Nearly a year after signing one of San Francisco's largest office deals in more than half a decade, the maker of ChatGPT is once again stepping up to bolster the city's real estate recovery with another full-building lease.
OpenAI, an artificial intelligence company in the process of finalizing the largest venture capital round of all time, finalized an agreement to lease all 315,000 square feet of the building at 550 Terry A Francois Blvd., according to real estate professionals people familiar with the long-rumored plan. The building in the Mission Bay neighborhood is the latest addition to OpenAI's fast-growing real estate footprint, a presence some point to as a cornerstone of San Francisco's post-pandemic rebound.
The lease marks the city’s largest office deal so far this year, according to CoStar data, and represents a significant win for a region facing one of the nation's highest office vacancy rates because of pandemic-induced headwinds.
The company began negotiating with landlord DivcoWest earlier this year to take over the six-story property that is located less than a block away from the two buildings it subleased from Uber last October. That sublease agreement, which included about half a million square feet across the two buildings at 1455 and 1515 Third St., along with several other offices and OpenAI's latest Mission Bay addition means the company now occupies about 1 million square feet in the city.
San Francisco-based life science developer DivcoWest paid $356 million in May 2022 to acquire the 20-year-old property at 550 Terry A. Francois Blvd. The building previously housed retailer Old Navy's headquarters until parent company Gap Inc. decided to consolidate its corporate operations in the city as part of a companywide restructuring.
DivcoWest initially intended to convert the property into a life science use, but the deal with OpenAI means those plans likely will never make it to fruition.
Neither OpenAI nor DivcoWest immediately responded to CoStar News' requests for comment.
Eager for space
OpenAI and other AI companies have played a leading role in the sector's prominence as one of the biggest demand generators for space across the city's recovering market.
Following OpenAI’s latest expansion, earlier reported by the San Francisco Business Times, 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, according to JLL. AI companies accounted for 25% of San Francisco office leases last year, and there are about 100 companies with up to 50 employees currently scouting office space in the city, according to the brokerage.
The San Francisco Bay Area is the top U.S. market for AI talent with it being home to about one-fifth of the nation's AI workers, according to CBRE's annual "Scoring Tech Talent" report.
The accelerating AI property demand is a welcome source of activity for San Francisco. In recent months, more than half a dozen of these 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.
So far this year, about 15% of the office leases signed in San Francisco — filling about 400,000 square feet — have been deals with AI companies, Rob Paratte, Kilroy Realty's chief leasing officer, told analysts earlier this month. Another 600,000 square feet or so is in late-stage negotiations, a pickup "driven by the need for space and bringing people back from home to the office," Paratte said.
For OpenAI, which requires in-person work at least three days a week, that has translated into a number of blockbuster deals the company has recently signed in and around Mission Bay. OpenAI is also touring additional options in the neighborhood to keep up with headcount growth that has more than doubled this year.
The company is in the process of finalizing a fundraising round expected to generate about $6.5 billion at a $150 billion pre-money valuation. If realized, it would be the largest venture capital round in history, a sign of just how eager investors are to jump in on the world's artificial intelligence boom.
Beyond San Francisco, the company is scouting space to house its first New York office. In addition to its headquarters and ancillary locations in San Francisco, OpenAI has hubs in 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.