Good morning, ladies and gentlemen. Thank you for attending today's Q2 2022 Kilroy Realty Corporation Earnings Conference Call. My name is Tia, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I will now pass the conference over to your host, Bill Hutcheson, Senior Vice President, Investor Relations and Capital Markets. You may proceed.
Thank you, Tia. Good morning, everyone, and thanks for joining us. On the call with me today are John Kilroy, our Chairman and CEO, Tyler Rose, our President, Rob Paratte, our Executive Vice President of Leasing and Business Development, and Eliott Trencher, our CIO and Interim CFO. At the outset, I need to say that some of the information we will be discussing during this call is forward-looking in nature. Please refer to our supplemental package for a statement regarding the forward-looking information on this call and in the supplemental. This call is being telecast live on our website and will be available for replay for the next eight days, both by phone and over the internet. Our earnings release and supplemental package have been filed on a Form 8-K with the SEC, and both are available on our website.
John will start the call with Q2 highlights, and Eliott will discuss our financial results and provide you with updated 2022 earnings guidance. We'll be happy to take your questions. John?
Thanks, Bill. Hello, everybody, and thank you for joining us today. I'm going to begin with some big picture comments and then review highlights from the quarter. The economy during the Q2 continues to show fits and starts. Elevated risks exist given stubborn inflation levels, bearish equity markets, and heightened geopolitical tension. On the other hand, unemployment remains low, the dollar has strengthened, commodity prices are starting to decline, and public capital markets remain open and functional. The economic signals are mixed and in some ways complicated. In periods of uncertainty such as this, we believe it is prudent to err on the side of caution. Despite the mixed macro trends, the technology and life science sectors continue to demonstrate encouraging signs. VC capital deployment remains robust.
In the H1 of 2022, $144 billion was invested, which roughly matches the full year deployment levels for both of 2018 and 2019. While IPO exits for VC-backed companies have been slow, it has not impacted capital raising in most cases when compared to historical volumes. Funds have raised $122 billion year to date, which is on pace to be the best year by a significant margin. The labor market also remains competitive. Nationally, there's twice as many job postings as unemployed people. In our markets, postings are up roughly 40% year-over-year for large cap tech companies, highlighting the continued need for talent on the West Coast and in Austin.
While leasing in periods such as these is understandably choppy, we remain confident about the long-term health of these critical industries and are cautiously optimistic on the continued demand for space at our properties. The progress on return to office continues across our portfolio with some differences across geography and industry. Austin and Southern California have been the geographic leaders while professional services, FIRE category, and life sciences have been the industry leaders. Noticeably, these sectors have contributed to more activity in our leasing pipeline, highlighting the appeal of our properties to a range of tenants. Physical occupancy in our portfolio and the overall market continues to improve, and based on conversations with our customer base, we remain optimistic this trend will continue.
In light of the current economic uncertainty and the potential impacts on the labor market, the power dynamic is shifting to employers who have consistently expressed a preference for in-person work. Additionally, it's worth noting that based on return to office data aggregated by Google, the U.K., Germany, Japan, and Hong Kong are 13-30 percentage points ahead of the U.S., suggesting there is upside to physical occupancy in the short and medium term. Notwithstanding varying rates of pre-occupancy in our market, tenants continue to show their commitment to the office by leasing space. According to JLL, Q2 office leasing nationwide was up slightly from last quarter, the sixth consecutive quarter of increasing volume, with technology representing the largest industry of demand.
While some companies are showing or rather are slowing their decision making, others, including Google, Apple, and Amazon, signed major leases in our markets this quarter. The headlines that many technology thought leaders are still figuring out what hybrid works like for their employee base and real estate requirements is accurate. To that end, some users are slowing down their build outs in order to experiment with different layouts and configurations. While this may create some noise in the short term, it sets companies up to make better long-term decisions, which should ultimately benefit high quality and efficient buildings like those we own. Political winds in our markets are also shifting.
