Company Sees Strong Leasing Results in Q1 as AI Ecosystem Continues to Thrive
The company recently reported its strongest first-quarter leasing results since 2017, with total productivity of approximately 568,000 sq ft. This achievement was made possible by the company's disciplined execution and the continued resurgence in space requirements from rapidly scaling new companies and well-established players alike.
According to Angela Ahman, CEO of the company, fundamentals across their West Coast markets have meaningfully improved over the last several quarters. The return-to-office momentum has intensified, space rationalizations by large users have abated, and the artificial intelligence ecosystem has created considerable new business formation and growth. This has contributed to a resurgence in space requirements from companies seeking to utilize AI to enhance their growth and augment their talented teams.
The company's team has captured outsized market share at 201 Third through the deployment of a creative and disciplined spec suites program. All 5 of their recently constructed spec suites were leased by completion, demonstrating the strength of demand for high-quality space in this submarket. In addition, the company completed a 27,000 square foot direct lease with a current subtenant during the quarter at Crossing 900 in downtown Redwood City, generating an increase in cash base rent of more than 40%.
The AI ecosystem continues to be a driving force behind the company's success. In San Francisco, the epicenter of the AI innovation ecosystem, market conditions continue to tighten. The first-quarter leasing exceeded 3 million sq ft, more than 10% above pre-pandemic quarterly averages. This resulted in the third consecutive positive quarter of net absorption and positioned the company well to capitalize on broad-based demand across their Bay Area portfolio.
One notable example of the company's success is the lease signed by Harvey AI at 201 Third. The company leased 93,000 sq ft at 201 Third before signing a 62,000 sq ft expansion this quarter, with occupancy occurring in April 2026, just 1 month following lease execution. This significant expansion speaks to both the impressive growth trajectories of rapidly scaling AI companies and the discipline they've employed with respect to their real estate decisions.
Angela Ahman noted that recent tenant behavior points to a constructive dynamic around technological change, with companies seeking to utilize AI to enhance their growth and augment their talented teams rather than automating simply to manage costs. The company's strong first-quarter leasing results position them to increase their full-year average occupancy guidance by 25 basis points at the midpoint.
The company's recent transaction activity has also been active, with notable deals in Seattle and San Francisco. In Bellevue, the strength continues, optimally positioning space recently recaptured for near-term re-leasing and rent upside. The momentum discussed last quarter in the Denny Regrade submarket further accelerated, benefiting their recently repositioned project, West Eighth.
The company's financial results were also highlighted during the conference call. Jeffrey Kuehling, EVP, CFO, and Treasurer, will discuss the company's updated 2026 guidance. The company is confident in its ability to deliver strong results in the coming year, driven by its disciplined execution and the continued growth of the AI ecosystem.
