right. Good morning, everyone. This is Jamie Feldman. I'm Bank of America's Senior Office REIT Analyst. I am very pleased to have with us the team from Kilroy Realty.
This will be an audio only session, but we do have the management team on live. Joining us today are John Kilroy, Chairman and CEO Tyler Rose, President Rob Parat, Executive Vice President, Leasing and Business Development and Michel Ngo, Chief Financial Officer. So we do want this to be interactive. So if you have questions, please feel free to add them to the VeriCAS system and I'll be tracking that throughout the call. And to get us started, we're going to maybe I'll just turn it over to John or Fritzka Kilroy to take a message to SaaS if you want to provide a brief overview of the company and any updates you wanted to provide at the conference.
And by the way, I do think you win the award for most press releases before your session, so we appreciate that. Thank you for being busy ahead of our conference.
Yes. Well, this is John, and thanks for everybody being on the call. And Jamie, thanks for hosting this. As Rob said, before we all hooked up with the investor community, it'd be nice to have this in person next year. And hopefully that'll be the case.
I'm sitting Rob and I are in our San Francisco office at First in Mission and I can tell you that the lobbies in the office buildings are filled with people. There's people walking around on the streets. There aren't any parking places available. And driving into the city this morning, it's a lot cleaner, a lot more folks running and walking and at the coffee places and so forth. And that's the first time I've seen that really in over a year and a half.
And we were in Seattle yesterday and it's you see people everywhere enjoying themselves at the coffee shops and whatnot at the restaurants and a lot of vitality. And of course, San Diego, I was there last week and I don't know that they noticed that COVID has happened. I'm saying that a little bit kiddingly. They adhere to the policies and whatnot, but the retail there is booming. We're now 100 100% leased in San Diego, everything except for the new building 2,100 Kettner that is just being completed.
We're 99% leased in Seattle. Rob will give the stats on the other markets. But we're seeing a noticeable improvement in the mood and tone and activity level, which is good. Kilroy, I think everybody knows this, but just real quickly, we think of ourselves as the premier U. S.
Landlord and developer in owning, developing and acquiring and managing particularly life science mixed use properties along the coastal regions of Seattle, San Francisco Bay Area, Los Angeles, San Diego and now Austin. We're a $12,000,000,000 investment grade enterprise and a member of the S and P 400 Mid Cap Index. Our portfolio consists of 15,000,000 square feet of stabilized projects that are now 94% leased. We have a substantial value creating development pipeline, just under over 10,000,000 square feet under construction for near term and future, which is approximately 50% Life Science and diversified across our markets. Three key messages for us this morning.
We're an experienced capital allocator in 2021. We've transacted over $2,000,000,000 of dispositions and acquisitions. All five acquisition deals were off market. They were all in pretty exciting markets. You saw the announcement yesterday of the entire block at the front door of Amazon's 5,000,000 Square Foot World Headquarters Campus in the Denny Regrade area of Downtown Seattle.
We think we have a tremendous amount of upside in the company where our share price is at is far right from what we feel the value is. We also have about 15%, 20% mark to market across the portfolio. And I should point out that we're seeing record rental rates and record lack of availability in San Diego and in Bellevue, Washington. We're seeing very, very strong rental growth in those markets. And we see strong rental growth in Downtown Seattle as well.
Rob is going to talk a little bit about Austin. As far as leasing momentum goes, again, Rob can answer questions, but with various life science leasing deals that we announced yesterday, we're on track to do over 1,000,000 square feet of leasing this year. And that's off a very anemic 2020, of course. And as I mentioned, rent growth is strong. We've seen a 40% roll up in cash rents on recent deals.
And with that, I think we can just go into Q and A, Jamie, and you can fire away.
All right, great. Thanks for the overview. So I guess maybe just to get things started and talk about the most recent. Can you talk about the Seattle acquisition and just what your thoughts are on returns there as that plays out?
Yes. The building has rents that are 35%, 40% below market. There is Amazon is 70% of the leased space. The building is 100% leased. Their lease, Rob, rolls in 'twenty three.
