Downtown San Francisco is seen from above on Feb. 6, 2019. Josh Edelson/AFP/Getty Images
Artificial intelligence (AI) firms are absorbing office space in primary markets such as San Francisco and New York City at a record pace, and the sector’s voracious demand for office space to build out development teams and products has begun spilling into a select subset of submarkets as well.
National AI office demand was up 85 percent in the 12 months through May and spiked 179 percent in major AI hubs, a new AI report published on July 9 by AI-powered commercial real estate platform VTS states.
AI companies represented office demand of 16.8 million square feet across 17 markets during the period, VTS senior research manager Rene Moreira noted.
However, three metro areas represented nearly two-thirds of total office demand from AI companies, with San Francisco—the global epicenter for AI talent and development—accounting for 25 percent. Office properties in San Francisco and Silicon Valley, California, and New York accounted for 63 percent of all current AI leasing, Moreira said.
“San Francisco alone sits at 5 million square feet, nearly a third of the national total,” he said.
Unprecedented office demand from AI companies in San Francisco is powering the city’s office market to a modest recovery after the COVID-19 pandemic. In the second quarter of 2019, San Francisco’s office market hit a vacancy rate of 4.7 percent. Vacancy soared following work-from-home initiatives, however, reaching 30 percent in 2023 and topping out at 35.7 percent as recently as the second quarter of 2025, the City of San Francisco reported.
San Francisco’s office vacancy stood at 32.6 percent at the end of the first quarter of this year.
“San Francisco’s 81 active AI requirements average 62,000 square feet, 2.3 times the average tech requirement across all markets,” Moreira said.
The 45 active AI office lease searches in New York average 61,00 square feet each, while the 58 active searches in Silicon Valley average about 48,000 square feet, or 2.8 million square feet of office space.
Each submarket caters to different AI users, VTS noted. San Francisco is the headquarters of AI pioneers Anthropic (Claude) and OpenAI (ChatGPT), while Silicon Valley’s AI firms tend to be chip designers, hardware manufacturers, and infrastructure providers. New York’s AI companies are skewed toward enterprise-level AI firms, a nod to the city’s massive financial, legal, and media industries. AI firms in Washington, such as Anduril, Palantir, and Shield AI, serve the defense industry.
Expansion
As the industry continues to grow, other markets are likely to become AI epicenters themselves, VTS said. Expansion will hit primary office markets such as Chicago, Los Angeles, Atlanta, and Austin, Texas.
Seattle has already experienced a 390 percent year-over-year spike in growth from AI-related demand, the report said, signaling that outward expansion is already underway.
“Three pressures will push demand outward: AI engineering talent is scarce, San Francisco real estate is expensive, and 25 percent of active AI demand concentrated in a single submarket will produce the crowding that pushed prior cycles outward,” VTS said.
