At the end of last year, we discussed how tech companies were changing expectations for office space for lease on the westside, fueling the rise of Silicon Beach. In that coastal corridor shared by Santa Monica, Culver City, and Playa Vista, AI companies are snatching up commercial space for sale. And if you’re serious about commercial investment, it’s a move that demands your attention.
The Statistics Hint at AI Companies’ Space Needs
Obviously, the AI surge is not limited to California. Looking at the national numbers illuminates this as a larger trend worthy of any savvy commercial property investor’s note. JLL research highlights that, in just two years, the commercial footprint of AI companies doubled to encompass over 2.04 million square meters of space. Estimates place that figure at 5.2 million square meters by 2030.
Zooming in on the local detail, CBRE’s Tech-30 report revealed that AI startups have leased 10.8 million square feet of office space since 2019 across the five leading venture capital markets: San Francisco, Silicon Valley, Boston, Los Angeles/Orange County, and Manhattan. Key takeaway: Los Angeles and Orange County number among the leading venture capital markets nationwide.
AI Companies Have Unique Needs in Commercial Space for Sale
A particularly interesting aspect of AI companies’ interests in commercial space for sale is just how much the square footage itself matters to these ventures when compared to the needs of other tech companies. While the embrace of hybrid and remote work schedules has allowed several tech companies to reduce their physical workspace, AI companies still require a considerable amount of space for high-powered computers and data security hardware. It’s a refreshing trend following the post-pandemic drop in office tenancy that has impacted the Los Angeles commercial market.
AI companies frequently require entire rooms devoted to complex servers, but this isn’t the only accommodation they seek in commercial space for sale or lease. They also need advanced data capacity, enhanced security features (such as biometric access points), and modular collaborative layouts. It can present a learning-curve to those renting or selling office space to these emerging companies. And, in some cases, it’s creating a gap between what a buyer and seller define as “move-in ready”.
Much Faster Growth Than Usual
However, these points pale in comparison to the breakneck speed at which AI companies scale their need for space. Transwestern research showed a growth of four to five times the space requirement initially demanded by AI companies, indicating that a small tenant in the AI industry could become an anchor tenant in as little as 24 months. And demand for AI continues to grow. A study by McKinsey underscored that while 55% of organizations were using AI in 2023, that number had dramatically jumped to 78% by the following year. It’s a trend worth noting when developing leasing and acquisition strategies.
Chief among the locations where AI companies are really taking root: Culver City. The community has pivoted well to the demands of innovators with professional, technical, and scientific services that present a sterling example for other areas hoping to appeal to AI companies’ needs for commercial space for sale or rent. For buildings that can accommodate the necessary infrastructure, demand from AI companies could provide much-needed economic resilience in the years ahead.
Office-First Security
Perhaps best of all: AI companies tend to lean heavily toward office-first work environments as opposed to hybrid or work-from-home allowances. Therefore, when an AI company chooses to leave instead of invest in commercial space for sale, they provide a certain security to tenancy that’s hard to find in other industries. For a building owner who can support the power, security, and technological stability required to support these rapidly growing businesses, commercial investment has rarely, if ever, looked better.