The actions taken by San Francisco voters over the past several months, starting with the recall of three board of education members, and most recently last month's recall of former District Attorney Boudin, is a clear sign that people have had enough. The subsequent appointment of a law and order DA, District Attorney Jenkins, combined with major changes of her staff and increased budgets for police funding, so that increasingly disgruntled voters are demanding accountability from their elected officials. We're happy to see that. These changes in San Francisco come on the heels of Seattle voters taking action late last year when they elected a business-friendly law and order mayor and city attorney. In Los Angeles, similar movements are afoot. The theme we continue to consistently see across markets is the preference for high quality office space.
Tenants have more choices today, and they want to be in newer and highly amenitized buildings. Leasing the best product is desirable, and desirable locations is critical for companies to attract their employee base back to the office. The data backs us up. According to CBRE, effective rents in top tier office buildings nationwide are up roughly 8% since 2020, while lower tier office rents are down 3% over the same period. As more and more companies want the newest and best buildings, we believe our modern and sustainable portfolio with an average age of 11 years is well positioned to capitalize on this trend. Turning to highlights from the Q2 , we signed roughly 250,000 sq ft of leases with cash spreads in the stabilized portfolio of plus 21%.
Subsequent to quarter end, we signed an additional 73,000 sq ft in the stabilized portfolio, highlighted by a 5.5-year renewal of a financial services tenant in Menlo Park. On our last earnings call, we referenced 350,000 sq ft of deals in late-stage negotiations. As of today, we have executed on more than 90% of that number, with much of the balance remaining in ongoing discussions. The activity combined with our modest rollover increased our percent leased by 60 basis points from last quarter to roughly 94%. Looking forward, demand in the leasing pipeline is solid, both in our core portfolio and also for our projects under development. We have a number of transactions across the stabilized portfolio in various stages of negotiation and expect to have continued activity over the balance of the year.
Our development pipeline also has strong interest, specifically in 2100 Kettner and Indeed Tower and Kilroy Oyster Point Phase II. Demand is coming from life science, technology, finance, and professional services. Negotiations continue to progress despite recent market volatility. While there can be no guarantees until leases are actually signed, we are really encouraged by the many negotiations that are in advanced discussions and expect this to translate into good news. On the capital allocation front, we intend to use caution when evaluating new investments and new development starts. The bar for us to make meaningful acquisitions or start something new on a speculative basis is higher than three months ago. Having said this, we maintain high conviction in our recent acquisitions of the site in Austin for the development of our Indeed Tower project and expect it to begin construction later this quarter.
The Austin market remains strong and capable of supporting new development. The area around Indeed Tower is one of the most vibrant in the region, anchored by companies including Meta, Amazon, and most recently PayPal, who just signed 60,000 sq ft this month. The light rail that will service the area is fully funded and hosted a groundbreaking last week. Our nearby nearly 500,000 sq ft project will be state of the art with the most desirable floor plates in the submarket, multiple terraces, outdoor amenity areas, and 50,000 sq ft of walkable retail. Construction is projected to take 30 months and the project will be ready by the H1 of 2025. Now let's shift to the real estate capital markets. Volatility in the debt market has made it tough for borrowers to get quotes and has limited price discovery.
Additionally, landlords are much better capitalized today than in prior cycles, so there are not many poor sellers. As a result, very little is traded. While we are maintaining our 2022 disposition guidance of $200 million-$500 million, we'll only proceed with sales if we feel it is the appropriate capital allocation decision. In summary, the company is very well positioned for both defense and offense. Our downside is protected by our strong balance sheet, minimal lease and debt maturities, diversified tenant credit, and top-notch portfolio quality. When the time is right, we expect that our development pipeline and capital allocation abilities will generate upside and create meaningful value for shareholders. That completes my remarks. Now I'll turn the call over to Eliott.
Thank you, John. FFO was $1.17 per share in the Q2 . This includes roughly two pennies of non-recurring items from tenant catch-up payments and retail tenants going back onto accrual accounting. The increase in FFO relative to last quarter was mainly driven by the balance of 333 Dexter coming into service in mid-April. On a same-store basis, Q2 cash NOI was up more than 10%. The growth was driven by free rent burn-off for some larger office leases, improved parking revenue, and higher occupancy at One Paseo Residential. GAAP same-store NOI was up 3.5%. At the end of the quarter, our stabilized portfolio was 91% occupied and 94% leased.
