AI startups are shifting the economic center of gravity of San Francisco

• More AI startups are choosing small neighborhoods and mixed-use, creative spaces.
• Downtown offices no longer suit the office culture of post-COVID startups, business experts say.
• Food delivery and local businesses could benefit from startup employees who work long hours.

Despite the pandemic, an exodus of tech companies, and a feared "doom loop," a one-two punch of return-to-office mandates and the explosion of AI startups has shifted San Francisco's tech center into smaller neighborhoods.

Together AI is one of those startups, housed in the Design District, where office space costs around $59.53 per square foot, according to a fourth-quarter 2025 report from Cresa, a commercial real estate company. That is comparably more affordable than the cost of commercial space, which has hit $70 per square foot or more in the Financial District and Mission Bay, where OpenAI's office is located.

CEO Vipul Ved Prakash told Business Insider that due to the neighborhood's creative vibe and convenient parking, more AI companies moved within a one-mile radius, and many of Together AI's customers relocated right next to the company.

"We will debug problems together or even think about partnerships and doing other stuff together," said Prakash. "It's just easier to do that in person, and I think this is how these network effects work eventually, once you have a critical mass of companies."

Companies focused on AI, such as Virtual AI, Applied Compute, Rox AI, and Curai Health, are all located in the same building as Together AI. Other AI companies with a three-block radius include Scale AI, Resolve AI, and Gamma. Together AI is currently in talks to raise a new round of funding at a $7.5 billion valuation. Altogether, these companies have a valuation of more than $40 billion.

"It all happened very organically," Prakash added.

The current startup wave isn't the first to push into smaller neighborhoods like the Design District, which was traditionally an industrial hub for material supply warehouses, furniture manufacturing, and repair shops. A previous wave of tech and innovation already showed an inclination to reimagining where the office needs to be. Airbnb, for example, established its headquarters in the Design District in 2013 and renewed its ten-year lease in 2024.

Startup employees have different needs

Richard Florida, an urban studies theorist and professor at the University of Toronto, told Business Insider that traditional office districts like the Financial District were built for a time when companies stacked knowledge workers in vertical towers, but AI startups are quickly changing the landscape.

"An office district isn't an office district anymore — it's a mixed-use area," said Florida. "Startups and interesting creative companies need cheap, reconfigurable space, and space that they can add to quickly, and that's not in the office tower."

"What we're also learning in AI is that people are working much longer hours," Florida added. "So people are in the office like 9 a.m. to 11 p.m., and they need stuff around them that keeps them energized, like going out for a break, going for a walk, and doing something outside to recharge. The streets can't be dead after 5 p.m."

Geetha Rajan, director of strategy and business operations at Freshworks, specializing in AI strategy, told Business Insider she believes that the shift in startup culture will drive significant economic activity into pockets of San Francisco.

"A couple of years ago, the big bragging rights for a company was, 'I need to hire 10,000, 20,000 more people, or 50,000 more people.'" said Rajan. "But if you think about it now, it's a 10-person startup making millions of dollars already."

"Even though AI helps us be remote, the people who are building or the companies still very much like to be in person, whiteboarding, brainstorming," Rajan added, "Because at the pace at which these companies are moving, Zoom is not going to hold up to that."

Potential beneficiaries

Rajan said that the food delivery and catering scene, as well as local coffee shops, are perhaps the biggest winners as startup workers stay late at the office and come in on the weekends with little option but to order food to their workplaces.

DoorDash, for instance, wrote in its annual report that weekday lunch deliveries to San Francisco commercial addresses, such as offices, increased 15.7% from 2024 to 2025.

Rajan also said that many hackathon events and meet-and-greet-style activities for builders are now being held in quieter bars in small neighborhoods, often not far from some startup offices, bringing vibrancy to places people may have forgotten during the pandemic lockdown.

Between the Mission District and the Castro, several up-and-coming AI companies have also quietly set up offices along the main street, including Comp AI and Ace AI, just a few blocks away from the AI Start Academy.

Many startups, like Together AI, are occupying previously vacant spaces in areas that are not heavily residential. Thinking Machines Lab, the former OpenAI CTO Mira Murati's startup, notably occupies a 72,000-square-foot, three-story building in the Northeast Mission that was once an old factory.

"I often find myself at one of these events in some bar in the Mission, and I say 'oh, I haven't been here in quite some time,'" said Rajan.

Previous startup waves were different

Some economic experts, however, are skeptical that the AI boom will directly translate into real economic growth for small neighborhoods or for the city at large.

Ted Egan, the chief economist of the city of San Francisco, told Business Insider that while a new company opening up is theoretically almost always good for service-based businesses immediately next to it, this new class of startups looks very different from previous waves.

Compared with the last tech boom in the Mid-Market neighborhood, which generated increased economic activity when the former Twitter moved there and brought a lineup of heavyweights like Uber and Square with it, AI startups won't leave the same economic footprint.

"I'm not sure we're seeing the same local economic impact that we've seen from tech booms in the past," said Egan. "It's not to say they're not hiring anybody, but our tech job listings in the city are about half of what they were before the pandemic."

Egan pointed to city data showing that proceeds from sales tax in the Mission grew by 8% in 2025, but he is not confident it is driven by AI start-ups.

"I think that there is a clustering effect for these companies," Egan added, "But it's just that the spending profile of the companies that are getting VCs these days is very different than in the past because AI is so compute-intensive."