San Francisco's office market is rounding a corner, thanks to an incoming cohort of tenants that are filling some large blocks of available space left behind in a series of high-profile move-outs since the pandemic.
Tools for Humanity, a cryptocurrency startup co-founded by OpenAI CEO Sam Altman, leased the 600 Townsend East building in the city's Showplace Square area. The deal, confirmed by several people with knowledge of the agreement, will grow the company's real estate footprint from 10,000 square feet to more than 87,400 square feet.
Founded in 2019, Tools for Humanity scans people’s eyes in exchange for cryptocurrency tokens and has quickly outgrown its existing space in the Columbia Property Trust-owned tower at 650 California St. The startup had been in talks to lease roughly 60,000 square feet of new office space under construction at the city's mixed-use Mission Rock development. However, negotiations for space at the $2.5 billion project spearheaded by Tishman Speyer and the MLB's San Francisco Giants collapsed earlier this month.
Neither Tools for Humanity nor LBA Realty, its new Showplace Square landlord, responded to CoStar News' requests to comment.
Aside from landing space to accommodate its own ambitious goals, Tools for Humanity's real estate expansion underscores the growing momentum across San Francisco's office market as some tenants — many of which have ties to the artificial intelligence boom — step up to backfill major holes that other tech tenants left behind in the earlier years of the pandemic.
The 600 Townsend East building, for example, had previously been leased to Airbnb as an extension of the home-rental giant's headquarters several blocks away at 888 Brannan St. The Showplace Square building was ultimately a casualty of the company's severe downsizing streak, and after being put up for sublease in 2021, it eventually evolved into a direct listing after Airbnb failed to land any takers.
LBA Realty acquired the property in 2023 for $23.35 million, a price tag that amounted to about half of the nearly $50.5 million former owner Blackstone paid to buy the property in late 2016.
Building momentum
Similar to other investors in the city, LBA's purchase landed at a point when plummeting tenant demand and the high cost of capital collided to push office valuations far below their pre-pandemic levels. Sale prices and property appraisals for distressed or high-vacancy office properties had fallen by 50% or more below earlier benchmarks, according to CoStar analysis, spotlighting San Francisco's battered standing as one of the world's most expensive office markets.
Even so, buyers were willing to take advantage of the depressed valuations in a bet that the city would eventually boomerang to regain its reputation for robust rent growth and seemingly infallible leasing activity. The city continues to sport one of the nation's highest office vacancy rates due to pandemic-induced headwinds. Property valuations have plummeted in recent years, largely because San Francisco has been more affected by flexible work than any other market in the United States.
While there is still a ways to go before it reaches that point, recent deals among companies such as Tools for Humanity are forming what many landlords feel is the backbone for San Francisco's gradual recovery.
Tech companies such as Meta, Salesforce, Dropbox and Pinterest that had previously fueled the regional office market have collectively dumped millions of square feet over the past half-decade, driving San Francisco's availability rate past 26%, according to CoStar data.
Yet with large companies such as Gap, JPMorgan Chase and Salesforce asking employees to come in more regularly, the gradual boost in foot traffic has been enough to fuel a sense of optimism that the city is on the cusp of a rebound. And 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.
San Francisco leasing activity has been incrementally rising over the past six months, according to CoStar data, hitting its highest volume since 2022.
Last year alone, AI office leasing in the San Francisco Bay Area reached about 2.4 million square feet. That more than doubled companies' existing footprints.
"A lot of tech markets are coming from a lower baseline and are not quite back to where they were from the pre-pandemic days, but there's a lot of enthusiasm about San Francisco starting to turn around," Colin Yasukochi, the executive director of CBRE's Tech Insights Center in San Francisco, told CoStar News. "The real estate-related metrics are lagging, and activity isn't quite where it was from the pre-pandemic days, but AI companies are really leading the growth charge and are having a substantial impact in terms of rising demand."