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Trinity Audioplayer ready...By Brianna Sosa, Bloomberg AI-focused tech firms are stepping up searches for office space, and New York and San Francisco won’t be the only cities to benefit from their fast expansion.
Building tours by prospective AI tenants in the US jumped 85% in the year through May, according to commercial-property data provider VTS. Searches are highly concentrated in California’s Silicon Valley, San Francisco and New York, where tours increased at more than double the nationwide rate.
While those places remain key markets for the artificial intelligence industry, office demand is expected to spread to other parts of the country, VTS said. Seattle, Chicago and Washington are cities that are already showing signs of AI growth. “We will 100% see spillover,” said Ryan Masiello, chief strategy officer of VTS.
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What’s more, companies that focus on AI are looking at relatively large offices. Spaces they toured in the year through May averaged 37,000 square feet (3,440 square meters), 37% bigger than the average for traditional tech firms, VTS said.
Any company that’s “being aggressive about growth” has to acquire space before it’s really needed, Masiello said. But they’re more conservative than during prior tech booms, when well-funded firms would grab massive swaths of space with the hope that headcounts would catch up.
This time, “it’s not ‘growth at all costs,’” he said. “Revenue is much more real within these companies than it was in past cycles.”
Data from VTS is an early indicator. There’s often a six- to 12-month lag before a building tour results in a signed lease, according to the firm, and not all end in agreements.
Still, San Francisco is showing tangible signs of a rebound, according to Chris Roeder, who leads the San Francisco brokerage team at Jones Lang LaSalle Inc.
“If you look at the large blocks of space in the market right now, there’s definitely a lot less than there was six months ago and it’s getting picked over,” Roeder said.
This year, Anthropic expanded its San Francisco footprint by leasing an entire building in an area of the SoMa neighborhood that’s known as “AI Alley.” A few blocks over, AI startup LangChain is taking about 70,000 square feet, a space much larger than its previous office, according to the San Francisco Business Times.
In New York, Anthropic agreed to rent a property in downtown Manhattan as part of plans to double its headcount in the city, the New York Times reported this week.
As competition intensifies in go-to markets, tenants seeking space may be forced to decide whether to pay more, sign longer leases or move to other cities. Not all areas will have the opportunity to cash in on the AI spillover, according to Masiello.
“Cities that don’t have the best public transportation, that don’t have the best type of talent, I think at the moment are losing,” he said.
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