In August 'twenty three. Yes. We think that there's some big upside in the rent there and we underwrote that based upon one of 2 scenarios. 1 is that Amazon stays and the other that Amazon goes. We had a call this morning from a major company that is interested and they want to know if that space could be made available for them, the entirety of the space that Amazon now occupies, which is approximately 370,000 B Rob?
Yes. Yes. So we think we have a real winner there, Jamie. Initial yields aren't that high because of the low in place rents, but we think we're going to be up in the 6 each range, released here and then move up from there based upon annual adjustments.
Okay. Thank you. And maybe to talk more about the life science leasing. You mentioned you put out the press release on as well.
Yes. Rob, you want to go there? Sure.
So we did 3 deals in San Diego in 2 different submarkets there. Our assets are located in probably the 2 hottest markets in San Diego County when it comes to technology and life science. So we did a deal in UTC, which is about a 52,000 square foot deal life science and then the other 2 are in Del Mar. And I think it's very consistent with what John has talked about in past earnings calls and investor calls where we're seeing not only continued demand and expansion where possible within UTC, we're seeing that migration into our assets in Del Mar. So we think there's more of that ahead.
We're very pleased with what we have in Del Mar in terms of just offerings and expect to do more of that. We also think that Jamie, I guess to add a little more color, that migration will continue from Del Mar into the I56 corridor where we have our Sabre Springs campus as an example, plus another 500000 to 600000 square foot development that we can do up in Santa Fe Summit. So Kilroy is poised really well to accommodate expanding life science.
So maybe to put that in context, if you look at your next round of potential development starts, what's the magnitude of what we may see over the next year or so?
Okay. Well, let's start with what we've got. As you know, we started earlier this year at what we call Kilroy Oyster Point, which is our 3,000,000 square foot development on 50 acres in the City of South San Francisco. You'll recall that we started the first phase, which was roughly 670,000 feet a couple of years ago and leased it with about 6 months of starting construction. And then we started earlier this year, I think, what, 2 couple of quarters ago on Phase 2, which is 900,000 square feet in 3 buildings.
We have very strong activity there at record breaking rental rates for that market. So we're really enthused. And then in terms of starts beyond that, in San Diego, we have 3 different development life science projects that we are likely to start at least 2 of them before the end of the year or early next year. One is a 70,000 foot, 75,000 foot building in the UTC submarket. We're at least negotiations right now on that transaction with a high credit tenant.
And then the other 2 are phases 2 and 3 of what we call Santa Fe Summit, which is located east of Del Mar on the 56 Freeway. And what's going on, as Rob mentioned, there's a 500,000 foot Life Science transaction that's in final lease negotiation on the fifty six sort of in between Del Mar and our Santa Fe Summit property. At Santa Fe Summit, we have 2 phases, each are 300,000 feet, each are fully entitled. We intend to process the building permits from both phases concurrently. And we should, as I say, be able to start construction on one of those two phases or both sometime within the next 6 months or thereabouts.
So we have in round numbers 700,000 feet of development in life science in terrific areas with brand new best in class product that we should be able to get underway with within the next year or earlier. So collectively with KOP, we'll have 900,000 feet underway here and another anywhere from 4000,000 to 700,000 square feet underway in San Diego. It's just a question of whether we do Santa Fe Summit in 2 phases or 1.
And then how do you think about the impact on yields, Ryan?
I'm sorry, you cut out, Jamie.
So I'm just wondering, how do you think about yields on those new starts given we've seen a rise in construction costs and a rise in labor?
Yes. I think we're going to be in that same bandwidth that we've always said we were and we've always beat it, but sort of in the 7 ish plus or minus and going in yields with longer leases and we generally get 3% to 3.5% brand of bumps. And that includes the increasing construction costs. Fortunately, we've done better than those projections on most of the deals we've done and I hope we will continue to do that.
So John, we've just watched you develop throughout cycles throughout my career. I'm just curious when you think about the pandemic and the impact on real estate and the local economies in your markets, I mean, what do you think the key lesson was from this and how do you think it will impact what Kilroy does going forward on the development front?
