AI needs more humans: AI company demand jolts S.F. office market

[San Francisco with the Golden Gate bridge]
hanusst

Soaring investment in artificial intelligence is fueling a turnaround in San Francisco's beleaguered office market, which has suffered from the highest availability rate in the nation.

According to a research note from Wells Fargo Economics, the market appears to have hit an inflection point this year. The office availability rate has begun to decline, and net absorption—the rate at which commercial space is leased versus vacated—has turned positive. The rise in net absorption in the second quarter was the strongest recorded since 2019.

The improvement is attributed partly to a national trend of more employees returning to the office, but the report singles out the "meteoric rise in A.I. investment" as a key driver for the city's gains.

The bulk of new leases are reportedly coming from a diverse array of AI companies, including upstream hardware and software firms as well as downstream financial and legal services companies. San Francisco has long anchored the Silicon Valley tech ecosystem, and the report notes the city is once again at the forefront.

The city's office market has been depressed for several years, impacted by the pandemic and the prevalence of remote work among its tech firms.

Among REITS with exposure to San Francisco commercial space are Paramount Group (PGRE [https://seekingalpha.com/symbol/PGRE]), Kilroy Realty (KRC [https://seekingalpha.com/symbol/KRC]), Hudson Pacific Properties (HPP [https://seekingalpha.com/symbol/HPP]), Alexandria Real Estate Equities (ARE [https://seekingalpha.com/symbol/ARE]), Vornado (VNO [https://seekingalpha.com/symbol/VNO]), plus the Vaneck Office And Commercial REIT ETF (NYSEARCA:DESK [https://seekingalpha.com/symbol/DESK]).

[San Francisco office market inflection point]
Wells Fargo

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