Kilroy Realty's West Coast Recovery Gains Traction: Positive Spreads, Expanding Pipeline, and a Stock Rally
The office REIT's Q2 2026 report marks a turn: first positive re-leasing spreads in two years, a growing signed-but-not-commenced pool, and a sharp share-price rally.
KRC · Earnings Call · 2026-07-28
An Inflection in the Making
Kilroy Realty (KRC) reported Q2 2026 earnings on July 28, and the message was unmistakably bullish. The stock has already responded, surging 29.6% over the past 90 days, as investors buy into the narrative of a self-sustaining West Coast office recovery. Angela Aman framed it directly: “We are pleased to report on a strong quarter of disciplined execution across every facet of our business.” — Angela Aman, Executive · 2026-07-28 But the real signal came a few lines later when she described the broadening recovery across its innovation-driven markets.
The Leasing Inflection
Leasing activity is the clearest evidence of change. Year-to-date leasing volume is up more than 40% versus the first half of 2025, and comparable lease GAAP rents rose 21% with cash rents up 6.1%. Jeffrey Kuehling highlighted the significance: “This marks the first quarter that both GAAP and cash re-leasing spreads were positive in nearly two years” — Jeffrey Kuehling, Executive · 2026-07-28. That is the kind of mark-to-market turn that has been missing since the pandemic. The leasing spreads are not just positive; they are broad-based, as Angela noted in her Q&A: “We continue to be a bit above market in both San Francisco and Los Angeles” — Angela Aman, Executive · 2026-07-28.
The commenced pool — the signed-but-not-yet-commenced pipeline — expanded to over 1 million square feet, with average rents 30% above portfolio-wide ABR. This provides rare visibility into future NOI growth. As Angela said in her prepared remarks, the pool is "86% triple net" versus 53% of the existing portfolio, so the quality of the forward cash flow is improving.
We do feel really good about what we have seen, even just over the last quarter or two as it relates to strengthening of the leasing environment.
West Coast Momentum
San Francisco is leading the recovery, with a fourth consecutive quarter of positive absorption. Active tenant demand has surpassed 10 million square feet for the first time since 2019. The tenant demand is broad-based, underpinned by AI and traditional occupiers. The company is also seeing a pickup in early renewal discussions, as tenants rush to lock in space amid shrinking availability.
This is a stark contrast to prior quarters. In April 2026, Rob Paratte described a more tentative market: “Across the entire company portfolio, we are seeing an increase in activity, including tours, proposals, and done deals” — Robert Paratte, Head of Leasing · 2026-04-28 — but that was early days. By the August call, the tone has shifted from "increasing activity" to "broad-based recovery." In October 2025, Angela was still focused on addressing a large 2026 expiration pool: “We've been very successful at addressing the original 1.9 million [square feet]” — Angela Aman, Chief Executive Officer · 2025-10-28 — evidence that execution is now translating into market pricing power.
Capital Discipline and Balance Sheet
Management is recycling capital opportunistically, selling $348 million of assets year-to-date, including the $22 million LA residential sale. They are also evaluating acquisitions, but remain selective, targeting core-plus and value-add deals. The balance sheet is stronger after upsizing the unsecured credit facility to $1.25 billion and extending maturities. Early repayment of $200 million of private placement notes with cash on hand further reduces risk.
The financial metrics corroborate the story. Operating cash flow of $151 million in Q1 2026 was up 10% year-over-year. While net income dipped due to one-time items, the operational metrics — occupancy, spreads, and pipeline — are pointing the right way.
What Matters Now
The recovery is no longer just a San Francisco story. Bellevue, Seattle, San Diego, and even Austin are seeing improved demand. The company's focus on speed-to-occupancy and spec suites is paying off, with spec suites at 201 Third leased before construction was complete. As Angela put it, the company is "focused on converting these transactions to signed leases as expeditiously as possible." With a stock price still 58% below its 2020 peak, the market is pricing in a long runway of growth. The next few quarters will test whether the positive spreads and rising ABR can sustain this momentum.