Kilroy Realty Facing 1.5M SF Slate Of Office Leases Expiring In 2 Years
Kilroy Realty Corp. reported a solid finish to 2024 but is preparing to fight to hold onto tenants for the next two years as the company prepares for a wave of lease expirations.
Kilroy saw leasing activity in the fourth quarter rise to approximately 708K SF, the highest volume since 2019, amid what it said is a sign of a West Coast market recovery.
But the publicly traded REIT is also steeling itself as 1.5M SF of leases are scheduled to expire over the next two years.
Kilroy has 67 leases totaling about 715K SF set to expire in 2025 and 74 leases totaling 1.9M SF set to expire in 2026.
Nationally, 105M SF of leases are expected to expire this year, according to a 2024 report from CrediQ.
Kilroy CEO Angela Aman told investors on a Tuesday earnings call the company was being proactive about securing tenants for the space that could become vacant once the leases expire.
Aman pointed to a lease quickly executed in Bellevue, Washington, with Walmart for 98K SF. The lease succeeded in “addressing a late 2025 expiration and achieving a meaningful rent increase in the process,” Aman said.
Of Kilroy’s top tenants, DirecTV has just under 533K SF in El Segundo scheduled to expire in 2026. The television company tried to vacate a significant amount of its space at the Kilroy-owned buildings earlier and a legal battle ensued that ended in a settlement.
Microsoft-owned LinkedIn has about 587K SF of space in the Bay Area, with leases slated to expire in 2026. The company has been shedding space and its San Francisco-area workforce over the last couple of years, vacating offices in downtown San Francisco and the TransBay district. Kilroy said it has found new occupiers for about 70% of LinkedIn's space.
Across the country, return-to-office mandates are credited for consecutive quarters in which space givebacks decreased in size, creating optimism in the office industry about the near-term future, Bisnow has reported.
Kilroy’s average occupancy this year is expected to range between 80% and 82%, a decrease of about 3% from 2024. This decrease is expected because of a large move-out at the end of 2024 and three larger move-outs or downsizings expected in the first three months of 2025. After the first quarter of this year, no vacations over 50K SF are anticipated, Kilroy Realty Chief Investment Officer Eliott Trencher said.
“How things settle out between the back half of ‘25 and into ‘26 is just going to depend on our continued ability to proactively address those ‘26 expirations and continue to see leasing pick up across the portfolio for currently vacant space,” Aman said.
