Generative AI has been the significant bright spot for San Francisco and the Bay Area economy over the past year. Of the 1,056 public and private generative AI companies in the U.S., 44% are in the Bay Area, with 25% in San Francisco. In 2023, companies based in San Francisco and in the Bay Area received 67% and 78% of VC funding, respectively, for global AI. This substantial VC funding is now equating into transactions, with over 1.1 msf in leasing activity in San Francisco this year. The rapid pace of change and discovery in this industry pushes AI companies to be office-first, meaning they come into the office four to five days a week.
Leasing activity, including renewals, climbed from the pandemic low of 592,000 sf in the fourth quarter of 2020 to 1.3 msf in the third quarter of 2023—though far from its historic peak of 3.9 msf in the second quarter of 2014. While tenants have been hesitant to transact new leases, there has been an uptick in renewals as a percentage of all activity. Since 2020, renewals accounted for 33.9% of all leases compared to 2018-2019 at 25.5%. The increase in lease commitments implies that companies are leaning toward maintaining return-to-office policies going forward. Bay Area public transit has experienced a slow recovery post-pandemic, with San Francisco's Muni Metro and regional BART system at 65% and 41%, respectively, of pre-pandemic ridership.