San Francisco's booming base of artificial intelligence startups is quickly whittling away at the city's once-record amount of sublet space.
Vercel, a cloud platform for web developers, signed a deal to relocate its corporate headquarters to the city's SoMa area in a move that will help backfill space left behind by job-board company Indeed. The agreement at 201 Mission St. is for nearly 42,150 square feet.
For Vercel, the new address will be substantially larger than its current headquarters at Kilroy Realty's 100 First St., where it has been leasing a portion of space on the 20th floor. The deal encompasses space across the Mission Street property's second and third floors as part of a term that extends through April 2028, according to marketing materials viewed by CoStar News.
Neither Vercel nor Indeed immediately responded to CoStar News' requests for comment.
Founded about a decade ago, Vercel's valuation has soared to roughly $3.5 billion, largely due to funding rounds it has closed within the past several years. Its headcount spiked by about 35% alone last year, and its now 800-person workforce is expected to grow even further.
Aiding a widespread recovery
Companies looking to expand or trade up their office spaces have helped reduce San Francisco's record-high sublease rate, which has fallen by about 30% over the past two years, according to CoStar data.
San Francisco, which before the pandemic had been the priciest office market in the nation, struggled to rebuild some of its momentum in the fallout from remote work, layoffs and other corporate cost cuts, all of which pushed the market's office vacancy rate to more than 30% across some downtown neighborhoods.
Yet thanks to blockbuster growth across the AI sector, many stakeholders are now pointing to a spate of major leases and expansions as a sign that San Francisco has finally turned a post-pandemic corner.
Over the past year, in particular, AI companies such as Anthropic have played a leading role in the sector's prominence as one of the biggest demand generators for space in San Francisco and other tech hubs in the United States.
AI companies have expanded their collective footprint in the city to more than 5 million square feet over the past couple of years, according to data from CBRE, and the sector has the potential to stretch beyond 21 million square feet over the next half-decade. If that demand materializes, it can potentially cut down San Francisco's record-high vacancy rate by about half and catapult the city back to its pre-pandemic standing as one of the strongest office markets in the world.
The city's current vacancy rate is about 23%, according to CoStar, a significant multiple compared to the rate of less than 6% reported in 2019.
AI companies' accelerating demand for space is a welcome source of activity for San Francisco. In recent months, more than half a dozen companies and fast-growing startups have signed leases to accommodate expansions in the city, many of which have scooped up some of the region's largest sublet availabilities.
OpenAI, for example, has been hunting for up to 300,000 square feet to add to what has already been one of the fastest-growing footprints among San Francisco's tenant base in recent years. The ChatGPT maker has finalized two major sublease deals with Uber in less than two years — stretching its regional footprint by nearly 800,000 square feet — and its expansion plans could result in one of San Francisco's largest new office deals in five years.
Earlier this summer, Harvey AI, a provider of automation services for the legal industry, agreed to fill about 92,000 square feet at Kilroy Realty's 201 Third St. building. Last month, AI software company Motive took over a small chunk of space at Twitter's former Mid-Market headquarters.