AI startups are taking over San Francisco offices, using Zoom fatigue to hire

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

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

“Coming out of school, I overlooked how much work is part of your life and not just a box you have to check,” said Jackson, who previously worked at an enterprise software company. “Being so remote, it feels like something you should do.”

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

“We're not trying to build a one-size-fits-all culture,” said Taco CEO Alex Rosenberg, who launched the company earlier this year. “We're just trying to make it work for Taco.”

The hiring success enjoyed by Taco and his peers reflects the growing fatigue of remote work, especially in San Francisco, where housing conditions are often cramped and where a large population of ambitious young techies yearn for connection. The changing landscape also coincides with an AI boom that began after OpenAI launched ChatGPT in late 2022. It is one of the few areas where venture capital firms are showing an appetite for risk.

Rosenberg says he sees a more competitive real estate market in San Francisco as startups compete for office space deals after a long period of high vacancy rates.

“When you're trying to create something new, it's really hard to do it over Zoom,” said Rosenberg, whose company does not have a co-working space in San Francisco's Pacific Heights neighborhood, a few miles from the downtown business districts.

Taco was looking for a larger space, preferably in the Hayes Valley neighborhood, a hub for AI startups, or downtown Jackson Square.

Overall, San Francisco's office market remains tepid, with the vacancy rate rising 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 took two of the largest leases in the period, and “AI companies will continue to be a driving force in the San Francisco market, fueling significant venture capital financing and leasing activity,” the company said.

According to Liz Hart, head of North American leasing at commercial real estate firm Newmark, technology accounted for 72% of total office leasing in San Francisco in 2023 and 58% during the third quarter of this year.

Since the start of 2023, 62% of AI leases signed in the city have been for sublease, Hart said, an indication of how the market has adapted since the pandemic. She added that instead of leasing entire floors to individual companies, more offices are now being divided to serve multiple startups.

However, office rents across the city are at their lowest levels since 2016, according to Newmark data.

“If you're talking to entrepreneurs who are just starting to scale, they're probably taking up a little more space than they know they need and are getting a bargain on that,” said Hart, who joined the company nearly 20 years ago. .

How quickly the broader market rebounds depends largely on decisions made by San Francisco's big tenants, such as… Sales force and Google. while Amazonheadquartered in Seattle, recently announced a five-day in-office requirement, but most of its tech competitors have yet to implement such mandates.

Zach Tartar was able to snatch the perfect space for his company Embra last year through a lot of effort. When his broker messaged him about a promising location, Tratar showed up 90 minutes later, beating out another potential tenant for the space, which is located near the Salesforce Tower.

“I immediately said, 'Great, I'll take it. Send me the papers now,'” said Tratar, whose company is building an AI-powered operating system. He estimates the office likely would have cost his company twice that amount before the pandemic.

Tratar said his plan from the beginning was for employees to come into the office four days a week, with Wednesdays designated for remote work.

“Personal teams have their magic,” Tratar said. “When something goes well, it adds energy to the system and people get excited.”

The AI ​​renaissance has qualities familiar to Bay Area veterans. 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 a boom in social networking, and before that the Internet bubble.

“We've seen tremendous growth in this category, but we're really only at the beginning,” Hart said of the current state of AI.

However, in today's world, companies have to pay for their employees' commutes to the office, Hart said, because of how dramatically the pandemic has changed expectations.

Startups should consider accessibility to public transportation while also catering to people who drive. There is also a benefit to being close to restaurants and cafes.

AI startup Mithrl is offering employees commuting benefits and free meals, CEO Vivek Adarsh ​​said. Mithrell moved to an office on Market Street in San Francisco in July.

Adarsh ​​started the company with his co-founder last year after completing graduate studies at the University of California, Santa Barbara. Adarsh ​​said the duo moved to San Francisco for the core of talent and because they believed in the city's future.

“There is a lot of enthusiasm and energy,” Adarsh ​​said. “People are taking advantage of more opportunities in the city.”

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 talks to her peers, many tell her they're considering turning to robots. In-person work, but moving away from hybrid work is difficult for employees who prefer the status quo.

When companies make radical changes like this, “you erode trust,” said Yvonne Hutchinson, a work culture expert.

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

There are restrictions. A lot of people have moved during the pandemic, and employers are starting to cater to those who want to stay completely remote. Being in the office for four or five days, especially in an expensive city like San Francisco, is especially difficult for parents, people with disabilities and those who commute long distances.

“You reduce your hiring pool dramatically when you do it in person,” Hutchinson said.

Lee recognizes the challenge and knows she is limited in her ability to recruit talent from elsewhere in the country. But she said being there in person ultimately helped with the recruiting process.

In November 2023, Lee visited the Hacker News website and saw a post by a senior engineer who said he was specifically looking to work at companies with personal cultures. Lee looked at his qualifications and said she was shocked. She described the post as a “green flag” and reached out to him immediately.

Within a month, the prospect joined Medra.

“It was very difficult for us as a company to hire someone like this because we are a small startup,” Lee said. “But part of it is that there are some really amazing engineers that I personally look up to specifically because of this collaboration.”