Kilroy Realty Buys Silicon Valley Office Campus as Rents Rise

Kilroy Realty Corp., a U.S. real estate investment trust with a focus on California offices, bought a campus in the Silicon Valley city of Menlo Park for $162.2 million as technology growth drives rents higher.

The seven buildings in the Menlo Corporate Center have 374,000 square feet (35,000 square meters) and are 79 percent leased by tenants including Lucile Packard Children’s Hospital at Stanford, E*Trade Financial Corp. and Allstate Corp., the Los Angeles-based REIT said in a statement today.

“We see strong fundamentals in Silicon Valley and Peninsula office markets and will continue to pursue opportunities that make strategic and economic sense for the company,” Mike Sanford, Kilroy’s senior vice president for Northern California, said in the statement. Empty space in the complex will allow the company to charge rents “well above the current in-place rates,” he said.

The region’s “booming tech sector” may push Silicon Valley office rents up 11 percent this year to $36 a square foot from $32.40 at the end of 2011, commercial brokerage Cassidy Turley said in its fourth-quarter report. The vacancy rate fell to 14 percent, the lowest in three years. Since 2010, Kilroy has spent $877 million on eight projects in the San Francisco area, with Menlo Park bringing its total space in the region to 2.6 million square feet.

The company owned 11.4 million square feet of offices and 3.4 million square feet of warehouses in Los Angeles, Orange County, San Diego, the San Francisco area and greater Seattle and at the end of 2011.

Kilroy rose 1.9 percent to $44.67 at the close today in New York. The shares have gained 17 percent this year compared with a 5.6 percent advance in the Bloomberg REIT Index.

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