How AI Firms Revive Office Space Demand

Notion is the latest AI technology firm to lease office space for its new headquarters in San Francisco. The deal includes 105,000 square feet across five floors within Brookfield Properties’ Monadnock Building at 685 Market St., multiple media outlets reported.

The space had been occupied by Uber, which put it up for sublease in 2019, according to the San Francisco Chronicle. The new agreement has a 10-year term, with options for Notion to lease additional space in the building.  

The U.S. is a global leader in AI and currently hosts 65 of the top 100 globally ranked AI company headquarters, Robert Martinek, director at EisnerAmper, told Commercial Property Executive.

“Demand for artificial intelligence has exploded over the past 18 months,” Martinek said. “We can point to Nvidia and Open AI, two of the fastest-growing companies in the world over the past year. A January brokerage Cushman & Wakefield report found that AI-related tenants were looking for more than 1.5 million square feet of office space in New York City alone.

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“During the past few months, we have seen large leases to AI2 in Seattle, Scale AI in San Francisco and OpenAI in New York City. New AI companies are developing and deploying AI-powered apps, which should only increase leasing activity in the future.”

OpenAI, Scale AI and Anthropic have recently leased in San Francisco, which had a 37 percent vacancy rate earlier this year.

AI firms drive San Fran office leasing activity

Alexander Quinn, JLL’s senior director of research, told CPE that the San Francisco market has now exceeded 1 million square feet in AI office leasing volume for the second consecutive year.

JLL’s third-quarter research showed that leasing activity from January to September is up 40 percent compared to last year, driven largely by demand from lease expiration tenants and AI companies.

Asking rents remain mostly unchanged, while net effective rents have fallen to $68, marking a 33 percent drop from the fourth-quarter 2019 level. Trophy assets have been more resilient, declining by approximately 15 percent over the same period.

“A key trend driving San Francisco’s outlook is its strong economic fundamentals,” Quinn said. “For example, VC funding here—which fuels firms like Notion and so many more—is the highest in the nation through the end of the third quarter at $21.7 billion [per Pitchbook Data].”

CommercialEdge data from August showed an upturn in developers’ San Francisco office projects after a recent downturn had whacked office prices. The pipeline has now become one of the largest in the nation.

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