The increase in occupancy from the prior quarter was due to the balance of 333 Dexter coming into service and the transition of our 26th Street property in Santa Monica into the future development pipeline. The increase in percentage leased was driven by the deals we signed during the quarter, specifically in Long Beach and the I-15 corridor in San Diego. Turning to the balance sheet, our liquidity today stands at approximately $1.2 billion, including roughly $120 million in cash and full availability of our $1.1 billion revolver. Our cash on hand, unused line capacity, and projected dispositions are more than sufficient to fund the balance of our projects under construction. Net debt to 2Q annualized EBITDA was 6x, and we have no debt maturities until December of 2024. Now let's discuss our updated 2022 guidance.
To begin, let me remind you that we approach our near-term performance forecasting with a high degree of caution, given all the uncertainties in today's economy. Our current guidance reflects information and market intelligence as we know it today. Any COVID-related impacts or significant shifts in the economy, our markets, tenant demand, construction costs, or new supply going forward could have a meaningful impact on our results in ways not currently reflected in our analysis. Projected revenue recognition dates are subject to several factors that we can't control, including the timing of tenant occupancies. With those caveats, our updated assumptions for 2022 are as follows. As always, no acquisitions are forecasted. We continue to assume $200 million-500 million of dispositions, though we are now expecting the majority of these sales to happen in the Q4 .
As John mentioned, if the capital markets are not supportive, we are not going to force the issue in 2022. Development spending for the balance of the year is expected to be $300 million-350 million, a decrease from our prior full year forecast due to the expectation of fewer new starts. We expect to commence revenue recognition for 250,000 sq ft of life science redevelopments during the Q4 of this year. Year-end occupancy is projected to be 91%-92% for the office portfolio, and residential occupancy is projected to stay around the current level of 94%. It is important to note that 2100 Kettner will be coming into the stabilized portfolio next quarter. As the building is not yet leased, stabilized occupancy for the company will be impacted for the balance of the year.
As a result, we expect to be at the lower end of the occupancy range. Same-store cash NOI growth is still expected to be between 5% and 6%. As implied by our guidance, same-store will decrease in the back half of the year due to some tenant concessions that kick in and some one-time items in the prior period. Putting this all together, our updated 2022 FFO guidance is projected to range between $4.53 and $4.63 with a midpoint of $4.58, which is a 7-cent increase compared to our prior guidance. The increase is due to the solid Q2 results and the adjusted timing on our dispositions.
Similar to what we discussed last quarter, guidance implies a drop of roughly $0.04 from the $1.17 achieved in the Q2 . These $0.04 can be broken down as follows. $0.02 from non-recurring items previously discussed and $0.02 from dispositions. That completes my remarks. Now we'll be happy to take your questions. Tia?
Absolutely. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your touchtone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to generate in queue. The first question is from the line of Nicholas Yulico with Scotiabank. You may proceed.
Hi, everyone. First question was just in terms of Oyster Point, maybe you could frame out, you know, where you're seeing leasing demand in that market right now, because I know there's been a sense that, you know, what's going on with the biotech index and VC funding, et cetera. There's been maybe a slowdown in demand, but hoping you can just kind of frame out how you're seeing demand in that market, let's say now versus earlier this year.
Sure. Nick, this is Rob Paratte. How are you doing? Recently, within the last 20 days, two leases in the South San Francisco region, life science leases, have been signed at total in excess of 435,000 sq ft. Both are great tenant names. I think that's an indicator of where the market is for very high quality space. As John mentioned in his comments, we're seeing a lot of activity at Kilroy Oyster Point Phase II. Our team there is actively engaged. We had meetings yesterday with a large user. We have a few users that could take entire buildings that we're talking to, and we're also speaking to tenants that, you know, could take portions of buildings.
For the product we have and the type of tenant we're seeking, our activity still remains very encouraging. We're physically on the site, tower cranes will be up and visible from the freeway within the next 30-45 days. A lot is happening on site, and it's just the visibility of what's happening on site is having an impact on the conversations we're having with tenants.