Yes, I think that we've already made some tweaks to a few things. But by and large, Jamie, in an audience, Kilroy's portfolios average is a little less than 10 years in age. I think we've probably done more to change our portfolio than just about anybody we know in terms of providing the kinds of facilities that people really are in were in demand for before the pandemic. And now as a result of the pandemic, they're increasingly wanting the kinds of facilities that we're building. So and that's the same with our Lompocao retail, which is people are coming to study like this is the way retail should be done with our 1 Paseo living with the apartments there that are all extra wide corridors, extra high corridors, natural ventilation.
You could ask for a better design given what we've all been going through. And in the office space, lots of decks, lots of rooftops, lots of plazas, lots of ceiling height, better systems, bigger floor plates, more room for people to meet inside and outside and then real emphasis on outside meeting areas. We had somebody that is one of the bigger life science companies in South San Francisco meet with our folks and we asked them what would you do differently than what you've done? You have a big campus there. And their point was, with the outside is where everybody wants to be.
We don't even allow our student body, their student body to meet inside in meetings. They have to have all their meetings outside. And so anything you can do to provide more outside meeting space both where smaller groups as well as large groups. And that's exactly what we've created at KOP. We have 50 acres.
We have more outside meeting spaces that can accommodate several 100 people or smaller groups throughout the campus with grab and go and all that sort of stuff that the modern tenant wants. So I think we whether it was just luck, I think it was maybe a little bit more than luck, but we certainly didn't plan for a pandemic, but I think our portfolio is standing up very well and we're seeing that Rob and I were up in Seattle yesterday going through with our team where we are on various lease negotiations and where various tenants are. And I can tell you that areas where we bought buildings and developed buildings there in the South Lake Union area and in the Ginnie Regrade and that's where we just bought West Gate. That is the environment, the kind of buildings that people want to be in. They get the highest rent.
It's been the highest absorption. It is exactly the location, the kind of facilities and amenities that the modern user wants. There's been a big shift in the city northward, a significant shift in Seattle, just as there was a shift if you think about San Francisco from the north side of market to the SoMa side and you're seeing that shift now as a result of a lack of availability and lack of development land in some of the markets down in San Diego where it's moving right into the Del Mar area and then moving up to 56. So I'm pretty happy with the way we're positioned and we're very focused on we talk all the time. Elliot Trenger sends his regards to his holiday today that he could make this conference for.
But as he points out, we've really spent a lot of time and energy calling the portfolio and selling off the things that are either non strategic or that we feel won't comport well with the needs of the modern user now or in the future. We're all about the future.
Okay. That's helpful. So you talked a lot about a lot of very healthy submarkets with very visible drivers of demand, San Diego with life science, Bellevue. How would you characterize the health of CBD San Francisco right now? I know there's been a little bit of a pickup in leasing.
There's been some pretty aggressive rent prints down on sublease space. What's your view on that market today?
Well, I'm going to let Rob speak to that. But before he does, some of the sublease things, I was talking with the CFO yesterday with regard to their sublease thing and what they said was basically and this wasn't one of our abilities. What they said was, look, this isn't the real estate people, this is the financial people. We've got an obligation. We have rethought our real estate.
And so anything we do to get it off the book is good. We're not looking to make the last dollar on subleasing. We're looking to just get close it off our books either through creating a direct relationship or a sublease relationship.
Bob, do you want to Sure. Jamie. So San Francisco and I want to be careful about this because we are starting to see some positive signs and I hope and it feels like they will continue to trend upward. I think probably the most significant piece of information is that sublease space 90 days ago was over 9,000,000 square feet and that number is now down to about 7,200,000 feet. So undoubtedly, we still have sublease space to tackle, but it is coming off the books.
And the fact that it's almost 2,000,000 feet that came off, I think, is really important. And I think the sublease space, the thing to really note on that sublease space that's being absorbed is once again the flight to quality is the triple Class A, really well located, well built out space. Some of that activity has been in the macys.com building, which actually was put on a little bit before the pandemic, but built out in a tech friendly fashion and it's also located south of market where tech wants to be. So you're seeing a slight to quality, you're seeing sublease space get absorbed. There's going to be some laggards in the sublease world that are just frankly buildings or floors or HVAC systems, things we've talked about before that are obsolete and will need to be dealt with.
