Demand for workplaces by artificial intelligence companies has stoked the fires of a San Francisco office market rebound.
Executives at Los Angeles-based Kilroy Realty pointed to 86 AI office deals across San Francisco last year, the San Francisco Business Times reported, citing a call with analysts.
Robert Paratte, chief leasing officer for the firm, said Kilroy has been fielding questions about whether AI demand in San Francisco is real.
“I think a number like that points to the fact that it’s real,” he said of the 86 deals.
AI firms are expected to drive another 1 million to 1.5 million square feet in absorption this year, Paratte said. That could ride a leasing wave from late last year, when the city’s office market had the first positive absorption in five years.
The Kilroy view mirrors that of BXP, the Boston-based owner of 6.7 million square feet of offices in San Francisco, which this month said it was looking to fill them up with the help of small AI firms.
Kilroy, which owns 3.4 million square feet of offices in Downtown San Francisco, may be poised to snag its share of the expected leases — with a mystery deal now in the works.
Angela Aman, CEO of Kilroy, suggested an AI or data analytics firm is lined up for “the largest lease we’ve signed in the city of San Francisco in some time.” The deal could break this spring, she said.
Some of the larger AI office deals last year included OpenAI, which took 315,000 square feet at 550 Terry A Francois Boulevard after leasing a chunk at a former Uber building nearby.
Derek Daniels, regional research director for Colliers in the Bay Area, pointed to parts of the Inner Mission, Potrero Hill, South of Market and Mission Bay as “Area AI” because it’s where the industry first incubated and clustered.
The emerging AI sector, from newly formed startups to more mature companies, has collectively gobbled up 4.7 million square feet of office space in San Francisco, chipping away at the city’s historically high office vacancy, according to the Business Times.
CBRE said it’s now tracking 200 AI companies across San Francisco, which occupy 5 million square feet of offices, or nearly 9 percent of the city’s inventory.
Since 2020, no major U.S. city took a bigger hit from remote work than San Francisco, where office vacancy hovers at 36.5 percent, according to CBRE.
Tech firms are also driving interest in Kilroy’s 865,000-square-foot second phase of Oyster Point, a 3-million-square-foot life sciences development in South San Francisco.
Kilroy, founded in 1996 by John Kilroy Jr., has a real estate portfolio of 14 million square feet, including life sciences properties in the Bay Area, Seattle and San Diego, according to its website.
— Dana Bartholomew
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