Okay. Thanks, Rob. A follow-up on that is I think that the stabilization date got pushed out a bit farther on the project this quarter. Can you just talk about what drove that?
Hey, hey Nick, this is Eliott. I can take that. The reason for the adjustment was because there was a change in the timing tied to the removal of an existing gas line by the utility company. They just took a little bit longer to remove the gas line than we had anticipated. One of the buildings, because remember, there's three buildings they're going to deliver in stages. One of the buildings will come in a little bit later because of that adjustment. The other two are not going to be impacted to the same degree. As a reminder, our stabilization dates have 12 months of leasing, lease-up baked into them.
Just, I guess, the takeaway here is it was more tied to that removal of a gas line than our view on the market.
Okay, thanks. Just one last question is, as we're thinking about heading into next year, you know, major expirations you have to deal with, you know, next year. I mean, is there any, you know, update you have there on kind of leasing traction, just as we're, you know, trying to think about how, occupancy could trend next year? I know it's early, but, you know, some companies are starting to give a little bit of a feel for that. Thanks.
Yeah. Hi, Nick. It's Rob again. We have four expirations in 2023 that are over 100,000 feet. Three of them we're in active negotiations with, and the fourth one, which is the smallest of the four, we expect will be a move out, but that's not 100% certain yet.
Okay. Thanks, everyone.
Thank you. The next question is from the line of John Kim with BMO Capital Markets. You may proceed.
Thank you. I was wondering, John, with the pullback in tech hiring and potential office space, do you think the newer non-headquarter markets like in Austin will be impacted more if there's a retrenchment, or would the losses be more significant in Silicon Valley just given the higher cost structure?
I don't know. I mean, I can speculate a lot, but I just don't know. I mean, you know, the things that we're hearing right now is that people want to be back in the office. They want to be in these areas where they can attract the talent that they need. In Austin, we know of a number of companies that are looking to either expand dramatically or move into Austin. We're seeing that in Indeed Tower, and we're seeing that in our early stage negotiations, or I shouldn't say negotiations, but you know, RFPs and so forth in connection with our to-be-built Stadium Tower. I think that market's going to do just fine. It's everything we're hearing there is people are continuing to expand.
When we talk to law firms and others that are there, some of whom are VCs in connection with Indeed Tower, they're projecting their business activity, their book of business in Austin is going to increase. I think that feels pretty good. In terms of the city, you know, there's a lot of stuff going on, meaning San Francisco, some recent headlines about people both expanding as well as some that put stuff on for sublease. It's just really hard to say. Trend-wise, I think that we're going to continue to see a repopulation of buildings in downtown San Francisco and elsewhere. We're seeing big growth in San Diego and more to come. We're seeing big growth, as I said, in Austin. In L.A., it's things have ticked up. There's been a bunch of lease deals done.
It's just kind of all over the map and, you know, it remains to be seen. I am cautiously optimistic because we are seeing more tours by big users and seriously interested in property. I will say the decision timing for a lot of these companies has been elongated. There are more hurdles that they've got to go through to justify stuff. As I mentioned in my formal remarks, they're trying to figure out exactly how they're gonna improve their space. You know, which model is gonna be the model that they're gonna utilize. We've seen a couple of tenants reconfigure their designs for space they're gonna occupy and make significant changes. There's just a lot of things at play.
Not all is positive, but incrementally, I'm seeing more positive now than I saw last quarter and so forth. I think the trend is gonna be better. You know, if you look at a stock market chart, even if it's going up, it doesn't go up every day. It goes up and down. We'll see what happens.
I appreciate your honesty and your color. My second question is on Blackstone. They've had a position in your company for the last couple years, and I'm wondering if you had any direct conversations with them, either as a long-term shareholder or potentially as a strategic partner.
I'm sorry, John. For some reason, you cut out a lot on that, and I'm not sure I got your question. Could you restate it, please?
Sure. Blackstone, they've been a shareholder of your company for a while, and I'm wondering if you've had any direct conversations with them, either as a shareholder or as a partner?
I'm not aware of any.
