San Francisco’s Office Space Market Sees a Bright Spot
San Francisco’s image as a welcoming place for businesses has taken a hit in recent years. Major tech companies such as Dropbox and Salesforce reduced their footprints in the city by subleasing office space, while retailers including Nordstrom and Anthropologie pulled out of downtown. Social media firm X, formerly Twitter, vacated its Mid-Market headquarters for Texas, after owner Elon Musk complained about “dodging gangs of violent drug addicts just to get in and out of the building.”
Current State of the Market
The city remains on the defensive, but one bright spot has been a boom in artificial intelligence startups. San Francisco’s 35.4% vacancy rate in the first quarter — among the highest in the nation — is expected to drop one to three percentage points in the third quarter thanks to AI companies expanding or opening new offices in the city, according to real estate brokerage firm JLL. The last time San Francisco’s vacancy rate dropped was in the fourth quarter, when it declined 0.2% — the first time since the COVID-19 pandemic, according to JLL.
Mayor’s Perspective
“People wanted to count us out, and I think that was a bad bet,” said Mayor Daniel Lurie. “We’re seeing all of this because the ecosystem is better here in San Francisco than anywhere else in the world, and it’s really an exciting time.” Five years ago, AI leases in San Francisco’s commercial real estate market were relatively sparse, with just two leases in 2020, according to JLL. But that’s since soared to 167 leases in the first quarter of 2025. The office footprint for AI companies has also surged, making up 4.8 million square feet in 2024, up from 2.6 million in 2022, JLL said.
Attracting AI Firms
AI firms are attracted to San Francisco because of the concentration of talent in the city, analysts said. The city is home to AI companies including ChatGPT maker OpenAI and Anthropic, known for the chatbot Claude, which in turn attract businesses that want to collaborate. The Bay Area is also home to universities that attract entrepreneurs and researchers, including UC Berkeley, UC San Francisco, and Stanford University. Venture capital companies are pouring money into AI, fueling office and staff growth. OpenAI landed last quarter the world’s largest venture capital deal, raising $40 billion, according to research firm CB Insights.
OpenAI’s Presence
OpenAI leases about 1 million square feet of space across five different locations in the city and employs roughly 2,000 people in San Francisco. The company earlier this year opened its new headquarters in Mission Bay, leasing the space from Uber. OpenAI began as a nonprofit research lab in 2015, and the people involved found their way to San Francisco for the same reason why earlier generations of technologists and people pushing the frontier in the United States are drawn to the city, said Chris Lehane, OpenAI’s vice president of global affairs in an interview.
The interior of OpenAI’s new San Francisco headquarters in the Mission Bay neighborhood. (OpenAI)
Databricks’ Expansion
Databricks, valued at $62 billion, is also expanding in San Francisco. Databricks in March announced it will move to a larger space in the Financial District next year, boosting its office footprint to 150,000 square feet and more than doubling its San Francisco staff in the next two years. It pledged to hold its annual Data + AI Summit in the city for five more years. The company holds 57,934 square feet at its current San Francisco office in the Embarcadero, according to CoStar, which tracks real estate trends.
Reasons for Expansion
“San Francisco is a real talent magnet for AI talent,” said Databricks’ co-founder and vice president of engineering Patrick Wendell. “It’s a beautiful city for people to live and work in, and so we really are just following where the employees are.” Several years ago, Wendell said his company was considering whether to expand in San Francisco. At the time, it was unclear whether people would return to offices after the pandemic, and some businesses raised concerns about safety and cleanliness of San Francisco’s streets. Wendell said his company decided to invest more in the city after getting reassurances from city leaders.
City’s Efforts
“People are seeing an administration that is focused on public safety, clean streets, and creating the conditions that also say that we’re open for business,” said Lurie, who defeated incumbent mayor London Breed last November by campaigning on public safety. “We’ve said from day one, we have to create the conditions for our arts and culture, for our small businesses, and for our innovators and our entrepreneurs to thrive here.” Laurel Arvanitidis, director of business development for San Francisco’s Office of Economic and Workforce Development, said that the city’s policy and tax reforms have helped attract and retain businesses in recent years, including an office tax credit that gives up to a $1-million credit for businesses that are new or relocating to San Francisco.
New Developments
On Thursday, Lurie announced on social media that cryptocurrency exchange Coinbase is opening an office in San Francisco after leaving the city four years ago. “We are excited to reopen an office in SF,” Coinbase Chief Executive Brian Armstrong wrote in response to the mayor’s social media post. “Still lots of work to do to improve the city (it was so badly run for many years) but your excellent work has not gone unnoticed, and we greatly appreciate it.” Santa Clara-based Nvidia is also looking for San Francisco office space, according to a person familiar with the matter who declined to be named. The news was first reported by the San Francisco Chronicle. Nvidia, which also has California offices in San Dimas and Sunnyvale, declined to comment.
Future Outlook
“It’s because of AI that San Francisco is back,” Nvidia Chief Executive Jensen Huang said last month on the Hill & Valley Forum podcast. “Just about everybody evacuated San Francisco. Now it’s thriving again.” But San Francisco still has challenges ahead, as companies continue to push workers to return to the office. While the street environment has improved, it will be critical for the city to keep up the progress. Lurie said his administration inherited the largest budget deficit in the city’s history and they have to get that under control. His administration’s task is to make sure streets and public spaces are clean, safe, and inviting, he said.
Conclusion
San Francisco’s office space market is seeing a bright spot due to the boom in artificial intelligence startups. The city’s concentration of talent, universities, and venture capital companies are attracting AI firms, and the city’s efforts to improve public safety and cleanliness are helping to retain businesses. While challenges still lie ahead, the city is on the rise, and the growth of AI companies is a major factor in this trend.
FAQs
Q: What is the current vacancy rate in San Francisco’s office space market?
A: The current vacancy rate in San Francisco’s office space market is 35.4%, which is expected to drop one to three percentage points in the third quarter.
Q: What is driving the growth of AI companies in San Francisco?
A: The concentration of talent, universities, and venture capital companies in San Francisco are driving the growth of AI companies in the city.
Q: What efforts is the city making to attract and retain businesses?
A: The city is focused on public safety, clean streets, and creating a business-friendly environment, including offering an office tax credit for new or relocating businesses.
Q: What challenges does San Francisco still face?
A: San Francisco still faces challenges such as a large budget deficit and the need to continue improving public safety and cleanliness to retain businesses and attract new ones.