We don't view those as competitive to our world. I think another thing that unfortunately, the press never picks this stuff up, but 95 firms in San Francisco received $100,000,000 or more in DC funding, which takes the total this year to date to about $48,000,000,000 which is the most in San Francisco history in a 7 month period. And we're seeing that translate, that BC funding, we are seeing translate into smaller sized deals that are starting to surface in the market in the 15000 to 35000 foot range. And I would say, anecdotally, Seattle is seeing the same thing with VC backed firms starting to look and the smaller sized firms starting to look for space. So I think the VC funding and the VC pipeline is an important gauge to follow.
Thank you. I know you guys have been you and your peers have been talking about that early stage company pipeline for a while. I mean, how meaningful is that pipeline in terms of total size or potential net absorption to the market?
I mean, it's really hard to gauge, Jamie. But if you look back, dial back when I think how many companies that are no longer unicorns or unicorns like Uber and others that and look at the space they absorb. So it's early in the process. And I just feel like what it underscores to me is innovation is continuing and with that innovation these companies need people and those people are going to need to be in office space.
So that brings up the question of just office space usage. I know that a lot of your West Coast markets are farther behind in terms of bringing people back or fully reopening. But what would you say, A, I guess, what would you say occupancy is across the portfolio today? And then secondly, what are tenants saying in terms of how they're going to use space going forward?
Well, I think, again, before Delta took its uptick, occupancy was anywhere from 25% to 35% across our portfolio. And I know in speaking with our competitors, that was about the same that they experienced, again, depending on the market. As we've said time and again, San Francisco has been the most restricted shutdown city in the country. But as John said at the beginning of this panel, it's really wonderful to see. It's a beautiful fall day and to see the number of people that are out and about and moving in and out of our 350 mission project and other sales force since we're kind of in the middle of sales force here, but seeing all that activity, which 45 days ago you didn't see.
And so the mood is really, I think when we talk to our clients, John speaks as he mentioned to a lot of our a lot of the tech companies, some are tenants, some aren't. I do the same in different realms and people are planning to bring their tenants, their employees back to work and we're seeing that in the conversations we're having. How do they make their space more fun? And fun is part of the draw to bring people back to the work. How do they make their space more collaborative?
How or where can they have outdoor space so they can have meetings outdoors? And all those conversations are happening now and buildings that can accommodate those softer sides of the architecture or workspace are going to be the beneficiaries.
Jamie, it's interesting to note that over the course of the last well, this year, there have been some notable expansions by some of the big tech companies. And then we've seen that in San Diego. I can't mention when the company is by name, but they now have 5000000, 6000000 square feet down there where they had less than 1,000,000 square feet 5 years ago, probably less than 500,000 feet. There's another big tech company that is going to be taking some substantial space down there. I was with one of the heads of real estate not long ago in a Zoom call and they have 5 markets in the United States where they're expanding 250 to upwards of a 1000000 square feet is on their radar and a number of those are markets in which we are located.
You've seen the big expansions by Amazon and others up in Bellevue. You're seeing you're going to see a bunch of big expansions in Seattle, which I think will be in the Denny regrade like the South Lake Union area. And then there's some things happening down in the valley here. So and then of course, Austin, we're seeing great activity on the building we recently bought there at D Tower and talking with a lot of folks about their expansion needs there in that greater market. So the thing that the common theme with a lot of these folks is they want scalability, they want modern facility and they don't if it's old, it's got to be old and cool and big ceilings and all the rest big floor plates.
It can't just the old sort of financial district high rise is not in favor with most tech companies. That doesn't mean they won't go into a high rise. Take a look at what's happened there at Hudson Yards and Zillow Off. Those are modern buildings and far different to the ones you might see in some of the other more traditional areas in New York City. So that trend is massive and I think we're right.
