AI and the Office Market:
Why Class A Will Win

The consensus view on AI and office real estate is mostly wrong. The technology will not kill office demand. It will sort it - brutally and permanently - into winners and losers.

Over the past two years, we have watched with interest as the conversation around artificial intelligence and commercial real estate evolved from theoretical musing to market reality. The early narrative - that AI would hollow out office demand as white-collar jobs evaporated - always struck us as an oversimplification. The more we have studied the data and observed what is actually happening in the Los Angeles market, the more conviction we have in a different thesis: AI is an accelerant, not a destroyer, of premium office demand. But it is absolutely devastating to the back-office, suburban, commodity end of the market.

Understanding the distinction matters enormously for how we think about office investments at Fox Capital Group - and it informs why we have positioned our office exposure the way we have.

The Back-Office Bloodbath Is Real

Let us be clear about what AI is actually doing to the workforce. Tools like ChatGPT, Microsoft Copilot, and a growing ecosystem of task-specific AI applications are systematically replacing the kinds of jobs that historically occupied Class B and C office space in suburban markets: data entry, basic reporting, administrative coordination, junior legal and accounting work, and customer service functions that once required large teams seated in large floor plates.

The research firm Challenger, Gray & Christmas reported nearly 50,000 job cuts attributed directly to AI in 2025, and that figure almost certainly understates the true impact, as many layoffs that cite “restructuring” or “efficiency initiatives” are AI-driven in practice. Entry-level and administrative positions - the categories that padded headcount in suburban office parks throughout the 2000s and 2010s - have been among the most affected.

The consequence for real estate is predictable. Suburban office vacancy reached an all-time high of 32.4% in Q2 2025 - up from 22.1% before the pandemic - and it has hit a new record high every quarter for the past four-and-a-half years. A meaningful portion of that structural oversupply is not coming back. The tenants who once filled those buildings have been replaced by software.

Class A office - Culver City corridor

Trophy Space Is a Different Story

While back-office suburban real estate is being automated out of existence, the trophy and Class A market in premier urban locations is experiencing something close to the opposite. The companies building and deploying AI - the OpenAIs, Anthropics, and Googles of the world - are voracious consumers of premium office space, and they congregate in the highest-quality buildings in the most desirable submarkets.

In San Francisco, AI companies have leased 1.7 million square feet since 2022, bringing the total AI office footprint in the city to 4.3 million square feet. OpenAI signed a 486,000-square-foot lease in Mission Bay; Anthropic took 230,000 square feet in the South Financial District. These are not back-office users. They are highly compensated, talent-competitive firms for whom premium workspace is a recruitment tool, a culture signal, and a productivity asset simultaneously.

We see the same dynamic in Los Angeles. Apple’s decision to build a 530,000-square-foot campus directly across the street from our 8885 Venice Blvd asset - in what was then an unremarkable stretch of the Culver City corridor - was not a back-office decision. It was a statement about talent, culture, and the firm’s long-term commitment to premium real estate in a premier location. The companies that drive AI adoption require the kinds of spaces that attract and retain the best people.

This is not a coincidence. Research consistently shows that companies trying to encourage in-person work gravitate heavily toward updated, amenity-rich buildings - 73% of leases signed over a recent three-month period were in Class A buildings. The bifurcation between premium and commodity office space is not a temporary dislocation. It is a structural shift that AI is cementing.

The Investment Implication

For Fox Capital Group, this analysis has a direct and actionable conclusion: we will not invest in suburban Class B or C office product under any circumstances. That segment of the market is structurally impaired, and no amount of renovation or creative repositioning will reverse the fundamental demand problem created by AI automation.

Our office exposure - including 8885 Venice Blvd in Culver City - is concentrated in exactly the kinds of prime urban locations that benefit from the AI economy. Directly adjacent to Apple’s campus, in the heart of Los Angeles’s fastest-growing tech corridor, the property is positioned for the kind of luxury residential development that the district now demands. The value creation thesis is simple: buy irreplaceable real estate before the market fully prices the demand shift, then build the product that the market is asking for.

More broadly, the AI moment reinforces a conviction that has guided Fox Capital Group since its founding: location quality is not one factor among many. It is the only factor that cannot be manufactured. Buildings become obsolete. Technology renders tenants redundant. But irreplaceable real estate in world-class locations appreciates through every cycle - and the AI cycle is no exception.