- Artificial intelligence firms are driving a wave of new office leasing activity, particularly in San Francisco, helping reverse high vacancy rates and fueling optimism among REITs.
- Industry observers expect AI’s office footprint in San Francisco to triple by 2030, with ripple effects spreading to markets like Seattle, New York, and Boston.
- Major REITs including Kilroy Realty Corp., BXP, and SL Green are already benefiting from leasing deals with AI companies and related service providers.
The AI Office Revival
The artificial intelligence boom is no longer just about GPUs and data centers—it’s increasingly about SF, reports Nareit. As billions pour into artificial intelligence development, real estate investment trusts (REITs) with urban office portfolios are beginning to see momentum in leasing driven by AI companies, especially in San Francisco.
Office demand in the Bay Area—where vacancy rates have hovered around 35%—has gotten a much-needed lift from AI firms like OpenAI, which leased Old Navy’s former 318K SF HQ in 2023. Said firms occupy 5M SF in San Francisco, with projections estimating growth to 15M SF of office space by 2030.
Class A Or B? Depends On The AI Maturity Curve
The leasing strategy varies by company stage. Established AI firms typically seek Class A space with long-term stability, while startups lean toward flexible Class B options. This bifurcated approach is fueling both speculative leasing and short-term commitments, giving landlords more reasons for optimism.
Cushman & Wakefield estimates San Francisco leads the country with over 800 AI firms. As said firms grow, their office footprint is set to expand into Silicon Valley and other major tech-focused markets.
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REITs Take The Lead
REITs like Kilroy Realty Corp. (NYSE: KRC) are already seeing tangible benefits. The company signed its largest San Francisco lease since 2019 with Amplitude—a software firm that recently acquired an AI startup. CEO Angela Aman noted a 60% uptick in property tours year-over-year and cited artificial intelligence as a “material driver” of office demand.
BXP (NYSE: BXP) President Douglas Linde echoed this enthusiasm, calling 2024 a “terrific absorption year for AI” and noting that more than 65% of AI venture investment in the US is going to San Francisco-based companies.
A Broader Ripple Effect
The AI-fueled demand isn’t confined to the Bay Area. In Seattle, Kilroy’s West8 property saw AI firm Databricks expand its lease to 34K SF. New York heats up as OpenAI leases 90K SF and IBM expands to 362K SF for enterprise AI work.
Even among diversified tech tenants, artificial intelligence is a common denominator. SL Green Realty Corp. (NYSE: SLG) reported that TAMI (technology, advertising, media, and information) demand had doubled year-over-year—and many of those tenants have “an AI name attached.”
Why It Matters
AI’s demand for office space offers a much-needed boost to REITs struggling since remote work disrupted the market. Backed by venture capital, AI firms favor in-office setups, positioning urban REITs to benefit from rising leasing activity.
If current trends hold, artificial intelligence could emerge as the office market’s biggest growth driver—one that REIT executives may increasingly reference in quarterly earnings calls for years to come.
