The boost artificial intelligence startups have provided for San Francisco's struggling economy has officially turned into a boom with the maker of ChatGPT signing one of the city's largest office deals in more than half a decade.
OpenAI, a startup that has told investors it expects to reach $1 billion in revenue this year and generate many billions more in 2024, has finalized a sublease arrangement with Uber to take over two of the four buildings that make up the rideshare giant's headquarters in the Mission Bay neighborhood, spokespeople for both OpenAI and Uber confirmed to CoStar News.
The accelerating AI property demand is a welcome source of activity for San Francisco, and in recent months, more than half a dozen of these AI firms have signed leases to accommodate expansions in the city. The moves both hint that the city's economic rebound is beginning to gain steam and underscore the firms' commitment to in-person work.
The AI startup will take over the buildings at 1455 and 1515 Third St., a sublease deal that totals roughly 486,600 square feet, the spokespeople confirmed, about 40,000 square feet more than the company was said to be considering as rumors of its pending expansion began to surface earlier this month.
“We are leasing two buildings from Uber in Mission Bay, which will provide the space needed for our growing team,” OpenAI spokesperson Hannah Wong said. “We’re thrilled to continue scaling our company in San Francisco.”
The lease — a shot in the arm for San Francisco's stagnant office market — is the largest to be signed since 2018 when Meta, then Facebook, finalized a deal to take over nearly 756,000 square feet at the Park Tower high rise at 250 Howard St., according to CoStar data. That deal marked the largest office lease to be signed in the city's history.
“We are glad that in a competitive office real estate market, our employee-friendly, award-winning and sustainable buildings clearly stood out,” the Uber spokesperson said. “By right-sizing our space needs we can bring our teams closer together, exercise rigorous cost management, and bring more foot traffic to the businesses of Mission Bay. This is a win-win-win.”
Uber will keep its presence in the other two buildings on its campus at 1655 and 1725 Third St., the spokesperson said. The rideshare company will instead shift its focus to expanding its other campus in Silicon Valley, where it leases all five levels of the 157,000-square-foot building at 200 S. Mathilda Ave. in the tech-concentrated suburb of Sunnyvale, California.
It moved into the space as part of a deal signed in 2019, according to CoStar data.
“The remaining buildings contain more than enough capacity for current Uber employees in San Francisco, with sufficient room to grow, and we also plan to also expand our Sunnyvale campus,” the spokesperson said.
The sublease deal with OpenAI, earlier reported by the San Francisco Chronicle, was brokered by Raise Commercial Real Estate and Paul Hastings.
Gaining Momentum
In a sign of the AI boost to commercial property demand, Anthropic — which is in the final stages of signing a deal to take over the entire former Slack headquarters building at 500 Howard St. — requires its employees to work from an office at least 25% of the time, according to its website. The startup's "staff all come to the office regularly," and many live within commuting distance across the Bay Area.
What's more, many of these companies have taken advantage of the record-high amount of office sublease space available on the market, helping to finally chip away at the nearly 13 million square feet that have been discarded over the past three years and have since dragged down the city's rents and valuations.
Hive AI, a software company that uses artificial intelligence to moderate digital content, recently subleased more than 57,100 square feet of office space at 100 First St. The space had been on the sublease market for roughly two years since cybersecurity firm Okta, which leases 14 of the downtown San Francisco property's 27 floors, initially chose to dump it in 2021, according to CoStar data.
San Francisco, which before the pandemic had been the priciest office market in the nation, has struggled in recent years due to the fallout from remote work, layoffs and other corporate cost cuts, an unprecedented amount of sublease availability and an office vacancy rate that in some downtown neighborhoods surpasses 30%.
The latest string of AI deals has yet to make a sizable dent on the city's real estate challenges. However, the industry has emerged as one of the few sources of new leasing demand, and the expansions have been enough for city officials, local executives, brokers and developers to pin their hopes on the industry's ongoing growth.
“OpenAI is at the forefront of an industry that is transforming the world, and I am proud they are expanding right here in San Francisco where they first started,” Mayor London Breed said in a statement to CoStar News. “This major investment and commitment to our city sends a message that this city is the place to be if you want to be a part of what’s next.”