That is a no. Thank you.
Well, I only say that. It's sort of the question. I don't think anybody else from Kilroy on the call had any conversations with them? I haven't. I haven't heard of any.
No.
No.
Thanks.
Thank you. The next question is from the line of Jamie Feldman with Bank of America. Please go ahead.
Thank you. I guess, starting with 2100 Kettner, I mean, can you talk about the potential pipeline for that project? Do you think it's the location? Do you think it's the timing? I know it's kind of a new submarket for you guys. Just want to get some more thoughts.
Hi, Jamie. It's Rob. Let me answer the last part first, which is, you know, timing. The project really was ready for, you know, tenant improvements in the midst of the pandemic, which didn't help. That said, throughout, toward the end of the pandemic and into this current quarter, we've had continued activity and interest from a variety of tenants, whether it's professional services or technology. I think, because this Little Italy submarket borders downtown San Diego, which has just in general, those two markets have been slower to repopulate, that's impacted some of the leasing demand, not only at Kettner, but elsewhere, at Diamond View and other projects in downtown San Diego. All that said, we've made meaningful progress with a very well-known company.
I don't want to go further than this comment about it, but we feel like we're making very good progress with them, and we'll be able to share more with you in the near future.
Okay. Thank you. Maybe just, I mean. Oh, sorry. Go ahead.
Jamie. Yeah, sorry. This is John. The other thing is, I think I've talked about this before, but you know, originally we thought we would end up with a likely big tenant that we were talking with with regard to that property. Their requirements were bigger than what we could deliver, and we've made the decision to break it up and go multi-tenant, which is kind of the same path we went down when we came on stream or when we were under construction in late stages with our One Paseo office space. Of course, we didn't have the pandemic to deal with for that, for those buildings. It's a very similar path, and I'm confident we're gonna end up with really very successful rental rates and client base at 2100 Kettner.
Okay. When do you have to stop capitalizing that project, assuming you don't have a tenant?
It's gonna come into service next quarter, so by next quarter.
Oh, okay. If it's still there 4Q, you're no longer capitalizing?
Correct.
Okay. Maybe just to shift gears to CBD San Francisco. I mean, we all see the headlines. I know you made some comments that it's slower. I mean, can you just give more color on what it's really like to try to do business there right now? I know you've got a high quality portfolio. Just any more information on, you know, how you're thinking about how that market's gonna look the next six or nine months?
Sure, Jamie. This is Rob again. I'll direct. I'll answer that. Let's frame up Kilroy's position in San Francisco, first of all. Right now we're 95% leased in San Francisco, our portfolio is, and I'd remind everybody that we have very minimal roll between 2023, 2024, 2025, averaging about 7%. I'd just like to set that as sort of the groundwork. Leasing volume in the Q2 in San Francisco rebounded up to about 1.7 million sq ft. I think two very notable transactions happened within the last, again, 20-25 days. One is Google taking 295,000 sq ft of very high quality sublease space in SoMa, and secondly, Wells Fargo Bank renewing 661,000 sq ft in San Francisco CBD.
Those are two very notable transactions. Again, I think you have to separate what the headlines say into the facts about specific submarkets. I think those are very indicative. The best buildings in San Francisco have an 11.6% vacancy rate, so meaning the premier assets in the city are 11% versus the 20% vacancy rate reported, you know, by brokerage firms. On the ground, how things are feeling, as John said, it's sort of up and down. It's not linear. Tuesday, Wednesday, Thursday are very busy. Last week at 100 First, where Bill and I are speaking to you today, one of our tenants had a major event for their employees. The elevators and the lobbies were completely full with people.
They looked like they were having a really good time. That spilled over into Thursday. We're seeing that not only at 100 First, but in other parts of our portfolio. As you know, we've said on previous calls or at NAREIT or what have you, that a lot of this year is gonna be focused on making coming back to work fun. You'll see a lot of, aside from bringing teams back together to actually do work, you're gonna see a lot of entertainment and hospitality type focus.
The last thing I'd say is that the streets in the CBD in South of Market and, you know, parts of North of Market are in much better shape than they have been, and I think that's a function of more people being back in the CBD, as well as increased police activity and enforcement.
