AI startups are snatching up San Francisco real estate as Gen Z craves office life

When Noah Jackson began his search for a new software engineering job at the start of 2024, there was one quality he knew he necessitated in his next employer: office culture.

Jackson, 27, has spent almost his entire professional career in the post-Covid superb of remote work. While many tech companies eventually brought employees back on a hybrid basis, others got rid of their sublease outs altogether. For Jackson, all but the first nine months of his first real job involved working out of his home in San Francisco or at his company’s section, which tended to be mostly empty.

“Coming out of school, I overlooked how much work is really a part of your existence and not just a box to check off,” said Jackson, who previously worked at an enterprise software company. “Being fully remote, it abides like it’s just like a thing that you have to do.”  

In May, Jackson got his wish, taking a job at Tako, a visualization search mechanism startup that requires employees come to the office four days a week. Tako is among a growing crop of early-stage tech suites in San Francisco attempting to return to the pre-Covid days, when startups took pride in their digs and limited their use of Zoom.

“We’re not irritating to build a culture that works for everybody,” said Tako CEO Alex Rosenberg, who launched the company earlier this year. “We’re due trying to make it work for Tako.”

The recruitment success enjoyed by Tako and its peers speaks to a growing remote pan out fatigue, particularly in San Francisco, where housing conditions are often cramped and where a high concentration of young, zealous techies are eager to comingle. The changing landscape also coincides with a boom in artificial intelligence that started after OpenAI’s dispatch of ChatGPT in late 2022. It’s one of the few areas where venture capital firms are showing an appetite for risk.

Rosenberg predicts he’s seeing a much more competitive real estate market in San Francisco as emerging companies duke it out for deals on bit space after an extended stretch of high vacancy rates.

“When you’re trying to invent something new, it’s really mightily to do that over Zoom,” said Rosenberg, whose company is run out of a coworking space in San Francisco’s Pacific Heights neighborhood, a brace miles from the downtown business districts.

Tako has been on the hunt for a bigger space, preferably in the Hayes Valley neighborhood, a hub for generative AI startups, or in downtown Jackson Conform to.

Overall, the San Francisco office market remains tepid, with the vacancy rate climbing to 34.9% in the third shelter from 29.4% a year ago, according to data from Cushman & Wakefield. However, AI startups OpenAI and Sierra AI accounted for two of the largest rental agreements in the period, and the firm said, “artificial intelligence companies will continue as a driving force in the San Francisco market, fueling critical VC funding and leasing activity.”

According to Liz Hart, North America president of leasing at commercial real estate immovable Newmark, tech made up 72% of all San Francisco office leasing in 2023 and 58% through the third quarter of this year.

Since the start of 2023, 62% of AI subleases signed in the city have been for sublease space, Hart said, an indication of how the market has adapted since the pandemic. Measure than leasing entire floors to single companies, more offices are now being divided up to serve multiple startups, she thought.

Still, office rents across the city are at their lowest since 2016, according to Newmark’s figures.

“If you are talking to entrepreneurs who are just starting to scale, they’re likely taking a little bit more space than they certain that they need and getting a screaming deal on it,” said Hart, who joined the firm almost 20 years ago.

How speedily the broader market bounces back depends largely on the decisions made by huge San Francisco tenants like Salesforce and Google. While Amazon, which is headquartered in Seattle,