An AI startup that helps companies capture and process data from meetings and conversations is the latest firm of its kind to grow its real estate in San Francisco's SoMa District in preparation of further internal growth.
Recall.ai, on the heels of landing $38 million in a funding round this fall, inked a deal for about 15,000 square feet of space on the second floor of 475 Brannan St., roughly doubling the firm’s footprint in one of the city’s fast-rising tech hubs.
While the deal is not the largest to be signed in recent months in San Francisco, it marks the latest firm to flock to the onetime industrial neighborhood formerly known as South of Market Street, drawn by the area’s proximity to freeways and its relatively cheap rents in comparison to Class A office buildings of the Financial District.
AI tenants are seeking properties that can support their "ambitious expansion plans and avoid constraints on future growth," according to Nigel Hughes, a senior director of market analytics for CoStar. Tenant demand is approaching historic highs in San Francisco, where leasing activity is outpacing that of other major markets across the country. Still, average lease sizes in the city are about 19% smaller than pre-pandemic levels.
That could change as more firms expand amid surging demand for artificial intelligence.
“What we’re seeing in the AI-driven office market is a clear shift in demand from 3,000 to 5,000 square foot requirements to 15,000 to 20,000 square feet, as firms mature, secure additional funding and grow," Transwestern's Mike McCarthy, who helped represent landlord Clarion Partners in the Recall.ai deal, said in a statement.
“Recall AI’s lease at 475 Brannan is another strong indicator of the vibrant tenant demand coming from the AI sector and reinforces the SoMa submarket’s position as the preferred location for this rapidly growing industry,” McCarthy added.
Buildings where startups can grow
Recall.ai will move into its new offices on the second floor at 475 Brannan St. early next year.
New York-based Clarion acquired the 258,000-square-foot office building, which sits just a few blocks from Oracle Park on the border of SoMa and Mission Bay, for $148 million in 2012. The historic structure dates back to 1908; it was built as a warehouse for heavy construction materials and tools during the great rebuilding effort after a major earthquake and fires leveled much of the city.
The building was renovated and expanded in the 1990s and became one of the first large office spaces suited for tech and multimedia companies as the onetime industrial neighborhood became a tech hub.
Now it’s part of another sort of rebuilding, as AI startups have helped reinvigorate SoMa and other popular downtown-adjacent tech hubs in San Francisco following several difficult post-COVID-19 years.
While the city is still grappling with a vacancy rate of about 23%, according to CoStar data, AI companies have been a critical source of demand as many have fueled blockbuster deals and have been quick to sign on for more, in some cases within a matter of just a couple of months. ChatGPT maker OpenAI, Nvidia, Anthropic, Harvey AI and other companies have been at the forefront of that trend, signing some of San Francisco's largest office deals and helping to drive leasing activity back toward positive territory.
David Gu, Recall.ai's cofounder and chief executive, said the firm's recent funding round would help launch “new conversation data capture capabilities” for some 2,000 customers including HubSpot, ClickUp and Apollo.io. Backers of the startup include HubSpot Ventures, Salesforce Ventures and Y Combinator. Gu noted that companies across dozens of industries are embedding AI that understands human conversations into their core products.
“We’re in an AI gold rush, but 99% of the context AI needs is never written down — it’s spoken,” Gu said in a statement.
The firm declined to comment on the new lease. Recall.ai’s LinkedIn page indicates that the firm has between 11 and 50 employees.
For the record
In addition to Mike McCarthy, Transwestern's Brian McCarthy and Maddie Meyersieck represented landlord Clarion Partners in the deal. JLL’s Dan Johnson, Kat Kozlowski and Will Cassriel represented Recall.ai.