Okay. Just going back to the four large expirations next year, can you remind us where they are? The one that sounds like could be a move-out, can you give us more color on that one?
I don't really wanna give more color. It's in the smallest of the four that we think may be a move-out. It's in San Francisco. The others are, you know, in Southern California, kind of spread throughout the portfolio.
Okay. All right. Thank you.
Thank you. The next question is from the line of Brian Spohn with Evercore ISI. You may proceed.
Hi. Thanks. Just going back to the stadium project. John, I was wondering if you could talk to what's giving you the confidence in starting this project, just given the economic slowdown and what you're seeing on construction costs and the growing competitive supply pipeline down in Austin.
Yeah. I think we have a pretty good mousetrap, and we have a lot of conversations going on with full floor users, a handful of those that are all big names. I think we'll end up in a very good timeframe versus where competitors are delivering space, either those that are underway or those that would follow, assuming they start. That gives us confidence. You know, you have to make choices, and we have postponed the start of Santa Fe Summit down in San Diego. We've taken a pause on that. We're ready to go, whenever we wanna push that button. We're entitled and pretty much ready to go with 26 Street in Santa Monica. It's a smaller project of, you know, maybe a couple hundred thousand sq ft. We think Austin is...
At that location is gonna be a winner. That's our thinking.
Got it. Okay. Just on the disposition target for the year, you know, Eliott or John, can you just talk to your confidence level in hitting that number, where we're at? You haven't done any so far this year. Maybe just more broadly, what interest are you seeing in the transaction market today for office product?
You wanna take that, Eliott?
Yeah, sure. I think kind of breaking it down into pieces, as we sort of described in our remarks, we're in the market with various transactions. We are adjusting the timing of them. In terms of the confidence, we're kind of approaching it as if we see that there's a market that we like and there's enough depth to it that we think we're executing at prices that are commensurate with where values ought to be, then we're pretty confident we can, you know, get $200 million-$500 million done. You know, we obviously are adjusting the timing, so we'll have to see how that plays out. If it doesn't make sense to sell, we're not going to sell.
We're not gonna force the issue, and we're kind of seeing the market real time and evaluating it. I think bigger picture, there is still a bid for lots of different types of assets, and I think it's a little bit stronger for those that are all cash buyers. The levered buyers are a little bit more reliant on the debt markets, and as John described, the debt markets are changing by the day.
Thanks. That's it for me.
Thank you. The next question is from the line of Michael Griffin with Citi. You may proceed.
Hey. Thanks for taking the question. Just wanted to go back to the 26th Street redevelopment, adding it into the pool this quarter. Sort of kind of what drove that and sort of what are expectations for that going forward?
For the start of it, the construction?
Yes.
Yeah. Well, the L.A. market, the West L.A. market is cleaning up pretty nicely. You know, you just have to make decisions from a capital allocation standpoint. You know, I feel like this is kind of similar to a period that, frankly, the markets were in better shape. You might recall when we had The Exchange under construction, which was three-quarters of a million square feet in South San Francisco. We were looking at starting, and I think we had Dexter, which is roughly 700,000 sq ft up in Seattle, under construction. We didn't have either leased. We were being asked, would we start 100 Hooper, which, and my point was, well, it's right you know, it's the same market as The Exchange.
We'll start it if we have a tenant for it or if we've made significant leasing at The Exchange, but we're not gonna just add another 400,000 sq ft on top of 700,000 sq ft that was underway in the same market spec. I look at it, I say to myself, from a company standpoint, we've got KOP. We're confident we're gonna lease that up, but that's a big project. That's roughly 900,000 sq ft. We've got Kettner down in San Diego. We're starting the stadium. We've delayed South Santa Fe Summit, and we're gonna delay the project you've inquired about, 26th Street, and they'll come on stream. I mean, we'll start at some point. It's just that we don't feel compelled to start anything.
We're in great shape in our balance sheet. We're not like a merchant builder that if you don't build it, you're not gonna get your fees or whatever. We'll just let the market continue to improve. We'll pull the trigger when we think it makes sense, both with regard to that specific project and, you know, and in looking at the company in its total context.
