AI firms favor neighbourhoods
- AI startups in San Francisco are increasingly choosing smaller, identity-rich neighbourhoods instead of the downtown core. - Business Insider reports this neighbourhood-driven move is shifting San Francisco's economic centre and office demand patterns. - The trend implies brokers should expand search maps beyond the Financial District to locate culture‑and‑recruiting friendly space (businessinsider.com).
San Francisco’s artificial-intelligence startups are increasingly leasing offices in smaller neighborhoods instead of the downtown core. (businessinsider.com) Business Insider reported on April 18 that founders and brokers are steering teams toward mixed-use districts with restaurants, housing, and street life, rather than traditional towers in the Financial District. The story said post-pandemic startup culture now prizes offices that help with recruiting and long workdays. (businessinsider.com) That shift is showing up in leasing data as well as anecdotes. Colliers said in its first-quarter 2026 report that San Francisco leasing accelerated, with demand driven largely by AI-focused firms, while Cushman & Wakefield put the city’s average asking rent at $69.16 per square foot in the first quarter. (colliers.com) (cushmanwakefield.com) The geography of that recovery is uneven. The Real Deal reported this month that South of Market still has office vacancy above 40%, even as AI leasing has revived pockets of the city outside the old downtown center. (therealdeal.com) Landlords are also seeing demand split between giant trophy towers and smaller creative buildings. Harvey, a legal AI company, expanded to about 150,000 square feet at 201 Third Street in South of Market, while Flux signed 38,000 square feet at 340 Bryant Street and took that building from empty to nearly 60% occupied. (therealdeal.com 1) (therealdeal.com 2) Brokers say the smaller deals matter because they are filling in blocks that were not the center of the last tech cycle. Colliers said 75% of San Francisco office leases in the third quarter of 2025 were under 10,000 square feet, a pattern that fits startup tenants testing space needs as they grow. (colliers.com) The broader market is improving, but it is not back to pre-2020 norms. Kidder Mathews said San Francisco’s office vacancy rate was 28.0% in the first quarter of 2026, down 370 basis points from a year earlier, marking a second straight quarterly decline. (kidder.com) CBRE said in January that the Bay Area claimed 14 of the largest United States office leases in 2025, totaling 4.3 million square feet, with tech companies signing 10 of them. That rebound is helping San Francisco, but the newest AI tenants are also redrawing where office demand lands inside the city. (cbre.com) For San Francisco, the result is a recovery that looks less like a return to one downtown and more like a map of smaller districts where startups want to work, hire, and stay late. (businessinsider.com)
