KRC: West Coast Office Recovery Will Face Leasing Challenges And Mixed Occupancy Trends

Kilroy Realty’s analyst price target has risen modestly from $42.00 to $42.73. This reflects analysts’ optimism around improving West Coast office demand and steady leasing progress, despite ongoing valuation concerns.

Analyst Commentary

Recent analyst actions reflect a mix of cautious optimism and ongoing concerns regarding Kilroy Realty’s valuation and operating outlook. The company’s exposure to West Coast office markets, evolving leasing dynamics, and market recoveries play a central role in shaping sentiment.

• Bullish analysts highlight improvements in San Francisco’s office environment, citing notable progress in city cleanup and increased activity in the Financial District and SoMa. This supports positive outlooks on leasing momentum.
• Progress on upcoming lease expirations through 2027 is seen as a key factor underpinning growth potential and suggests continued execution on long-term leasing strategies.
• Recent price target upgrades reflect the expectation that ongoing demand recovery across West Coast markets can drive incremental value, especially if new leasing activity accelerates outside the San Francisco Bay Area.
• Steady performance in quarterly results and revised analyst models indicate confidence in management’s ability to navigate a challenging office sector landscape.

• Bearish analysts express concerns about overall leasing volume, especially outside San Francisco, and warn that limited improvement could cap occupancy gains and revenue growth.
• Valuation is increasingly seen as full or fair following recent stock outperformance. This may limit additional upside unless fundamentals significantly improve.
• Some anticipate a decline in annual funds from operations over the next several years, citing ongoing tenant retention challenges and elevated vacancy rates in West Coast office markets.
• Recent price target reductions and rating downgrades underscore skepticism about the scale and durability of any recovery, particularly given the current availability of office space and competitive leasing conditions.

What's in the News

• Goldman Sachs downgraded Kilroy Realty to Sell from Neutral and maintained a price target of $33, citing expectations of a 7% drop in annual funds from operations over the next three years due to low tenant retention and high office space availability in West Coast markets (Goldman Sachs research note).
• Kilroy Realty acquired Maple Plaza, a 293,000-square-foot Class A office campus in Beverly Hills, for $205 million. This marks its first acquisition in this supply-constrained submarket. The building is approximately 75% leased and recently renovated, with strong leasing activity over the past year (Company announcement).
• The company executed a 24,000-square-foot lease with Color at Kilroy Oyster Point Phase 2, its South San Francisco life science campus. Color’s new genomics lab will occupy the space starting in early Q2 2026, contributing to increasing lease-up velocity for KOP 2 (Company announcement).

Valuation Changes

• Consensus Analyst Price Target has risen slightly from $42.00 to $42.73, indicating a modest increase in perceived fair value.
• Discount Rate has fallen moderately from 8.40% to 7.94%, suggesting reduced perceived risk or greater confidence in future cash flows.
• Revenue Growth expectations have increased from 0.80% to 1.05%, indicating a more optimistic forecast for top-line expansion.
• Net Profit Margin has decreased marginally from 4.84% to 4.67%, reflecting a slight anticipated decline in operating profitability.
• Future P/E has risen from 113.9x to 117.7x, which points to a higher valuation multiple relative to projected earnings.