Can AI save commercial real estate in San Francisco?

In an aerial view, cars drive along the San Francisco skyline as they cross the San Francisco-Oakland Bay Bridge on October 27, 2022 in San Francisco, California. (Justin Sullivan/Getty Images)

By Samantha Delouya | Cnn

When MosaicML, a generative AI platform company, decided to update its office space, its CEO and co-founder, Naveen Rao, moved to San Francisco, even though he lives in Southern California.

Everyone talks about doom and gloom, this and that, but it’s still literally the best place in the world to build a company. There’s nothing like it, said San Francisco’s Rao.

Indeed, the city’s economy has been hit particularly hard by the pandemic and three years later, it’s still dealing with the aftermath after a string of high-profile retailers recently pulled out of the bustling city centre. But despite its economic woes, San Francisco has quietly benefited from the recent boom in generative AI.

Artificial intelligence to the rescue?

Alexander Quinn, senior director of research at commercial real estate firm JLL, said his firm sees bright spots in the San Francisco commercial real estate market as AI firms drive demand for office leasing.

His driving question is specifically here, Quinn said of the recent AI craze.

Rao said his decision to keep his company in San Francisco was helped by the fact that the city had become the epicenter of the recent AI craze, which took off late last year when OpenAI launched its product. of generative artificial intelligence, ChatGPT.

The talent is unmatched, he said. There is no other place in the world that is even close.

In May, MosaicML signed a lease on an 8,000-square-foot office in San Francisco that was newer and nicer than the company’s first office, according to Rao.

Quinn said his firm knows of 10 AI companies currently looking for office space in San Francisco.

San Francisco was just one gold rush series, Quinn noted. Historically we’ve known that we’ve been an up and down kind of economy, and that’s really manifested itself during the pandemic, and now we’re just starting to see that recovery.

San Francisco tense recovery

The city’s tech-savvy workforce has embraced remote work with open arms in 2020, resulting in many white-collar workers flowing out of the city in search of cheaper living. As more employees in other major cities like New York and Los Angeles have returned to in-person work, the San Francisco workforce has been slower to return. Office vacancy rates in the city are at a 30-year high, and the city center has seen a wave of high-profile retail closures as foot traffic has declined due to a lack of office workers and tourists.

Last month, mall operator Westfield said it would return its San Francisco Center mall in the city’s Union Square to its lender after more than 20 years of operation. The mall operator cited declining sales and foot traffic as reasons for its decision. More than 39 retail stores have closed in San Francisco’s Union Square area since 2020, according to Coresight data.

Commercial real estate has also been impacted by the San Francisco slowdown. The city, once home to some of the most valuable real estate in the world, has seen a plunge in valuations. In May, the office tower at 350 California Street finally sold for 75 percent less than its 2020 asking price, according to real estate news site The Real Deal.

A city that reinvents itself

But key figures in San Francisco have embraced the city’s latest iteration as an AI hub.

San Francisco Mayor London Breed recently dubbed San Francisco the AI ​​Capital of the World and suggested the city consider tearing down enclosed retail spaces to build new structures and reshape the struggling city.

Brex, which offers corporate credit cards and cash management accounts, is another tech company that signed a lease on new office space in San Francisco this year. The company’s founder and co-CEO, Henrique Dubugras, recently returned to the city after moving to Los Angeles during the pandemic.

Our CEO is quite vocal about being closer to AI and what’s happening in the San Francisco ecosystem was a goal for him in going back, said Michael Tannenbaum, the company’s chief financial officer and chief operating officer. Tannenbaum said the company partners with many AI-focused startups in the area and that having an office in San Francisco is good for business.

In the same way that retailers want to be in expensive malls because they want to be in those malls, it’s the same kind of concept for San Francisco, he said.

Is an AI boom enough?

However, not everyone in the commercial real estate space believes the recent AI boom is enough to revive the city.

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