San Francisco Is Back — But Only for AI Startups
Demand for Premium Offices
Companies are seeking high-end office spaces to attract employees back after the pandemic, according to Matt. These spaces feature natural light, views, and modern amenities, making them competitive with the work-from-home experience. This demand concentrates activity in the top 10-15% of the market, leading to increased tour activity and a return to pre-pandemic levels of interest. The focus on quality reflects a shift in how companies view the office space.
Dasha: AI Driving Demand
Dasha and Matt discuss how AI companies are rapidly expanding and seeking larger office spaces, with some growing from 5,000 to 300,000 square feet in just a few years. This growth surpasses even the dot-com boom era, indicating a significant shift in demand dynamics. The rapid expansion of AI firms is reshaping the landscape of San Francisco's commercial real estate market.
Matt on Current Office Prices
Matt notes that the citywide average asking rent is around $70 per square foot, a 15-25% discount from pre-pandemic levels of $80-95. Landlords are also offering concessions like tenant improvement dollars and free rent, further reducing effective rents. This makes it a favorable time for tenants to secure leases, especially those comfortable with long-term growth. The current market presents a unique opportunity for businesses.
Skipping Coworking Spaces
Founders are increasingly skipping co-working spaces in favor of renting their own offices early on, according to Matt. This is driven by faster company growth and a desire for brand identity. Renting a dedicated office space provides a sense of legitimacy and makes recruiting easier, especially when aiming to create a strong company culture. The need for a distinct brand presence is outweighing the flexibility of co-working.
Matt: In-Person Collaboration
Matt argues that in-person collaboration is essential for building and innovating, as it's difficult to replace centuries of human behavior with remote work. The ability to quickly tap someone on the shoulder or yell across the office speeds up the pace of work. While remote tools have their place, they cannot fully replicate the benefits of in-person interaction. The value of physical presence remains paramount.
Underestimating the Leasing Process
Founders often underestimate the time required to secure an office space, according to Matt. The process typically takes two to three months due to negotiations and legal procedures. Rushing the process can lead to unfavorable terms, so it's crucial to allow ample time for surveying the market and making informed decisions. Patience and planning are key to securing the right space.
Matt on the Modern Office
Matt explains that modern offices require fewer desks and more collaboration areas, both formal and informal, to compete with the work-from-home experience. The office should feel like a home, with multiple areas for people to work, and lean into hospitality with good coffee and meals. Event spaces are also increasingly important. The office is evolving into a multi-functional hub.
Union Square: An Underrated Option
Matt suggests that Union Square is an underrated area for startups, offering affordable options and charming buildings. It's a buzzy area with good nightlife and a police command post, making it one of the safest areas in the city. The area also boasts convenient amenities like restaurants, shops, and hotels. Union Square presents a compelling alternative to more traditional tech hubs.
Matt's Advice for First-Time Founders
Matt advises first-time founders to schedule a meeting with a real estate expert to diagnose their needs. He emphasizes the importance of considering headcount projections and how the company envisions itself working. By asking leading questions, experts can translate these needs into real estate terms and present suitable options. Seeking expert guidance is crucial for navigating the complex real estate market. The right expert can illuminate the path forward.
Matt: Flexibility Over Size
Matt advises startups to prioritize layout and flexibility over square footage when choosing an office space. He emphasizes the importance of finding a space with a short enough lease term to allow for growth. Startups should avoid locking themselves into long-term leases when they are still in growth mode. Adaptability is key to navigating the uncertainties of a growing business.
Subleases as a Strategic Advantage
Matt highlights the benefits of subleases, where companies take over existing leases with furniture and cabling already in place. This reduces upfront capital expenditure and provides shorter lease terms. Subleases offer a plug-and-play solution for companies looking to move quickly and save money. The sublease market provides a strategic advantage for cost-conscious startups.
Matt: SF Market Outlook
Matt suggests that San Francisco is in the early innings of a rebound, with rents up and vacancies down. He believes that so long as AI continues to grow, the market will continue to improve. Founders should feel lucky to be part of this next wave and take advantage of the optionality available today. The future looks bright for San Francisco's commercial real estate market.
Locking in Rents in 2026
Matt suggests that 2026 may be a good time to lock in rents, as they are expected to increase in the future. He notes that companies comfortable with their growth trajectory are already considering longer-term leases to secure today's prices. Acting sooner rather than later could save money and secure quality options. The window of opportunity is closing.
Matt on Compromises
Matt explains that budget is the biggest refiner of scope when startups are looking for office space. He suggests that the inventory will tell you what you need to compromise on. This could include lease term, location, or amenities. Flexibility and adaptability are key to finding the right space within budget. The market dictates the terms of the deal.
Matt: SF Still #1
Matt firmly believes that San Francisco is still the number one city to build a startup. Despite its high costs, the city offers unparalleled access to culture, ideas, capital, and customers. The unique ecosystem of San Francisco continues to attract and foster innovation. The city remains the epicenter of the startup world.
Matt: Office as Culture Engine
Matt emphasizes that the office is a cultural center, not just a cost center. San Francisco has always been one of the most expensive cities for labor and real estate, yet companies still want to be there for culture, idea sharing, access to capital, and access to customers. The office fosters collaboration and innovation. The physical space is integral to the company's identity.
Construction Prices: The Disconnect
Matt identifies construction prices as the biggest disconnect in the market today. San Francisco has the most expensive construction market in the country, preventing landlords from renovating vacant spaces. This creates a surplus of less desirable spaces that tenants are unwilling to invest in. High construction costs are hindering market recovery.
Matt: Stop Optimizing for Size
Matt advises founders to stop optimizing for square footage and instead focus on layout and flexibility. He emphasizes the importance of creating a space that is functional and adaptable to the company's needs. Prioritizing design over size can lead to a more efficient and productive workspace. The key is to maximize the use of available space.
Matt on Office Perks
Matt believes that functionality is more important than perks in 2026. He emphasizes the importance of having multiple places for people to sit down and work, such as high tables, couches, and desks. The optionality of places for people to work is a perk that people are passionate about. The focus should be on creating a versatile and comfortable workspace.
