pretty soon,” he said.

It’s also interesting to look at San Francisco’s tenant mix, compared to a city like New York.

New York City boasts a diverse tenant mix of financial services firms, law firms, ad agencies, real estate companies and, of course, tech tenants. The city saw a 39 percent increase in office demand year-over-year in August, and it’s expected to do increasingly well over the next few periods due to that “incredibly diversified mix of industries,” according to VTS’s report.

The share of tech sector demand for office space in New York City even reached its post-COVID peak in August at 18 percent, indicating “how much the tech industry now accounts for in New York,” VTS said.

Most of that tech leasing activity is happening in Midtown South, which has recently been a “very creative, technology, advertising and media-heavy submarket,” Saia said. That also includes SoHo, where AI firm OpenAI — the creator of ChatGPT — signed a major lease for 90,000 square feet at Kushner Companies’ Puck Building in October 2024.

“We’re seeing really, really impressive growth [in New York], as we’ve seen that tech demand has become a higher share of overall market demand, and AI demand within tech has become a higher share of the overall tech demand we’re seeing in the market,” Saia said. “[New York] finally cemented itself in that upper crust of tech hubs in America towards the end of last cycle.”

And, when it comes to New York City finally hitting its pre-pandemic levels of office availability, tech leasing is a big factor, as “it’s definitely the way back for a market like New York that has a decent tech concentration, but is not solely driven by tech,” Saia said.

On the other hand, San Francisco’s office market has been dominated almost exclusively by tech tenants.

Over a three-month period ending in August, 59 percent of the overall demand in the city came from the tech industry, VTS found. That even beat out levels seen in the immediate tech boom during the onset of the pandemic in 2020, according to the firm.

But will San Francisco’s abundance — or maybe even overabundance — of tech tenants lead to an imbalance in the city’s office market?

“The tech industry concentration in San Francisco injects this natural volatility and risk in both directions,” Saia said. “That’s kind of been the hallmark of the San Francisco office market for decades.

“You’re going to have these crazy growth periods where these new paradigms happen and people gobble up a lot of space,” he added. “But on the flip side of that, if, for whatever reason, the wind comes out of the tech sails, you could see a market that becomes very stagnant very quickly in terms of its recovery path.”

That risk seems like it’s worth the reward, as Saia said an “AI revolution” is afoot, and tech demand — especially in San Francisco — is bound to keep growing. In fact, $103 billion of the total national AI investment over the last five years went to Bay Area firms, according to CBRE.

Combined, San Francisco and New York City are accounting for more than 58 percent of all hiring taking place among AI companies nationally, VTS said.

And while tech firms may not take as much office space as other sectors — largely because AI makes business more efficient and reduces the amount of space needed — the sheer number of tech firms entering the market is making Saia think positively.

“We feel comfortable using stronger language like ‘revolution’ because, even for ourselves, we’re willing to go all in and make [AI] a part of everything we do,” Saia said. “If you look across the landscape, whether it’s a CEO of a big company or a startup, [we’re] realizing that we need to adopt this stuff to stay at the forefront of our industry. Everyone’s all in, and that’s not stopping anytime soon.”

Isabelle Durso can be reached at idurso@commercialobserver.com.