By Katie Burke CoStar News
An artificial intelligence company is relocating its corporate headquarters to Philadelphia, proving that sparks from the national office leasing boom have officially landed in the city.
Datavault AI, a data trading company previously based in Oregon, inked a deal with landlord Brandywine Realty Trust to replant its primary hub in the One Commerce Square tower at 2005 Market St. The lease is one of the early indicators that the momentum fueled by demand among AI companies is spilling over from tech-concentrated hubs such as Silicon Valley and San Francisco into other markets.
The Center City lease, finalized earlier this month, spans a little more than 23,000 square feet on a five-year term.
"Our Philadelphia headquarters marks more than a new address, it is a statement of intent," Datavault CEO Nathaniel Bradley said in a statement. The new space will be able to accommodate and support the company's future growth goals, ensuring that "the foundation is now set for our next phase of expansion."
Datavault's outpost in the more than 1 million-square-foot tower is set to house the bulk of the company's development, sales and operations teams, all of which are expected to expand as the company ramps up acquisitions, licensing deals and targets up to $50 million in revenue for next year.
It isn't yet clear when the AI company plans to take over its space in the 41-story tower overlooking the Schuylkill River. A couple of years ago, it signed a deal for 10,800 square feet for its soon-to-be-former headquarters in Beaverton, Oregon, an agreement that isn't scheduled to expire until 2029.
Art of some new deals
Explosive growth across the AI sector, coupled with many companies' emphasis on in-person work, has translated into a procession of office deals across the United States that has helped to reshape demand dynamics in many pandemic-battered cities.
Leasing among tech companies rose by more than 21% through the first quarter of the year compared with the same period in 2024, a spike that accounted for just shy of 8 million square feet worth of deals. That activity represented a roughly 16.5% share of total office leasing volume nationally and builds off the momentum tech companies generated last year when they accounted for about 18% of all U.S. leasing.
By comparison, leasing among tech companies represented a little more than 14% of the total national leasing volume in 2023.
In San Francisco alone, AI tenants are on the hunt for about 9 million square feet of office space, up from 6.5 million earlier this year. And AI companies have signed upward of 85 leases in San Francisco so far this year.
The typical deal has averaged about 16,655 square feet, but the average term is just 31 months. That is much shorter than the typical office commitment and a sign that many AI startups are unclear about how quickly they'll be growing — and how much more space they'll need.
That deal structure is now extending beyond the Bay Area, as AI-driven demand is unfurling in markets such as Seattle, Boston, New York, Philadelphia, Denver and Austin, Texas.
Beyond the base
Landlords are especially optimistic about the global AI boom, given how quickly many startups are expanding their real estate portfolios by adding office locations or rapidly making existing ones bigger.
Some AI companies, such as Datavault, are starting small. But these companies' spatial requirements have been quick to build as they scramble to keep up with headcount and revenue growth. And while shorter lease terms used to be reflective of tenant uncertainty or caution, landlords now say it's a sign of growth to come.
West Coast landlord Kilroy Realty, for example, reported an influx of demand for shorter-term deals from AI companies. That's not because they aren't willing to commit, but rather because they aren't yet clear on how quickly they'll be growing.
"They're prioritizing that flexibility as it relates to the shorter-lease term because they believe their businesses are going to grow and evolve and they want to make sure that they can have space over the next five to 10 years that's going to meet their needs," CEO Angela Aman told analysts.
To be clear, Philadelphia is far from becoming the next AI hub or reaching a level similar to San Francisco, where the sector has helped rocket the region back to pre-pandemic levels of activity.
Yet the Datavault deal shows companies are both expanding to secondary tech markets or looking to them directly as alternatives to the nation's leading cities. For the now Philadelphia-based company, CEO Bradley said the new headquarters location was chosen "for its access to diverse technology talent, robust infrastructure, and proximity to major financial and academic institutions," all of which come at a significantly cheaper price than if it were to land a spot in San Francisco's SoMa neighborhood or Midtown Manhattan.
Rents in Philadelphia's Center City average a little more than $36 per square foot, according to CoStar data. Rents in parts of Silicon Valley, meanwhile, are now climbing to an average of nearly $72 a square foot.
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