Thanks for that. Appreciate the color on it. John, just going back to what you mentioned in your prepared remarks about sort of political winds shifting in a lot of your markets, you know, with the recall of the DA in San Fran and, you know, the runoff for mayor in Los Angeles coming up. I'm curious if you believe that this will be a big driving factor to people feeling more comfortable coming back in the office? Or do you think that it's too quick a shift, and then it might take sort of longer to play out?
I think it's a major component of the solution. I mean, there's a lot of things going on, as you know, and if you have all this homelessness and all this lawlessness. I was looking at the statistics the other day that were put together, and I don't have them with me, but in order of magnitude, and I might be off 10 percentage points, you know, on any one of these. But directionally, you know, murder is up in every major city hugely this year. Violent crime is up major in every major city. Car theft is up in every major city. They don't even, in most cities, deal with any thefts or snatch and grab under $1,000. Those statistics, I think, would be off the charts.
People are sick and tired of this stuff. They're sick and tired of it. In San Francisco, the four Republicans that live there probably voted for this. I say that kiddingly, there may be a few more. The reality is, this is a broad-based disenchantment with this woke sort of stuff, and people are pissed off and cleaning up the streets. For companies seeing that streets are starting to clean up, for companies seeing that law and order is being on the forefront of people's minds and being restored is a major part of the equation. It's not the only thing, of course. There's the whole work from home situation, but I think this is, you know, a component of that. I'm very encouraged by the fact that it's not one political group.
It's a broad swath of people, every age, every background, not every, but most political affiliations or whether they're. Some of them, of course, are like me, and they're independent. The fact is, you needed to get people pissed off into changing stuff, and I'm really encouraged by it. It's not gonna happen overnight, but what I'm hearing is that they're encouraged by seeing that it is moving forward. There's a lot of work to be done, but it's a huge first step. It's not gonna mean that crime goes away day one. It won't, because there are a lot of bad people out there, and they need to be dealt with.
Great. That's it for me. Thanks for the time.
Yep, you're welcome.
Thank you. The next question is from the line of Blaine Heck with Wells Fargo. You may proceed.
Great. Thanks. Good morning out there. I was hoping you guys could give us an update on the mark-to-market in each of your markets and whether you've seen any change in that metric recently, especially in Los Angeles, where you have a pretty large proportion of your expirations in the next several years.
Hey, Blaine, this is Eliott. I can handle that. No material change in our mark-to-market from what we've talked about previously. It kind of ranges on the West Coast between 10%-20% by market. In Austin, it's 30% mark-to-market, and it kind of blends somewhere in that 10%-15% range.
Okay, great. Second question is, it sounds like the beat this quarter was largely due to early revenue recognition at 333 Dexter. We looked back and saw that revenue recognition on developments has been earlier than guidance, four times in the last two or three years. Obviously, this has a positive impact on actuals versus guidance, which is great. But I'm wondering if there's anything specific going on that's enabling you guys to consistently beat your expectations for the timing of revenue recognition on developments, or is it just a matter of staying kind of conservative on guidance and building in a bit of a cushion for those move-ins?
Yeah, this is John. I
There's a-
Go ahead, Eliott. Go ahead, but I want to make a comment afterward. Sorry.
Yeah, there's definitely you know, we talk, we give a lot of the disclaimers in our prepared remarks about calculating the timing of revenue recognition because there's definitely a lot of art behind it. So, you know, we try our best to project when the TIs will be spent by tenants in place and that we can actually start to recognize revenue. There's certainly no exact science that goes to it, and we've been fortunate, as you point out, to have beaten it in the last few instances. You know, that doesn't necessarily mean it'll happen next time, but we're certainly gonna try our best to do better.
Yeah, Blaine, this is John. I make this comment. Justin Smart, our EVP or now President of Development, Construction and Development at Kilroy, and his team, his group, they're the best I've ever seen. They really, really work with the tenants along with the rest of our deal-making squad to move these things along and make things easier for tenants to decide on. I kind of think that could. I don't know if we'll have the success that we've had in the past with that. We'll see.
