OpenAI is leading the technology sector's return to real estate growth in a deal that launches the company to the East Coast with its first New York office.
The San Francisco-based ChatGPT maker has signed on for 90,000 square feet in the Puck Building in Manhattan's SoHo neighborhood, according to people with knowledge of the deal. The lease with landlord Kushner Cos. was signed earlier this month, right on the heels of OpenAI's deal to take over Old Navy's former San Francisco headquarters building.
That lease, finalized last month, added about 315,000 square feet to the company's fast-growing real estate footprint and marked San Francisco's largest office deal so far this year, according to CoStar data. OpenAI also signed San Francisco's largest office lease for 2023 when it subleased two buildings in the city's Mission Bay neighborhood from Uber last October.
All told, OpenAI now occupies about 1 million square feet of office space across the San Francisco Bay Area, a benchmark it has reached as a result of its aggressive real estate growth over the past 12 months.
With its long-awaited debut in New York, many real estate professionals are betting that expansion streak is unlikely to slow, especially now that the ChatGPT maker has closed one of the largest venture capital rounds of all time for a privately held company. OpenAI earlier this month raised $6.6 billion in new funding, nearly doubling its valuation to $157 billion.
The company's bicoastal expansions point to a resurgence among tech companies — specifically those focused on artificial intelligence — committing to office space and bolstering recovery efforts for cities that have struggled to regain their pre-pandemic momentum.
Representatives for OpenAI nor Kushner Cos. immediately responded to CoStar News' requests to comment.
Recipe for growth
Along with others such as Anthropic, ScaleAI, Sierra and Palantir, OpenAI has led a cohort of AI companies in scooping up large swaths of space in cities such as San Francisco, Seattle and New York that had otherwise been desperate to fill record amounts of vacant space.
San Francisco, in particular, has attracted the bulk of that leasing momentum in recent years, with the greater Bay Area named as the top U.S. market for AI talent. The region is home to about one-fifth of the nation's AI workers, according to CBRE's annual "Scoring Tech Talent" report.
The amount of space collectively occupied by AI companies in San Francisco jumped from 4.3 million square feet to 4.7 million square feet last year, according to JLL. AI companies accounted for 25% of San Francisco office leases in 2023, and there are about 100 companies with up to 50 employees currently scouting office space in the city, according to the brokerage.
OpenAI's New York debut, earlier reported by the Wall Street Journal, shows some of that demand spilling over to other areas as AI companies continue to attract record amounts of venture capital funding, ramp up hiring efforts and invest heavily in staying ahead of the competition.
"The demand for AI talent has risen dramatically," Colin Yasukochi, executive director of CBRE's Tech Insights Center in San Francisco, told CoStar News. "And that's not expected to stop anytime soon."
And with hiring for AI-related roles expected to soar through the rest of this year and into 2025, many office landlords are hoping that will translate into elevated leasing.
While some critics have blamed AI companies for creating technology that will eliminate the need for some in-person work, the companies themselves adhere to strict office mandates, further underscoring their need for physical space. OpenAI and some of its competitors, for example, require in-person work at least three days a week.
In addition to its San Francisco headquarters and new Manhattan hub, the company leases space for ancillary locations across the Bay Area, Tokyo, London and Dublin.
Early last year, the company employed about 400 people in San Francisco at its former 18th Street headquarters. Its headcount has since soared beyond 1,000 people, and OpenAI is expecting to add at least 500 people to its U.S. and international offices before the end of the year.