I'm bullish on San Francisco real estate long term. With the boom in artificial intelligence, there is a strong possibility artificial intelligence companies such as Anthropic, OpenAI, Google, and more will support and boost San Francisco real estate prices.
Valuations for AI companies have soared! OpenAI, for example, is worth roughly $86 billion. The company is hiring thousands of employees in San Francisco and making huge office leases.
Why AI Companies Will Boost San Francisco Real Estate Prices
There are a few reasons why the growth of artificial intelligence (AI) firms could potentially support San Francisco real estate prices:
1) Job creation
AI and tech companies need office space for their employees. Major expansions from companies like Google, Facebook, OpenAI, Anthropic, etc. will increase demand for commercial real estate. Higher paid tech workers will also drive housing demand.
For example, in 4Q 2023, OpenAI signed a 485,000 office lease in the Mission Bay Area of San Francisco. Such a large office brings in thousands of new employees who will need to rent and buy San Francisco real estate.
2) Talent clustering
The concentration of AI/tech talent in the Bay Area due to historical momentum and availability of a skilled workforce reinforces the attraction for new firms to locate in the region. This cluster effect amplifies office and housing demand.
I remember when Google and Facebook went public, San Francisco real estate ticked up an additional 5% in one year.
3) High salaries
AI researchers and engineers typically command very high salaries well in excess of $200k. This provides them large budgets to pay for premium housing and increases what prices they can afford. Six-figure jobs in San Francisco are a dime a dozen, especially at AI firms.
23-year-old college graduates are earning total compensation packages of $200,000. By the time these folks, especially who work in AI are in their mid-30s, they are making closer to $500,000 a year. If they get married, now we're talking compensation easily above $1 million.
Such high salaries will simply boost San Francisco real estate prices higher. The west side of San Francisco has become particularly attractive to AI employees due to more space and better value. It's also much safer on the west side due to lower density.
4) Prestige factor
Working at a top AI firm carries prestige, especially for those just starting their careers. They may be willing to pay higher rents and home prices to live in a global tech hub like San Francisco.
there's a reason why some people gripe about the “coastal elites.” Graduates from the top universities flock to coastal cities like San Francisco, New York, City, Los Angeles, and Boston for the highest-paying and most exciting jobs.
Just don't let the unhealthy desire for prestige ruin your life. Make sure you are working at an AI company because you believe in its product and how it can help humanity.
How AI Jobs Might Not Lift San Francisco Real Estate Prices
- Remote work – If more AI jobs go remote, some talent may leave for cheaper areas reducing housing demand. But offices still act as hubs.
- Tech layoffs/slowdown – Any cooling of the tech sector could reduce job growth and appetite for real estate.
- Regulation – Policies limiting commercial development or rent increases could suppress values.
The thing is, if you want to work in AI, you best come to San Francisco and work at the largest, fastest growing, or most well-known AI companies. There is tremendous momentum in the AI space in San Francisco. It is invaluable to meet leaders in the AI space to help you secure your next job.
Personally, I think it's very hard to leave San Francisco now during the AI boom. Once you leave, it's hard to get back in. You want to either work for an AI company, work in a business benefitting from AI, or invest in private AI companies.
How Much Will AI Companies Boost San Francisco Real Estate Prices?
I think AI companies will boost San Francisco real estate prices by 1-2% a year for the next 10 years. This 1-2% is in addition to however the San Francisco real estate market performs in any given year.
For example, without AI, the San Francisco real estate market might appreciate by 3% in 2025. But with AI, the San Francisco real estate market could increase by 4% – 5% in 2025.
Due to high mortgage rates, the San Francisco real estate market is currently passing through a downturn. However, with the NASDAQ up ~50% in 2023 and mortgage rate coming down, San Francisco real estate will likely rebound in 2024 and beyond. The addition of AI companies in San Francisco will help boost real estate prices further.
Anybody who works in tech is feeling much richer. And pent-up demand for San Francisco real estate has been growing since mid-2022 when mortgage rates started really shooting up.
Buy San Francisco Real Estate To Invest In The AI Boom
Buying San Francisco real estate to take advantage of the AI boom is a smart move. People always need somewhere to live. Investing in San Francisco rental properties or owning a home is like selling the picks and shovels during the gold rush of 1949.
San Francisco also continues to be one of the cheapest international cities in the world. Wealth individuals from China, India, and other countries are actively buying up west coast real estate.
The continued growth and concentration of AI and technology companies in San Francisco appears likely to support both office and residential real estate demand and prices, though potential industry or regulatory shifts could alter the outlook.
Invest In Real Estate Surgically
If you can't afford to buy San Francisco real estate or want to diversify, invest in other real estate markets through Crowdstreet. Crowdstreet offers accredited investors individual deals run by sponsors that have been pre-vetted for strong track records. Many of their deals are in 18-hour cities where there is potentially greater upside.
I've met the people at Crowdstreet on two separate occasions and came away impressed with their risk-management and product offerings. You can invest in industrial, residential, hospital, and commercial real estate through CrowdStreet.
Invest In Private Growth Companies
Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI! If you can't get a job in AI or afford San Francisco real estate, you might as well invest some money in private AI companies.
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum.