Just as recent as two years ago, San Francisco’s downtown symbolized all that had become normal in the post pandemic era of America. Tall office blocks that stand halfway empty and landlords who are facing the steepest losses in decades. Now, a new narrative is unfolding, as the city’s office market is being reshaped by the artificial intelligence sector, an industry whose rapid growth is reversing a years-long decline in occupancy and rent values.
From OpenAi’s expansion of headquarters near the Embarcadero to Anthropos’s massive new lease at Foundry Square, the city is witnessing a new unprecedented wave of commitments from AI companies to leases and buildings. These firms are beginning to sign long term leases for hundreds of thousands of square feet which is driving up prime rents and cutting vacancy rates once thought to be immovable. The shift has brought back optimism to a market that has been criticized across the nation, even by the president, to being a city with hope.
The numbers behind the rebound
Analysts estimate that AI and other tech firms have leased more than 1.7 million square feet of San Francisco office space in the past year alone, which is a level of activity that has not been seen in the area since before the covid pandemic. Overall leasing demand has more than doubled year over year, led by a handful of AI players with venture funding and government contracts.
Vacancy rates which topped 30.8 percent in 2023 have begun to go down in 2025 so far. Class-A buildings in the Financial District and South of Market areas are reporting sustained absorption for the first time in half a decade. Landlords, once forced to offer steep rent concessions and flexible terms, are regaining leverage as competition intensifies for high-quality space suitable for AI research and development teams causing rent and evictions to both go up.
Market forecasts suggest AI companies could occupy more than 20 million square feet of San Francisco real estate by the year 2030. That projection, if it becomes a reality, would effectively halve the city’s vacancy rate and establish a long-term foundation for recovery across the commercial property sector.
A recovery built on uneven ground
Despite the momentum bouncing back, the city’s commercial market is still fragile. The total inventory of vacant space, while going down, is still in excess of 25 million square feet. A large section of these buildings are lower grade buildings that are uni=suited to the modern AI needs which leaves these buildings outside of this AI bubble bolstering the market without massive fixes.
The recovery is concentrated into such a narrow space of companies, notably companies in the AI bubble like OpenAI, Anthropic and Snowflake who are accounting for the majority of the leasing activity that is boosting the city. The city’s office base remains oversized relative to post-pandemic work patterns, and many sectors outside technology continue to shrink their footprints.
Sustainable growth or the next bubble?
The AI surge has sparked debate among developers and the policymakers, with the question of is this a durable model that is sparking true recovery or is this nothing more than the next tech bubble set to burst? Both sides have their arguments, with optimists pointing towards how revolutionary the AI model is as an engine that can change the world and lead to economic renewal. WIth so many investors from private capital and growth from the advantages of the historic of the Areas tech driven economy.
While the skeptics counter by looking at the volumes of leases may reflect expectations rather than durable true employment growth that is sustainable. AI firms could lead to an eventual rationalization of their space as efficiency gains reduce the requirement of workers or as the companies expand into the lower cost markets.
For now, the city’s skyline tells a story of momentum. Construction cranes are returning, coffee shops are reopening, and the sidewalks outside newly occupied buildings buzz with engineers and data scientists. Whether this marks a permanent reinvention or another cyclical upswing remains unknown for now— but after years of vacancy and pessimism, San Francisco’s office towers are, at last, filling up again.
