The AI frenzy has yet to die down in San Francisco. Many of the key companies in the AI sector call the city home and continue to grow their presence.
These animal spirits have spilled over into the AEC sector, according to Swinerton’s Peter Hau. “San Francisco serves as the epicenter of AI, resulting in stronger office construction than neighboring markets,” he explains.
The creation of AI mirrors the city’s 2010 social media boom in several ways: massive corporate and venture investment and the spawning of clusters of startups that tend to expand from a few dozen employees to much larger footprints.
That, in turn, has ignited demand for premium office space, he says, especially for office buildings with high-end amenities and the availability of large contiguous vacant floors.
According to a CBRE analysis, the more than 10 million square meters of leased space in the city last year was the highest total since before the pandemic.
The formula for growth is relatively simple. To attract the premium talent required by AI companies, there has been an increased expectation of the caliber of the work environment with an emphasis on core productivity, creativity, socialization and idea sharing.
“There is a significant amount of office upgrades and repositioning, particularly in trophy and Class A buildings with tenant improvements that exceed $450 per square foot,” says Hau.
Those elated sentiments can be seen in numbers from Dodge Data and Analytics for the region, where commercial construction starts totaled more than $3 billion in 2024. The numbers were down last year and are forecast to top $790 million in 2026.
“Architects and contractors report full pipelines for tenant improvements tied to AI firms or traditional firms, such as legal and financial services, that provide professional services in support of AI firms,” says Hau.
That increase has also helped improve the outlook for downtown, which had been struggling with post-pandemic office vacancies and growing public safety concerns.
“Downtown San Francisco is experiencing a shift from ‘ghost town’ to revitalized activity in key neighborhoods as foot traffic returns,” says Hau.
The increase in investment activity is associated with the city’s efforts to improve public safety and business recovery in key economic corridors. These efforts are showing progress. Although the change is recent, it shows signs of acceleration as the city’s highly equipped and traffic-oriented spaces continue to prove their importance to the business world.
The result is an ideal environment to reap the benefits of the economic surge of AI that has created a number of knock-on effects in sectors such as retail, hospitality and services, he says.
The influx of workers has also created a need for quality housing in a state that has suffered a long lack of affordable housing. Multifamily housing starts in the region are expected to top $3.9 billion by 2025, more than double the previous year. Single-family residential starts are poised to top $1.7 billion this year, having continued a more subdued but steady climb.
Another strong sector for San Francisco is education. The $2.6 billion in starts expected by 2025 marked a healthy increase for a consistently reliable sector. Swinerton’s work at Hiba Academy’s Showcase Square campus, a Mandarin-English bilingual school through fifth grade, is a good example. The adaptive reuse project includes structural improvements to accommodate the change from office to educational use.
The effort required the use of micropiles, foundation improvements and new shotcrete walls. The team is also modernizing MEP systems and installing new finishes to meet school standards.
An interesting outlier has been health care. Starts in this sector plunged to $233 million in 2023 and then exploded to $2.7 billion in 2024. The increase is likely related to the state’s deadline for these facilities to meet strict seismic standards by the end of the decade. Dodge predicts industry starts will decline from those heights to a still-robust $1.1 billion this year.
One downside of the emphasis on prime office space has been the neglect of older “legacy class” buildings that have seen little construction activity. It remains to be seen whether these owners will reposition their products in order to gain market share, says Hau.