You know, companies are experimenting more with the way they are using space, so sometimes they're slower now in moving forward with their improvements because they're all scratching their heads saying, "Is this mix now the right mix, or should we try something else and maybe do a pilot and then see about the rest of the space?" It could bounce around.
Got it. That's helpful color. Thanks, guys.
Thank you. The next question comes from the line of Vikram Malhotra with Mizuho. You may proceed.
Hi. Thanks for taking the question. Sorry if I missed this. I just wanted to go back and maybe get some more color on your thoughts around capital deployment. You mentioned the higher bar for assets. Just, can you maybe give us a bit more specifics? What are you changing in terms of underwriting or maybe what you're looking for? Given the quality divide that you highlighted, any thoughts on where the value differential is for, say, high quality A-grid office versus the average product out there?
Yeah. Those are good questions. You know, the fact is that as people are utilizing space differently now, there's probably an increased element or view towards do buildings. I've always said, do buildings have the physicality for the modern tenant? You know, you may need to improve things, but do they have the physicality, the actual dimensions and whatnot? That's probably ratcheted up rather to a higher threshold of what is acceptable physically. But the other thing is that, you know, it's just to me doesn't make a lot of sense to buy stuff today, assuming you're gonna have big rent increases over the next several years, which we did see. That punctuated most of our markets for the last several years.
In periods like this, it could be that we don't see the level of rent increases. Your underwriting is gonna be more conservative. We always look at if you were to sell the asset, what's the pool of buyers and so forth. The flight to quality is not just a tenant-based phenomena. It is an investor-based phenomena. The sophisticated investor is looking to deploy capital to assets that have a lot of running room, that are gonna be performing well for many decades. Much of the existing stock doesn't have that. There's just a higher bar in a context of demand, in the context of underwriting rental increases, and in physicality and so forth.
With regard to development, the nice thing about development is that we generally get to develop pretty much what we want, and we're pretty good at developing excellent properties. We also have to take a look at where construction costs are, and they vary dramatically between our markets. Everything we have under construction from a development standpoint, we have a guaranteed max price with the contractor. You know, we've we're very comfortable with that. Same thing on major tenant improvement work. We have that, for example, at the Indeed Tower that we wanna build out at The Domain in Austin. In other areas, we had that, by the way, at Santa Fe Summit in the project we'd elected to slow down and not proceed with right now.
You, for example, in Seattle, construction costs have probably been higher there than any other. The increase is higher there than any other major market in the United States. That's because of all the construction of Amazon and others, primarily in Bellevue. To me, us, it makes no sense. Notwithstanding whether the market makes sense or doesn't, it makes no sense to go out and start a building when you're at your all-time peak in construction costs and labor costs. We think those will moderate. We're also gonna look at how we time things, not only based upon, you know, demand, visible demand, but also based upon what costs are going to be and whether we think those costs might go down. There's a lot of different things. Finally, it's just about capital allocation.
We don't wanna sell stock, we don't wanna add a lot of debt, and so the likelihood of us having a whole bunch of acquisitions and development going forward is also more remote. Those are the big factors that are in our thinking.
That's helpful. Then just talking of timing, you highlighted the robust demand still for quality life sciences, the two big users or two big opportunities I think you referenced. Just thinking about the opportunities in life science in the Sun Belt, you've clearly made the push there in Austin. I'm just wondering like, are there specific life science-oriented opportunities, that you can share with us?
No. I say that not to be a smart aleck, it's just because we don't have any in the hopper right now. The life science, while there's some tremendous, you know, cancer research and so forth down in Houston and whatnot, it's an emerging area in much of the South. Of course you've got a lot of activity down in North Carolina, but we're not down there. We don't have any plans right now on life science in those markets. Might we in the future? Quite possibly, but nothing in our consciousness right now.
Okay, great. Thanks so much.
You're welcome.
Thank you. There are no additional questions at this time. I will pass it back to the management team for closing remarks.
Thank you very much for joining us and for your interest in Kilroy.
That concludes today's conference call. Thank you. You may disconnect your lines.