Kilroy Realty NYSE: KRC reported third-quarter leasing activity that management described as its strongest in years, driven by broad demand across its West Coast office and life science markets. The company signed approximately 815,000 square feet of new and renewal leases during the quarter, lifting year-to-date leasing volume to more than 1.75 million square feet, up nearly 44% from the first nine months of 2025.
Chief Executive Officer Angela Aman said all five of Kilroy’s regions recorded sequential leased-occupancy gains of more than 100 basis points. Leasing activity spanned 45 transactions and included tenants in technology, artificial intelligence, robotics, biotechnology, legal, financial and professional services.
“This quarter’s re-leasing spreads were amongst the highest reported since before the pandemic,” Aman said. GAAP rental rates on comparable leases signed during the period increased 30.6%, while cash rents increased 9.7%. Excluding spaces vacant for more than 12 months, GAAP and cash re-leasing spreads were 37.9% and 13.9%, respectively.
Signed Pipeline Expands
Kilroy ended the quarter with leased occupancy of 83%, up 150 basis points sequentially, while portfolio occupancy including Kilroy Oyster Point Phase 2 was 76.9%, down 10 basis points from the prior quarter. The gap between billed and leased occupancy stood at 610 basis points.
The company’s signed-but-not-commenced pipeline grew to more than 1.4 million square feet, representing approximately $101 million of annualized base rent. The average annualized base rent for the pipeline was nearly $72 per square foot, about 22% above Kilroy’s current portfolio average, according to Aman.
Additionally, 78% of the signed-but-not-commenced pool consists of triple-net leases, compared with 54% of the existing portfolio. Management said the higher proportion of triple-net structures should support net operating income as leases begin.
Executive Vice President, Chief Investment Officer and Interim Chief Financial Officer Eliott Trencher said leases representing $48 million of annualized base rent in the signed-but-not-occupied pipeline are expected to commence between the end of the third quarter and year-end 2027. That includes $14 million expected to start in the fourth quarter of 2026 and $34 million anticipated during 2027.
Management said its forward leasing pipeline increased 20% from the prior quarter and is largely weighted toward new deals rather than renewals. Aman said the pipeline is broadly distributed across the company’s markets, though San Francisco accounts for a larger share because of Kilroy’s square-footage concentration there.
Bay Area Demand and Key Leasing Deals
San Francisco continued to lead Kilroy’s markets in completed deal volume and pipeline activity. Aman said shrinking availability of high-quality office space and growing demand from technology and AI tenants have accelerated discussions with tenants seeking early renewals.
Among the quarter’s largest deals, Kilroy signed a 12-year, 243,000-square-foot renewal with Box at Crossing 900 in downtown Redwood City. The company did not disclose individual lease economics, but Aman called them “highly compelling.”
Kilroy also signed a 65,000-square-foot lease with oceanic robotics company Ulysses at Oyster Point Tech in South San Francisco, in space previously leased to 23andMe. In Menlo Park, the company executed a 49,000-square-foot full-building lease with a life science company at 4400 Bohannon within its Menlo Corporate Center campus.
Rob Paratte, Kilroy’s executive vice president and chief leasing officer, said San Francisco’s constrained supply is pushing some users to consider locations farther south, including Oyster Point, the North Peninsula and Silicon Valley. He said approximately 500,000 square feet of AI and robotics-related demand was seeking space in San Francisco, while broader AI demand was higher.
Paratte added that there were 31 active requirements above 100,000 square feet in San Francisco, including 21 from AI companies that he characterized as institutional quality. He said asking rents in San Francisco had increased 7% from the prior quarter.
Activity Across Other Markets
In Seattle, leased occupancy increased 220 basis points sequentially. Kilroy signed a 28,000-square-foot lease at West Eighth with international law firm Morrison Foerster.
In San Diego, Kilroy relocated law firm Greenberg Traurig from One Paseo to Kilroy Center Del Mar, allowing the firm to double its footprint. The company concurrently completed a new direct lease and expansion with an existing One Paseo subtenant. Kilroy signed four new leases totaling roughly 70,000 square feet at Kilroy Center Del Mar, with blended GAAP and cash re-leasing spreads of 38% and 12%, respectively.
In Los Angeles, management said conditions remained submarket dependent. Kilroy reported broad demand in Beverly Hills and Culver City, where it signed two leases at Blackwelder with technology and fintech tenants. The South Bay remained slower, though management cited early signs of demand from defense, aerospace and advanced manufacturing users.
Indeed Tower in Austin surpassed 90% leased following a lease with a media company. Management said Austin continues to absorb recently delivered supply, but tenant demand remains healthy.
Financial Results, Guidance and Capital Plans
Kilroy reported funds from operations of $0.88 per diluted share for the third quarter, including approximately $0.01 per share of settlement and restoration fee income. Cash same-property net operating income declined 1.5%, with lower settlements, restoration fees and real estate tax refunds creating a 170-basis-point negative effect on same-property growth.
The company raised its full-year FFO guidance range to $3.55 to $3.59 per share, from a prior midpoint that was $0.01 lower. The updated outlook includes higher expected same-property NOI, improved development NOI and lower net interest expense, partly offset by lower anticipated lease termination fees, higher general and administrative expenses, and lower non-cash adjustments.
Trencher said Kilroy repaid $200 million of private-placement notes in July using cash on hand. The company has approximately $395 million of debt maturities over the next nine months, carrying a weighted average effective interest rate of about 3.8%, and more than $1.2 billion of unused capacity between its credit facility and term loan.
On dispositions, Kilroy announced a pending $19.5 million sale of its East Village land site in downtown San Diego to a residential developer. The company has $185 million of land sales under contract and expects transactions to begin closing late in 2026. Management said proceeds could be directed toward acquisitions, substantially pre-leased developments, debt reduction or stock repurchases.
Management also expects its Flower Mart development-agreement amendment process with San Francisco to conclude in January 2027. At that point, Kilroy expects to stop capitalizing costs on the project, which Trencher said would create an annualized impact of approximately $37 million, including $32 million of interest expense and $5 million of operating expenses and taxes.
About Kilroy Realty (NYSE:KRC)
Kilroy Realty Corporation NYSE: KRC is a real estate investment trust that owns, develops, acquires and manages office, life science and mixed-use properties. Its portfolio is primarily designed for businesses in technology, life science, entertainment, media and other knowledge-based industries.
The company's properties are concentrated in major innovation and employment centers on the U.S. West Coast, including the San Francisco Bay Area, Los Angeles, San Diego and Seattle. Kilroy has also developed and operated mixed-use projects that combine office space with retail, residential and public amenities.
Founded in 1947, Kilroy Realty has developed into a prominent owner and operator of commercial real estate in coastal U.S.
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