I think we're very well positioned with our development pipeline where it's located and the kind of buildings that we build. But it is going to be as we've said for the last 18 months, it's going to be a game of fits and starts and it is.
So I do want to spend a little time on Austin. Maybe can you dig deeper into the demand for that space? And then also what do you think is next for you guys there?
Well, you can talk about the space, Rob. Yes. I'll start with the space, Jamie. So we have about 300,000 feet of space to lease. Indeed, the company is the anchor tenant in the upper portion of the building.
And what's been truly I think Austin is such a great bellwether for the rest of the country just in terms of tenant activity. The city has been more open than other cities across the country and you see that daily when you're in Austin, when you're meeting with people, etcetera. People are back to work. They're not the tech companies have those flex policies, so they're still needing to bring large numbers back. But demand is up.
Brokers are basically feeling that tour activity as well as just demand is back to pre pandemic levels and that rents are starting to exceed pandemic levels, pre pandemic levels. We have a really I think what's one of the most fun things about Austin is we have a lot of tech interest in the building, but we also have a lot of what I would call professional services, blue chip name firms that are either looking to move to Austin interestingly or are expanding in Austin. So it's a very vibrant situation right now. There's definitely probably more than any city in the country, I'd say there's definitely a push of young people back into the city in Austin. And I and I'll correct myself because San Francisco is seeing that same phenomenon where young people are moving back in and rents in San Francisco are month to month increasing and there's the scarcity of apartments depending on the market where you are in the city.
But back to Austin, we're busy and we're really having a great time with it and expect to be announcing some things.
Yes. The second part of that, Jamie, was what's our next step? And I'm not going to get into anything specific, but we are rounding out our team there. We've had a really excellent group that have been the group working on that acquisition and working on the leasing and so forth. We're moving some of our people that are in California out there that on the asset management and property management side.
We're going to be rounding out that team with a regional leader that we have not yet identified yet. And we're determining whether we move somebody one of our other markets or whether we hire local and more to come on that. In terms of our strategy there, again, I don't want for competitive reasons to get into anything specific, but we didn't just indeed Tower to buy indeed Tower and say that's it. For a number of years, I think better for 5 years, we looked at that market, we looked at companies that were available to buy that own properties in that market, we looked at specific assets in the market and D Tower was by far away is by far away the best asset in the office sector in that marketplace. It truly is a 10 and it represents we just got by the way, I forget how they say it, I think it's V4 LEED Platinum.
It's one of 5 buildings in the world and the 2nd largest in the world to have that designation. That's like the super duper platinum. I can't talk sustainability. I can talk about everything we've won. I can't get into all the specifics how the bells and whistles work, but we're very proud of that.
And Trammell Crow who developed the building did a heck of a job in getting that accomplished. That resonates real well with people. So we've got a great building. We're going to have a great team. We will be expanding.
We don't have any timeline or dollar allocation fixation, we're going to be opportunistic and we're looking at a bunch of stuff. In terms of just a little bit about valuations, you saw what we bought that building for and there's another building that is just sold out of domain with a very similar tenancy and it's a 11 or 12 year old building, certainly not as high quality as the one we bought and it traded at a cap rate that was probably 60 basis points, 70 basis points lower than the implied cap rate on the building we just bought. So we think we bought well and we're going to do more.
What are potential tenants saying about the abortion ruling in Texas and whether that slows down their expansion plans? I know I I saw an article saying Salesforce is giving people the option to relocate out of Texas if they're not comfortable living there.
Yes. I don't know specifically about Salesforce, but we're not hearing anything from the companies we're talking to about it. I think they steer clear of the topic. Okay.
And then a question just came in from the audience against Salesforce again, talking about I guess Salesforce is talking about putting secondary space on the market. Have you heard about other tenants doing the same thing, just more sublease space that we may start to see?
No. I mean, Salesforce has in San Francisco some sublease space on the market, but they just are entering into a sublease for 90,000 feet of it. They bought Tableau, so they may have space that they're not going to utilize with Tableau, but we're just not hearing anything new about Salesforce and more space on. In fact, like we've been saying this morning, their buildings seem pretty busy.
