San Francisco and its AI Boom

San Francisco is at the center of the AI boom and is reaping the benefits from it, hosting a number of leading AI firms and tech talent. Indeed, the city has the most AI firms and tech talent in the world, being home to OpenAI, Anthropic, Databricks and Scale AI. According to JLL, 37% of AI companies are based in the US, 42% of which are concentrated in the San Fransisco Bay Area.

Pre-COVID, the city lacked investment and its desirability was falling. During the pandemic, tech employees worked from home, leaving the downtown area empty. However, more recently, as the AI boom has gathered pace, the proximity of Stanford and Berkley universities, two AI centers of excellence, has helped feed private sector AI innovation. This is a general trend which sees AI companies and investments cluster where AI talent is available, including around innovation centers and universities, creating a large pool of specialist talent.

Moreover, young people are being attracted to the city, wanting to be a part of this technological revolution. This is also creating demand for residential rental accommodation. Within the more desirable neighborhoods of San Francisco, competition for rental properties is fierce. The city’s population is still growing and the arrival of well-paid tech types has boosted house prices.

Hence, the arrival of AI can boost incomes and generate demand and investment opportunities in the residential sector. Indeed, according to Brookings Metro, in the twelve months to July 2023 San Francisco accounted for 13% of generative AI job postings in the US.¹ According to official data for 2022, San Franciscans’ average personal income per year was more than twice the US average.

The San Francisco metro area alone accounts for more than a quarter of venture capital investment in the US (see Figure 1), while the Bay Area more broadly, including the San Jose metros, makes up more than a third of the national total. The biggest five metros account for 67.5% of venture capital funding in the US. This highlights the scale of investment into the industry.

The office market in San Francisco lost momentum during the run-up to the pandemic, but AI has breathed new life into it. According to Savills, AI companies leased almost 1 million square feet of San Francisco office space between 2020 and the end of 2023.² However, office space available in San Francisco remains high, with vacancy of 25% as of mid-2024, according to CBRE.³ Moreover, according to Savills around 30% of existing leases are due to expire by the end of 2025, and unlikely to be renewed unless rental rates are reduced.

Within Europe, London can be classified as the AI capital. According to Digital Catapult, more than 70% of UK AI companies are based in London.⁴ Moreover, the number of new AI companies choosing London as their base is increasing, attracted by its world leading universities, which offer an exceptional talent pool. Several high-profile AI firms have already made significant investment into London including OpenAI, DeepMind and Tessian.

Source:
1. Brookings Metro, October 2023
2. It will take more than the AI boom to shrink San Francisco’s record-high and growing office availability, Savills, 2024
3. CBRE San Francisco Overview, 1Q24
4. Digital Future Index 2021-2022, Digital Catapult