AI Is a Silver Lining for the Office Market

Emerging technologies like artificial intelligence are poised to catalyze the next growth cycle. While the industry still is in its nascent stages, artificial intelligence companies gained momentum in 2023, making up 11 percent of venture capital funding in the U.S. last year.

San Francisco, Silicon Valley, New York City, Boston, and Greater Los Angeles were the top five markets to receive AI-related venture capital funding. They also had the highest amount of office leasing activity by AI companies, according to CBRE’s Tech-30 report. These markets have long demonstrated the relationship between investment and real estate demand as young companies use their cash infusions to hire new employees, and in many cases, expand into larger offices.

These markets have proven to be resilient hubs of technology and innovation even during challenging economic and tech industry business conditions.

San Francisco (2023 Venture Capital Total: $27B)

San Francisco is the top market to receive VC funding and has the most leasing activity by AI companies. Between 2019 and 2023, AI firms leased over 2.5 million square feet of office space in San Francisco. These AI firms, like the generations of tech companies before them, are beneficiaries of San Francisco’s status as a magnet for venture capital funding and tens of thousands of the talented technology workers.

Beyond artificial intelligence, much of the technology leasing that occurred in 2023 has been driven by software-based firms primarily in the central business district.

Silicon Valley (2023 Venture Capital Total: $8.6B)

Between 2019 and 2023, AI firms claimed over 2.2 million square feet of office space in the market. Silicon Valley’s early lead in AI development is largely owed to the region’s nation-leading tech workforce of nearly a quarter million high-tech software and services professionals and the tech titans that will further develop and deploy this emerging technology.

Tech leasing activity in Silicon Valley last year was led by software products and services, including financial technology and semiconductor industry. Mountain View and Santa Clara were the most attractive submarkets for technology tenants signing new leases for their proximity to existing tech talent from Stanford University, major tech companies based in the Bay Area and the availability of large office campuses. 

New York (2023 Venture Capital Total: $13.6B)

New York City has grown in popularity over the past decade among tech companies seeking untapped and talent-rich markets outside of the west coast. Now, New York City’s technology sector is producing companies on the leading edge of technological innovation. Since 2019, AI firms have taken over 900,000 square feet of space in Manhattan. New York City’s emergence as a hub for AI is owed to its enormous population, large investor community, and drive to position itself as a technology leader.

Beyond AI, the city’s tech landscape has attracted a large number of enterprise software firms and other tech-forward ventures with a focus on financial technology, communications, and health care. The Chelsea and Flatiron neighborhoods attracted the most technology firms signing new leases in Manhattan due to their proximity to Google’s Chelsea campus and vibrant mixed-use environment.

Boston (2023 Venture Capital Total: $11.9B)

Boston’s thriving biotechnology industry and close proximity to several of the country’s best universities makes it a desirable outpost for the growing AI industry. AI firms have taken roughly 1.8 million square feet of office space in the Boston region since 2019, second only to the Bay Area markets. The industry further benefits from Boston’s workforce—which has the second-highest rate of educational attainment—and the city’s enduring appeal to venture capitalists. 

Beyond the city’s burgeoning AI industry, the overall tech leasing landscape is subdued compared to previous years. Boston’s tech leasing is primarily led by software development and machine learning companies. A majority of new tech leases are located in Boston’s central business district and the Seaport neighborhoods.

Los Angeles/Orange County (2023 Venture Capital Total: $6B)

The Greater Los Angeles market is well-known for its entertainment industry, but its tech sector has grown over the last decade as innovation in aerospace and consumer goods have taken off. The region’s high-tech labor force, large pool of venture capital and large office market has attracted over 900,000 square feet of leasing by AI firms since 2019.

In addition to AI firms, Los Angeles’ tech industry is led by software firms that support the region’s aerospace and entertainment sectors. West Los Angeles was the most popular submarket for new tech leases in 2023, but tech employers also gravitated toward downtown L.A., the Greater Airport Area and Conejo Valley.

Ben Wurtzel is a senior research analyst at CBRE, where he analyzes market trends and produces thought leadership reports. CBRE is a global commercial real estate services company.