Okay. All right. And then with the Seattle acquisition, I assume this now takes any kind of special distribution off the table. Like where do you stand in terms of your 1031 redeployment?
Do you want to cover that, Michelle?
Yes. Hi, Jamie. So with the recent acquisition, we don't anticipate doing a special dividend this year.
Okay. Makes sense. Is there still capital to deploy or you're pretty much set at this point?
We're set at this point. We've satisfied our 1031 exchange requirement.
Okay. So maybe just thinking big picture, if you look at the transaction market, we've seen mostly high quality well leased assets trade, not a lot of value add lease up stories. How would you characterize the transaction market today and where do you think it's heading in terms of value for the value add type product?
Well, there's a lot of money. I get many calls over the course of a month from folks that run the private equity funds and so forth, the value adders. Will we sell anything? Will we do this? Will we do that?
Unlimited offers. We got an offer in the other day. It's on a small asset that we are going to probably transact on at a good value and the offer it's everybody I think at Kilroy in a senior position has people talking to them pretty much all the time with regard to would we sell something, would we sell this, would we sell that. And I don't want to get into specific ones, but some of these things are multi $100,000,000 buildings. So the market has got a lot of money looking for product.
And we are seeing a number of transactions that would be that we did not elect to bid on here in San Francisco, you've got the old utility building just down from 350 Mission that's sold to a well known real estate entity that we figure that's going to stabilize around $1100 and you've got old building, it wasn't of interest to us. You've seen a lot of the big funds come in and try to buy things. I can tell you when we sold the exchange and that was at a record price, you recall just under $1500 a square foot, That's a Dropbox headquarters. I had 3 different groups call me and say, hey, how come we didn't get a bid and you sell something else or if you want to sell something else, we want to buy, we want to buy. Now there is a kind of 2 thoughts.
1 is you buy the long term lease stuff that doesn't have a lot of downside over the next several years, but that's in demand all day long. But now what we're seeing is people going out on the risk spectrum quite a bit further than they were willing to go a year ago, buy some stuff that we kind of shake our heads only because we don't think that when you spend all the money, you're going to end up with a prize that's truly a great building. You're going to end up with a much better building when you reposition it, but you're not going to end up with the building that we would want to own. And then you've seen obviously with a public company that's selling our assets and I think you probably know that where the implied values are on their San Francisco assets. And again, I don't want to get into commenting too much on that.
But and then up in Austin, you're going to see some deals, some Class B buildings that are in Class A locations that we looked at that we wouldn't have considered buying. They just physically did not meet the test that we put ourselves through. In other words, you could buy it. It can look like a decent price per pound, but it's only going to have great occupancy if there's a shortage of space in the market because it's not the kind of space that tenants really want to be in. You're going to see some of that stuff trade maybe in the $500 or $600 square foot range and then it will be in a couple of $100 north of that when they reposition.
So they'll be in at $700,000 $800 when we bought our building for roughly $9 whatever it was. But we got best in class, that's kind of place where everybody wants to be and not the old stuff that you can make better, but this is still not going to be up to modern standards. And there's just you got to look at in our view with where the in the CBDs, the market migration of tenants, where the quality buildings are, where the environment is, it's all about the employee. It's all about that. We've been saying that for the last 10 years and that's becoming more predominant now with as a result of the pandemic.
It's all about the cat characteristics, the amenities, the outside areas, the big floor plate, mechanical systems, the big elevators and all the other things that go into the calculus for the kind of space that people want.
All right. Thanks for your thoughts. I guess just quickly to wrap up. Where would you say the mark to market is today on the portfolio? And net effective rents versus the peak, where do you think they stand?
I'll handle the mark to market and Michelle you can handle the former part. I would say in 3 of our 5 markets, Jamie, net effective rents are up and you could actually say in 4 of them if you add the Oyster Point submarket in the Bay Area. But Seattle net effective rents are up, particularly when you expand that to Bellevue. Oyster Point and the life science market there is just on fire. And we've talked about San Diego as well, where you're seeing double digits, strong double digit rent increases.
