A San Francisco software company is preparing to more than double its corporate real estate footprint, adding fuel to the growing optimism among landlords that the artificial intelligence frenzy will translate into hefty office space investments.
Silicon Valley darling Databricks is slated to become the anchor tenant for downtown's One Sansome Street tower after agreeing to take over about 150,000 square feet in the 41-story building. The deal is a substantial increase compared to the company's current headquarters space several blocks away at 160 Spear St., where Databricks has been leasing space for the past decade and now occupies about 58,000 square feet.
The company, which sells software that helps companies access and analyze large datasets, told employees it would spend about a year renovating its future office to “support RTO” by 2026.
Once relocated, Databricks will be the largest tenant at the roughly 733,900-square-foot Sansome Street property, helping to backfill space left behind by companies such as Citigroup over the past several years. It's not immediately clear whether Databricks — which just a few months ago closed a funding round to boost its valuation to more than $62 billion — has finalized a lease with landlords PGIM Real Estate and Barker Pacific Group.
Neither Databricks nor the building's owners immediately responded to CoStar News' requests for comment.
Appetite for space
After years of substantial move-outs and extended layoffs that left the national office market bruised and battered, growth across the artificial intelligence slice of the tech industry has emerged as a catalyst for some of the recent blockbuster deals signed in cities such as San Francisco. AI is propping up the market as many of the larger tech companies such as Google, Meta and Amazon continue to hold off on new office deals or shed space, some landlords note.
That AI-driven growth spurt has been a building source of optimism among office landlords and developers, especially those overseeing West Coast-focused portfolios that have faced steep occupancy losses in recent years as many tech companies aggressively shrunk their real estate footprints in an effort to curb expenses and redirect capital to higher-priority spending.
In the San Francisco Bay Area, AI companies are scooping up large blocks of both sublet and direct space, a trend many stakeholders say is critical in rebuilding occupancy.
AI startup Notion late last year signed a 114,646-square-foot lease to relocate its headquarters to the Monadnock Building at 685 Market St. in downtown San Francisco. ChatGPT maker OpenAI followed up on a blockbuster office lease it signed last year with another expansion it finalized in September to take over the entire building at 550 Terry A. Francois Blvd.
'Trickle-down' demand
Another significant underpinning of the AI-driven real estate flurry is that many companies have implemented firm in-person mandates, adding to landlords' increasing optimism that the demand for office space will stick to an upward trajectory.
Last year alone, AI office leasing in the San Francisco Bay Area reached about 2.4 million square feet, more than doubling companies' existing footprints and not including the additional 1.4 million square feet of requirements still hunting for space in the region.
Artificial intelligence companies' prioritization on in-person work will have a "considerable trickle-down effect on office leasing," Hudson Pacific Properties CEO Victor Coleman recently told analysts, adding that the landlord's West Coast-concentrated office portfolio is already benefitting from a demand rebound both in the San Francisco region and beyond.
In greater Seattle, Databricks is in the process of again expanding its regional hub, gradually expanding offices it leases at properties such as West8 in the Denny Triangle neighborhood or City Center Bellevue at 500 108th Ave. NE.
Snowflake, one of Databricks' rival AI companies, has also in recent months signed a handful of high-profile deals as it looks to stretch its own real estate presence in the Seattle and San Francisco areas.
"At this point, we're not sure what defines an AI company," Doug Linde, the president of leasing for national office landlord BXP, recently said. "The critical point is that the technology ecosystem in the city of San Francisco and the peninsula is where the bulk of these businesses are operating and growing [and] the leasing excitement on the West Coast continues to be growth from AI organizations."
