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AI Companies’s Office Demand Is Boosting Optimism For Kilroy Realty

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Franco Faraudo & Nicholas Pipitone
August 16, 2024

Supported by R-Zero

Propmodo Daily

By Nick Pipitone · August 16, 2024

Greetings!

Today’s newsletter is brought to you by R-Zero. Their Building Intelligence Index offers actionable insights to improve your building's performance. Download the report now to advance your decarbonization strategy. Kilroy Realty sees signs of office market recovery, driven by AI-focused firms leasing more space. Also, a new Public-Nonprofit-Private Partnership model could help the U.S. housing shortage by using nonprofits to secure subsidies and reduce risks for banks, encouraging affordable homebuilding.

Now let’s dig in!

AI Companies' Office Demand Boosts Optimism for Kilroy Realty

Signs of office market recovery are slowly taking hold in some parts of the U.S. Kilroy Realty, a West Coast developer, reported in its second-quarter earnings call that tech companies are gradually returning to the office and taking on larger blocks of space, which has helped the company’s extensive office portfolio.

Kilroy Oyster Point, a 50-acre biotech hub in South San Francisco, spans five phases and up to four million square feet, focusing on wellness and sustainability. (Image: Kilroy Realty)

The Los Angeles-based real estate investment trust reported a steady gain in office leasing activity in the second quarter. Kilroy Realty signed approximately 235,000 square feet of office leases through the second quarter, not including about 185,000 square feet from last month alone.

Kilroy reports they have more than 16 tenants currently on the hunt in the San Francisco Bay Area alone, all requiring 100,000 square feet or more. Of those 16 tenants, about half are tech companies, and many are AI-focused startups or tech giants.

Kilroy’s earnings report is encouraging, but large office landlords still have a long way to go in recovering to pre-pandemic levels. CoStar data reveals the national office vacancy rate has climbed to nearly 14 percent. And since the start of 2020, tenants have collectively handed back a total of 180 million square feet of office space, with upward of 65 million square feet last year.

The increasing demand for office space for artificial intelligence firms is what makes Kilroy Realty’s recent earnings call noteworthy. AI is becoming an emerging silver lining in the office market and could catalyze the next growth cycle. AI-focused firms leased more than 2.5 million square feet of office space in San Francisco between 2019 and 2023, helping one of the nation’s most beleaguered office markets slowly bounce back.

Other markets with a heavy AI venture capital presence, such as Silicon Valley, New York City, and Boston, have seen a similar boost in office leasing. Tech firms' large office space requirements may not be at pre-pandemic levels yet, but the growth of artificial intelligence has provided a welcome boost.

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Perspectives

The Public-Nonprofit-Private Partnerships Tackling the Housing Crisis

The U.S. housing shortage is critical, with little action expected soon. A new Public-Nonprofit-Private Partnership model could help by using nonprofits to secure subsidies and reduce risks for banks, encouraging affordable homebuilding. Success depends on collaboration, accountability, and supportive legislation.

READ ONLINE: https://propmodo.com/the-public-nonprofit-private-partnerships-tackling-the-housing-crisis/

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