And Austin is also seeing net effective rent increases. So I'd say every one of our markets has net effective rent growth and San Francisco CBD and L. A. Are pretty static. It just depends on what submarket you're in, in those various cities.
Like I've said before, you look at the deals that have been done where Trophy Class A View Space, where there's 5% vacancy right now, which is a really low number, those deals are at pre pandemic rates. So they're holding steady. You've heard us report on our leasing and our renewals during the pandemic, where we've either maintained pre pandemic rates or rolled things up. So again, that's a high level overview of net effective rents.
Yes. And on the mark to market, we said on our last quarter call that it was around the 15% across the portfolio. And given the recent leasing activity, hopefully, that number continues to move up as we see strong rent growth.
Okay. Thank you. And Rob, like Seattle, Bellevue, Oyster Point, San Diego and Austin are all higher today than they were late?
Yes.
How much would you say CBD San Francisco is down?
Like I said, I think it's stable. If you look at if you compare Kilroy product to what I just mentioned with trophy Class A, whatever is available, it's probably in less than 5% range. So I think rates are steady. Obviously, sublease space with 2 years left on the term like John talked about earlier, that's not going to command a premium. That's just flexibility for a company that's kicking the can down the road until they're ready to take a bigger chunk of space.
So that will sublease spaces at just different breed of cab.
Okay. Got it. All right. And then we do have questions we're asking every management team at the end of our sessions. There's 3 questions.
The first one is, which of the following is the greatest challenge facing U. S. Public REITs today? A, Fed action and higher rates B, supply chain issues which include labor and logistics leading to higher costs and C, flows to non traded REITs?
I hate to say this, James, but the first one kind of cut out. So I didn't hear A.
Fed action and higher rates?
Well, they're all issues that could impact values for sure. The supplies, we got to pick 1. Michelle, you can pick.
Yes. I think maybe directly option number 2.
Okay. The cost pressures?
Yes.
All right.
And then second question, over the next 5 years, which markets will outperform, urban, coastal or Sunbelt?
Well, seeing how we're in all three, I hope they all do well.
I was going to say, you got yourselves in a pickle with that Austin purchase.
Yes. I don't know. I got to tell you that I think coastal California and the Seattle area are awfully strong for the future. I know there's a lot of room for debate on that with regard to crazy politics and back to work stuff and all the rest. But I think they're going to recover nicely and the growth we're seeing and demand we're seeing for good locations is pretty strong.
I got to say, I love the fact that we're in Austin, but remember it's a little market. It's not very big, but it's growing. And we thought it was important to put ourselves there so that we could respond to some of the interest we've had from our tech clients about being there and growing with them. But I think all those markets are going to do well, But it's going to be within those markets. You've got to be like, you know, our circle, where do you want to be?
Where's the place you want to be? In Seattle, I mentioned, Kenny Rigrade and South Lake Union. That's where we want to be. We haven't bought anything else there. Of course, Bellevue has been is over on the other side.
That's terrific. I think it's very real estate is a very, very important set location, location thing, but it's also it's all about the asset and how it responds to the new user or what the new users' new requirements are. And so I think all the markets you mentioned are going to do well.
Where would you say cap rates are in Austin these days?
I'd say for a stabilized building in are going to be inside of 5.
Okay. And then final question for your company's office plans post pandemic. Will you, A, have no change from pre pandemic? B, leave it up to individual teams? C, offer hybrid or d, go full remote?
We're sort of a hybrid. We've had a policy at Kilroy for the last 15 years where supervisors can allow their people to work from home or give them time off for various things and so forth, it's all subject to performance. So we don't have a specific model during this pandemic. We've of course had times where you couldn't because of law come into work or it was only essential workers and we've had to deal with that. But I think our policy that we've historically had has been somewhat of a hybrid and it's worked very well for us as a company.
Okay. All right. Thank you. Well, John, Tyler, Rob, Michelle, thanks so much for your time and your participation in the conference and good luck with the rest of your meetings.
Well, thanks Jamie. Thank you very much, Jamie. Thanks for everybody listening. Appreciate it. Bye bye.