Kilroy Expands Reach In Constrained San Francisco Market

Kilroy Realty, San Francisco, Mission Bay, SoMa, HOK, campus, Caltrain, BART, San Francisco real estate, Bay Area news, tech office

Block 40_Kilroy Mission Bay real estate The Registry

By Nancy Amdur

Kilroy Realty Corp. grabbed a piece of San Francisco’s rapidly growing Mission Bay district with its recent $95 million purchase of a 3.1-acre fully entitled development site where the company plans to construct an office campus.

“Mission Bay is fast becoming San Francisco’s most popular new live-work-play neighborhood,” said John Kilroy, Jr, chairman, president and chief executive officer of the Los Angeles-based real estate investment trust.

Projects slated for the mixed-use district include the new 18,000-seat Golden State Warriors basketball stadium and an expansion of the University of California, San Francisco’s campus.

“The whole neighborhood is improving,” said Mike Sanford, Kilroy’s senior vice president for Northern California. “We like that vibrancy.”

Kilroy will invest approximately $450 million, including the land, to develop a 680,000-square-foot mid-rise office campus at the southwestern edge of Mission Bay at Owens and 16th streets, adjacent to Interstate 280. Construction is slated to begin early next year with completion expected in 2017, Sanford said.

Global architecture firm HOK, which has an office in San Francisco, is working on the LEED Gold-designed project, which will comprise two six-story and two 12-story buildings. The office campus, which will likely attract technology or media tenants, will feature large floor plates, high ceilings, abundant natural light, outdoor decks and views of the city and San Francisco Bay, Sanford said. These are the characteristics of almost all new Kilroy developments in the Bay Area, targeting the tech sector.

A recent Avison Young San Francisco office report for the second quarter of 2014 estimates that the demand in the city will mostly come from these younger, well-funded and large revenue generating tech “gazelles.” Social media companies like Twitter helped establish some of the largest sweeps in absorption in San Francisco. Airbnb and Yelp, two other gazelles, inked two of the top five leases of the quarter for a combined 264,800 square feet, stated the report.

Further, the property sits along the 16th Street corridor, a main artery connecting Mission Bay to residential neighborhoods of Potrero Hill, the Mission District and Dogpatch, which are favored by young tech workers, Sanford added. Shuttle service is available from Kilroy’s site to Caltrain and BART, and it is within walking distance from the new Central Subway line scheduled to open in 2019.

Office space is at a premium in Mission Bay. With a vacancy rate of just 2.8 percent, the Mission Bay/China Basin district’s average asking rent stands at $66.50 per square foot for Class A space, the highest in the city, according to a first quarter 2014 report by CBRE Global Research and Consulting. These rates are expected only to increase in the near term as very limited supply is expected to be added to the San Francisco market.

Mission Bay was once a major rail yard for the Southern Pacific Railroad Co. but for the past 16 years has been a prime redevelopment area. Projects planned or under construction in the neighborhood include more than 6,000 residences, 4.4 million square feet of office, research and biotechnology facilities and 280,000 square feet of retail space.

Other properties in Kilroy’s San Francisco portfolio include the 182,000-square-foot office project at 333 Brannan St., which was leased to cloud storage company Dropbox, and the 450,000-square-foot tower at 350 Mission St., leased to cloud computing leader Salesforce.com.

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