San Francisco’s office vacancy apocalypse shows signs of easing as A.I. companies start pouring in: ‘We feel like it’s the bottom’

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The worst of San Francisco’s office pain is showing signs of easing.

Demand for offices in the city grew about 10% in the second quarter from the previous three-month period, according to VTS, a commercial real estate technology firm. The company tracks demand by measuring tenants touring office properties and looking for space in key US markets. 

It’s good news for San Francisco office owners who have faced pressure from record vacancies as technology firms cut back on space. Prospective tenants have been hunting for large spaces of more than 50,000 square feet (4,645 square meters) since March. The demand has been largely driven by the boom in artificial intelligence companies, according to VTS Chief Executive Officer Nick Romito.

It’s also positive news for a city pummeled by the pandemic with an ailing downtown core, plagued by homelessness and open drug use. Mayor London Breed said its not artificial intelligence companies, the city is also attracting life science firms needing laboratory space.  

“There are at least 10 companies now in search of almost a million square feet of office space as we speak,” Breed said in an interview from City Hall on Tuesday. “We’re seeing a huge increase in the need for more office space for certain companies. And so that’s going to start taking flight.”Play Video

While VTS’ measure is an early indicator and bodes well for landlords, the California city is still struggling as more employees work from home. Utilization rates on an average weekday are still less than half of pre-pandemic levels, according to badge-swipe data from Kastle Systems. 

“We feel like it’s the bottom,” Romito said. “They still have a long way to go because they’ve started at the bottom. While it’s a glimmer of hope, they have to be consistent quarter-over-quarter for a while to get back to where they were.”

Most of the other cities tracked by VTS — including Los Angeles, Seattle, Chicago, Boston and Washington — reported a quarterly decline in new office demand. In New York, demand was down nearly 4% from the previous quarter but up 7.4% over the past year.

Breed noted that San Francisco has seen hard times before and reinvented itself through multiple downturns. 

“It’s not to say problems aren’t happening,” Breed said adding that “there’s a reason why people keep betting on San Francisco.

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