REAL ESTATE NEWS

A new report projects that the generative AI boom in the Bay Area will continue its exponential growth over the next 24 months, expanding GenAI's CRE footprint in the nine-county region by 200%.

The Bay Area is by far the leading global GenAI hub, now home to the headquarters of 825 AI companies, nearly four times as many as second-place NYC’s 237, Cushman & Wakefield said.

Companies attracted nearly 82% of global venture capital funding for GenAI in 2024, according to the report. There are 466 GenAI companies based in San Francisco, more than half of the total for the entire Bay Area. AI clusters also are growing in Silicon Valley at locations near Stanford along the Caltrain rail line and in proximity to the headquarters of several tech giants.

C&W described the Bay Area as an ideal location for GenAI startups offering “a unique combination of a highly skilled and talented workforce, an exceptional quality of life and a culture of innovation.”

“Unlike past tech booms, where companies prioritized standalone buildings to establish a distinct ‘brick-and-mortar’ identity, AI firms are increasingly open to high-rise offices in central business districts,” the report said.

Prospective AI tenants are prioritizing rapid occupancy and short-term lease agreements to accommodate their dynamic growth. The need for flexibility drives demand for plug-and-play spaces, allowing companies to move in quickly and scale operations without delay.

As a result, most lease agreements for AI firms emphasize turnkey solutions that minimize downtime and maximize operational efficiency. Larger and later-stage AI companies are seeking phased occupancy options, allowing them to make real estate decisions now while accommodating future headcount growth with greater flexibility, the report said.

GenAI firms also are embracing an “office-first” culture, with employees typically working on-site four to five days per week.

The Bay Area absorbed nearly $50B out of an estimated $56B in global venture capital funding for GenAI in 2024, a total that more than doubled the 2023 tally of $24B. More than half of the 2024 global VC total last year went to companies based in San Francisco.

Five of the six largest funding rounds in 2024 were raised by San Francisco-based AI companies, including Databricks, which had the largest single round at $10B; ChatGPT pioneer OpenAI, which raised $6.6B; and Anthropic, which had two rounds each raising $4B, followed by a third round that raised $1.2B. Palo Alto-based xAI, Elon Musk’s GenAI startup, raised $6B.

San Francisco Mayor Daniel Lurie cut the ribbon this week for the grand opening of OpenAI’s new headquarters in Mission Bay. The GenAI pioneer now has an office footprint of more than 1M square feet in San Francisco, with plans to double the size of its workforce in the city from the current level of 2,000 employees to 4,000, the San Francisco Business Times reported.

According to Cushman & Wakefield, nearly 70% of the leases inked by GenAI companies in San Francisco have terms of three years or less, with the average lease for startups encompassing less than 13K square feet.

“GenAI companies are helping the San Francisco economy recover from its pandemic-based struggles,” C&W’s report said. “There has been a huge wave of leasing activity and job creation after so many other tech companies cut back on their space needs.”

There currently are 213 GenAI companies based in Silicon Valley, 76 GenAI companies based in San Mateo County and 70 GenAI firms based in East Bay or North Bay areas.

Source: GlobeSt/ALM