AI startups are snatching up San Francisco offices, using Zoom fatigue to recruit talent

When Noah Jackson began his search for a new software engineering job at the start of 2024, there was one quality he knew he wanted in his next employer: office culture.

Jackson, 27, has spent almost his entire professional career in the post-Covid world of remote work. While many tech companies eventually brought employees back on a hybrid basis, others got rid of their leases altogether. For Jackson, all but the first nine months of his first real job involved working out of his home in San Francisco or at his companyâ€s office, which tended to be mostly empty.

“Coming out of school, I overlooked how much work is really a part of your life and not just a box to check off,â€� said Jackson, who previously worked at an enterprise software company. “Being fully remote, it feels like itâ€s just like a thing that you have to do.â€� 

In May, Jackson got his wish, taking a job at Tako, a visualization search engine startup that requires employees come to the office four days a week. Tako is among a growing crop of early-stage tech companies in San Francisco attempting to return to the pre-Covid days, when startups took pride in their digs and limited their use of Zoom.

“Weâ€re not trying to build a culture that works for everybody,â€� said Tako CEO Alex Rosenberg, who launched the company earlier this year. “Weâ€re just trying to make it work for Tako.â€�

The recruitment success enjoyed by Tako and its peers speaks to a growing remote work fatigue, particularly in San Francisco, where housing conditions are often cramped and where a high concentration of young, ambitious techies are eager to comingle. The changing landscape also coincides with a boom in artificial intelligence that started after OpenAIâ€s launch of ChatGPT in late 2022. Itâ€s one of the few areas where venture capital firms are showing an appetite for risk.

Rosenberg says heâ€s seeing a much more competitive real estate market in San Francisco as emerging companies duke it out for deals on office space after an extended stretch of high vacancy rates.

“When youâ€re trying to invent something new, itâ€s really hard to do that over Zoom,â€� said Rosenberg, whose company is run out of a coworking space in San Franciscoâ€s Pacific Heights neighborhood, a couple miles from the downtown business districts.

Tako has been on the hunt for a bigger space, preferably in the Hayes Valley neighborhood, a hub for generative AI startups, or in downtown Jackson Square.

Overall, the San Francisco office market remains tepid, with the vacancy rate climbing to 34.9% in the third quarter from 29.4% a year ago, according to data from Cushman & Wakefield. However, AI startups OpenAI and Sierra AI accounted for two of the largest leases in the period, and the firm said, “artificial intelligence companies will continue as a driving force in the San Francisco market, fueling significant VC funding and leasing activity.â€�

According to Liz Hart, North America president of leasing at commercial real estate firm Newmark, tech made up 72% of all San Francisco office leasing in 2023 and 58% through the third quarter of this year.

Since the start of 2023, 62% of AI leases signed in the city have been for sublease space, Hart said, an indication of how the market has adapted since the pandemic. Rather than leasing entire floors to single companies, more offices are now being divided up to serve multiple startups, she said.

Still, office rents across the city are at their lowest since 2016, according to Newmarkâ€s data.

“If you are talking to entrepreneurs who are just starting to scale, theyâ€re likely taking a little bit more space than they know that they need and getting a screaming deal on it,â€� said Hart, who joined the firm almost 20 years ago.

How quickly the broader market bounces back depends largely on the decisions made by huge San Francisco tenants like Salesforce and Google. While Amazon, which is headquartered in Seattle, recently announced a five-day in-office requirement, most of its tech rivals have yet to implement such mandates.

Zach Tratar was able to snatch up an ideal space for his company Embra last year through sheer hustle. When his broker messaged him about a promising location, Tratar showed up 90 minutes later, beating another prospective lessee to the spot, which is by the Salesforce Tower.

“I immediately was like, ‘Cool, Iâ€ll take it. Send me the paperwork right now,â€â€� said Tratar, whose company is building an AI operating system. He estimates the office would likely have cost his company twice as much before the pandemic. 

Tratar said his plan from the start was to have employees come to the office four days a week, with Wednesdays reserved for remote work. 

“In-person teams have a magic to them,� Tratar said. “When one thing is going well it adds energy to the system and people get excited.�

The AI renaissance has familiar qualities for veterans of the Bay Area. The app economy that followed the launch of the iPhone in 2007 sparked a wave of investment and a flood of new companies in San Francisco and Silicon Valley. There was also the boom in social networking and, before that, the internet bubble.

“Weâ€ve seen enormous growth in the category, but weâ€re really just at the beginning,â€� Hart said, about the current state of AI. 

However, in todayâ€s world, companies have to earn their employees†commutes to the office, Hart said, because of how dramatically the pandemic changed expectations.

Startups have to be thoughtful about access to public transit while also catering to people who drive. Thereâ€s also a benefit to being near restaurants and cafes.

AI startup Mithrl is offering employees commuter benefits and free meals, said CEO Vivek Adarsh. Mithrl moved into an office on San Franciscoâ€s Market Street in July.

Adarsh started the company with his co-founder last year after finishing graduate school at the University of California, Santa Barbara. The pair moved to San Francisco for the nucleus of talent and because they believe in the future of the city, Adarsh said.

“Thereâ€s a lot of enthusiasm and energy,â€� Adarsh said. “People are taking more chances on the city.â€�

A few miles away, in the Mission District, robotics startup Medra has been in person five days a week since launching in 2022. CEO Michelle Lee said that when she speaks with her peers, many tell her that theyâ€re thinking about switching to in-person work, but that moving away from hybrid is a difficult sell to employees who prefer the status quo.

Y-Vonne Hutchinson, a work culture expert, said when companies make drastic changes like that, “youâ€re eroding trust.â€�

Hutchison is CEO of Superessence, whose AI tool lets companies assess their cultures. She said that physical offices provide benefits for younger employees who may be looking for mentorship, growth and career opportunities.

There are limitations. A lot of people moved during the pandemic, and employers started catering to those who want to be fully remote. Being in the office for four or five days, especially in a city as expensive as San Francisco, is particularly tough for parents, people with disabilities and those with long commutes.

“You reduce your hiring pool significantly when youâ€re doing in person,â€� Hutchinson said. 

Lee recognizes the challenge and knows sheâ€s limited in her ability to hire talent from elsewhere in the country. But she said that being in person has ultimately helped with recruiting.

In November 2023, Lee visited the website Hacker News and saw a post by a senior engineer who said he was specifically looking to work for companies with in-person cultures. Lee looked at his qualifications and said she was shocked. She called the post a “green flag� and immediately reached out.

Within a month, the prospect had joined Medra. 

“It wouldâ€ve been so difficult for us as a company to hire someone like this because weâ€re a small startup,â€� Lee said. “But part of it is there are some really amazing engineers specifically looking for in person because of that collaboration.â€