San Francisco's struggling economy could get another boost from artificial intelligence industry real estate, this time a sublease agreement that could result in one of the largest office deals since the pandemic's start.
Anthropic, a safety-focused AI firm, is said to be in the final stages of signing a deal to take over the entire former Slack headquarters building at 500 Howard St., the latest in a series of leases that startups in the fast-growing slice of the tech sector have signed across the market in recent months. The agreement, reported by the San Francisco Chronicle, has yet to close but already underscores real estate stakeholders' bet that the worst of the city's office market woes are in the rearview mirror.
The roughly 247,250-square-foot property was put on the city's overloaded sublease market shortly after fellow tech giant Salesforce acquired Slack in mid-2021 for $27.7 billion. Salesforce CEO Marc Benioff recently confirmed the deal but did not disclose details about the incoming tenant's identity.
"I just heard one of them just subleased our entire Slack building," the CEO told analysts on the San Francisco-based company's latest earnings call Wednesday about the expanding pool of so-called "ethical AI" companies. "I’m not allowed to say who it is, but I couldn’t be more excited about that because we’re really seeing downtown San Francisco become AI Central."
Anthropic's deal reportedly isn't finalized and might not be completed. The company did not immediately respond to CoStar News' requests to comment, and Salesforce declined to provide additional details.
Room To Grow
The accelerating AI boom 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 in moves that both hint that the city's economic rebound is beginning to gain steam and underscore their commitment to in-person work.
Anthropic, for example, 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.
ChatGPT creator OpenAI is said to be in talks with Uber to take over about 200,000 square feet of the rideshare giant's headquarters space in San Francisco's Mission Bay neighborhood. The AI firm is looking to quadruple its current 500-person workforce, a goal that could result in the company eventually stretching its real estate footprint to as much as 500,000 square feet.
OpenAI "wants to expand to 1,500 to 2,000 employees," San Francisco Supervisor Ahsha Safai, whose office has been in communication with the company, said at a recent hearing. "They are one of the prime groups that is looking to come in and rent some of this sublease space. That is an actual trend that's happening in our city right now."
Other AI firms such as Hayden AI and Tome AI have also signed office leases in the city throughout the summer.
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.
“It’s just awesome to see this growth, and I'm especially proud that they’re right here in our hometown of San Francisco, which is becoming the number one AI city in the world," Salesforce's Benioff said on the investor call. "Very excited for our city."