A Perfect "10" with 2.4 Million Square Foot Portfolio Fully Leased
Kilroy Realty Corporation (NYSE: KRC) today said it has signed a ten-year lease with Microsoft subsidiary GitHub for 61,000 square feet of office space at the company’s Skyline Tower office property in the Bellevue submarket of Seattle. The transaction, combined with three recently signed leases, has effectively filled KRC’s current 1.8 million square-foot Seattle portfolio, underscoring the increasingly tight market conditions that exist for contemporary, creative workspace in the region.
In June of 2019, KRC signed a full-building lease with a publicly traded Fortune 50 company for its 333 Dexter development, a 635,000 square foot project in Seattle’s South Lake Union neighborhood. The two-tower, state-of-the-art office project is scheduled for completion later this year, which will boost the company’s footprint in the region by a third to 2.4 million square feet.
This extraordinary demand for Class A office space is being fueled by the nation’s largest technology companies, all of which continue to expand their presence across greater Seattle. Region-wide vacancy rates at year-end 2019 fell below 5%, while total annual absorption approached about 1.5 million square feet. In the area’s hottest submarkets, such as South Lake Union, the CBD and Bellevue, vacancies are testing new records lows, while rental rates have surged more than 35% over the past three years. Across the urban parts of the region, supply is struggling to keep up with demand. Office projects currently under construction, totaling about 6.5 million square feet, are nearly 75% preleased. Meanwhile, growing interest among institutional investors drove record high investment volumes of more than $10 billion in Seattle properties in 2019.
With these favorable conditions showing no abatement, KRC recently announced plans for a new development project in Seattle’s central business district. Late last year, the company acquired a 1.37-acre site, composed of five parcels, one of which contains the historic Lloyd Building. Located between Seattle’s iconic downtown and two of its most important innovation clusters, Denny Triangle and South Lake Union, the site provides a unique opportunity to bridge the three neighborhoods with a distinctive creative mixed-use development. The project site also offers multiple transportation options, including the South Lake Union Trolley, bus, convenient freeway access and is located across from Westlake Station, Seattle’s most-used light rail station. KRC plans to seek entitlements for roughly 900,000 square feet of office space, anchored by a fully restored Lloyd Building as well as 25,000 square feet of ground level retail, and a residential component. One of the parcels is currently zoned for 575,000 square feet of residential development. This type of dynamic work environment will help attract and retain talent in a competitive market.
"Over the past several years, Seattle has developed into one of the most rewarding markets for commercial real estate in the nation," said Rob Swartz, senior vice president of Seattle for KRC. "With our newest development, we have the opportunity to help preserve and enrich the city’s historic central business district while creating an exciting new downtown destination where its residents can work, live and play."
About Kilroy Realty Corporation. Kilroy Realty Corporation (KRC), a publicly traded real estate investment trust and member of the S&P MidCap 400 Index, is one of the West Coast’s premier landlords. The company has over 70 years of experience developing, acquiring and managing office and mixed-use real estate assets. The company provides physical work environments that foster creativity and productivity and serves a broad roster of dynamic, innovation-driven tenants, including technology, entertainment, digital media and health care companies.
At December 31, 2019, the company’s stabilized portfolio totaled approximately 13.5 million square feet of office space located in the coastal regions of Los Angeles, San Diego, the San Francisco Bay Area and Greater Seattle and 200 residential units located in the Hollywood submarket of Los Angeles. The stabilized portfolio was 94.6% occupied and 97.0% leased. In addition, KRC had under construction six projects totaling approximately 2.3 million square feet of office and life science space that were 89% leased and 564 residential units. KRC also had 237 residential units in lease-up, which was 50% leased, and two projects in the tenant improvement phase, The Exchange on 16th, totaling 750,000 square feet, and One Paseo retail, totaling 96,000 square feet, that were both 100% leased.
The company’s commitment and leadership position in sustainability has been recognized by various industry groups across the world. In December 2019, the company was recognized by GRESB as the sustainability leader in the Americas across all asset classes for the sixth time. Other sustainability accolades include NAREIT’s Leader in the Light award for the past six years and the EPA’s highest honor of ENERGY STAR Partner of the Year Sustained Excellence award for the past four years. The company is listed in the Dow Jones Sustainability World Index. At the end of the fourth quarter, the company’s stabilized portfolio was 64% LEED certified and 70% of eligible properties were ENERGY STAR certified under the new scoring methodology. More information is available at http://www.kilroyrealty.com.
Forward-Looking Statements. This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated or implied in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants’ businesses; our ability to re-lease property at or above current market rates; costs to comply with government regulations, including environmental remediation; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue development, redevelopment and acquisition opportunities and refinance existing debt; a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing, and which may result in write-offs or impairment charges; significant competition, which may decrease the occupancy and rental rates of properties; potential losses that may not be covered by insurance; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired, developed and redeveloped properties; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts; delays or refusals in obtaining all necessary zoning, land use and other required entitlements, governmental permits and authorizations for our development and redevelopment properties; increases in anticipated capital expenditures, tenant improvement and/or leasing costs; defaults on leases for land on which some of our properties are located; adverse changes to, or enactment or implementations of, tax laws or other applicable laws, regulations or legislation, as well as business and consumer reactions to such changes; risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and our co-venturers; environmental uncertainties and risks related to natural disasters; and our ability to maintain our status as a REIT. These factors are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional factors that could materially adversely affect our business and financial performance, see the factors included under the caption "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2018 and our other filings with the Securities and Exchange Commission. All forward-looking statements are based on currently available information and speak only as of the dates on which they are made. We assume no obligation to update any forward-looking statement made in this press release that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.
Tyler H. Rose
Executive Vice President
and Chief Financial Officer
Senior Vice President