Can Artificial Intelligence Stop San Francisco’s Tech Exodus?

San Francisco has struggled in recent years, but there is hope that artificial intelligence can restore it for a third “gold rush”.

Much — not all — of the world-renowned tech hub’s problems have been caused by its severe and extensive COVID-19 lockdowns, which have caused the California city’s tech-savvy workforce to throw themselves into remote work with both feet .

Sf.citi, a group founded in 2012 that represents San Francisco tech companies, has begun tracking what it called San Francisco’s “tech exodus” during the pandemic.

In its last report on the matter in March 2022, the organization wrote on its website: “Of course, some of the forces driving this phenomenon – remote working and the growing appeal of cities beyond San Francisco – predate 2020 “Few can argue, however, that the pandemic has accelerated these trends. What we’re seeing today is nothing less than a mass migration of tech companies and tech employees out of the San Francisco Bay Area.”

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Sf.citi pointed out that in 2021 the Bay Area’s share of venture capital investments plummeted to its lowest point in more than a decade, noted that San Francisco is the most expensive city in the United States, and criticized the “three substantial Progressive city tax increases on the tech and business community” in 2020 only.

Without a doubt, some tech companies have joined those in other sectors in the flight. Austin, Texas is one city that has benefited, as has Miami, Florida.

Sf.citi linked last year’s tech exodus to the sharp increase in vacant office space, which is a constant problem for the city.

But according to Ted Egan, San Francisco’s chief economist, the city and county have far more tech jobs now than they did at the start of the pandemic. He says it’s not that the technology is gone, it’s that companies have moved out of their offices and workers have moved away from homes near those former workplaces.

And there’s a possibility that AI is prompting San Francisco tech companies to hire again.

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The latest report from the City and County of San Francisco’s Office of Economic Analysis shows the area’s tech industry added jobs in May, after several months of job losses due to high-profile layoffs . In fact, the industry has seen a 40% recovery of the tech jobs it lost late last year in layoffs. But Egan notes that it’s only a month’s worth of data and “he doesn’t want to get carried away.”

“What we’ve seen is that businesses have moved to remote working in a big way, but technology has continued to add jobs,” Egan told FOX Business, speaking about the trends since the start of the pandemic. “Even though we had some layoffs in the second half of last year, even at our nadir a month or two ago we still had more jobs than we did at the start of the pandemic. So I think the tech narrative leaving San Francisco it’s not really confirmed by the data.”

Some outlets attributed San Francisco’s May jump in tech jobs to the rise of AI startups.

“Who knows, it could have just been a blip or it could be the beginning of a turnaround. There’s no way for us to break down what’s growing inside the technology,” he explained. “People can speculate about artificial intelligence [being the driver] – probably not crazy.”

Egan says AI has attracted a lot of investment for San Francisco because companies working on the new technology are generally concentrated in the Bay Area, such as OpenAI, the creator of ChatGPT. When interest rates rose last year, he said, it had a “severe and depressing effect on venture capital,” but the emergence of generative AI has driven new investment, and San Francisco will reap the benefits.

However, the problem of vacant offices remains, and 80% of San Francisco’s gross domestic product is generated by office activities.

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The latest data from commercial real estate firm JLL shows that San Francisco’s direct vacancy rate was at 19.2% in the first quarter of this year and sublet availability increased to the second-highest level on record, behind only the first quarter of 2021.

Despite the fact that asking rental prices are falling and leasing has bottomed out in the first three months of this year compared to the third quarter of 2020, JLL said “tenant demand has started to pick up, as demonstrated by the increase in touring activity from both traditional and startup tenants. Of note is a sizable increase in AI tenant requirements, which have doubled in the past three quarters.”

The report added that San Francisco “remains a hotbed for AI companies nationwide, most of which have been founded in the city since 2020 and have quietly toured the market and signed small, short-term leases with the city.” opportunity to grow”.

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Egan acknowledges that there are growing signs from the industry, but also notes that San Francisco’s commercial vacancy rate is the highest it has ever been. He said, “I think everyone knows by now that business offices are under a lot of stress, not just in San Francisco, but everywhere.”

He says the big question mark is, “When will the offices be filled and who will?”