Douglas T. Linde
President & Director at Boston Properties
Thanks, Owen, good morning everybody. Obviously, we have a lot to talk about on the transactional side, I'm sure, there'll be some questions on that, but I do want to spend a few minutes talking about the leasing markets and the activity that we're seeing. There is certainly no question that we're on the precipice of significant change in the atmosphere around in person work but more announcements come out every day, the fact remains there is still some uncertainty and there is some trepidation about COVID-19 the delta variant and whatever the next thing is going to be. So the transition period that we are now in as many organizations like ours encourage or require their employees to come back to work, it's going to take some time. So they're going to be some ramifications of that. Many of you participated in our Nareit meetings and my comments this morning about impacts on work from home, I think are going to be pretty consistent with what we talked about during that conference. The impacts on space needs are going to really vary depending upon the size of organizations which we would like to put in 3 categories.
So the first are the really large employers. And honestly, they are moving forward with plans for space, based on long-term growth plans hiring that's occurred over the last 16 months, and thousands of open job requirements that they are trying to fill right now. Then, you have really small organizations that are very stable and they've all recognized that, very little is going to change regarding how they utilize a real estate, maybe some will work more from outside the office but everyone is going to continue to have a dedicated workspace in their facilities and they're really not impacting the amount of space they have. And then, there's a 3rd group, which is an important group and the 3rd group are mid sized organizations or younger companies that are experiencing growth but where it's very unclear how their organizational culture is effectively going to be built. If people aren't in physical contact and I think those companies are going to have to take some time to figure that out, will it work or won't work, and we don't believe that this is going to happen immediately. We think it's going to take 6 to 12 months and it's going to really depend quite frankly on, how they're doing from a competitive perspective. How are their peers doing in their industries and does it matter that they're not in contact with each other, all the time. When surveyed, most employers preferred to have their teams together as much as possible to enhance efficiency and collaboration and serendipitous idea generation etc. While many employees, declared their preferences for some or more remote work. Well, with the tight labor market, employers are acknowledging the reality. There will be an increase of work that takes place outside the office, and this will incrementally moderate some space growth in the short term, but these same companies may over time add collaborative spaces to accommodate their teams when they are all getting together and they may eventually decide that people need to be back more frequently. Unlike any other prior recession, there have been thousands and thousands of new positions created and there are lots and lots of job openings across the service sectors, the technology sector, the life science sector, the generators of office demand in our markets, and we believe many of these jobs are going to lead to space absorption over the coming years.
Employees are returning to their offices with very few reminders of COVID restrictions and they're getting together formally in meeting rooms and collaboration areas and they're taking the time to reconnect their breakfast and lunch and dinner in restaurants. In many of our CBD assets, we have access control, so we can sort of see what's been going on in our competitive building sets. So comparing to February of 2020 in New York City, about 50% of the employees who had cards are now coming to the office at least once a week and that number is about 34% in Boston and 20% in San Francisco. So it's very different from market to market. Our sequential parking income grew about 20% from the first quarter and while we've not seen monthly parking permits pick up tenants are driving in and paying for daily parking, we actually think that monthly parking permits will be a good indicator for the increase of office frequency in Boston and San Francisco. In Boston true transient parking is actually up and we've actually had to close portions of the Prudential Center garage around lunchtime every day during a couple of days in July due to lack of capacity, believe it or not. At Embarcadero Center, we've seen about a 20% pick up from the low point on monthly parking, but we're still only at 60% of our historical high. So we have a long ways to go in parking.
We expect to see improvements during the rest of the year and at the end of the year we think we're going to be at about 70% of where we were in 2019 on a full-year comparative basis. As you listen to the apartment company calls, you're hearing about the dramatic increase in occupancy in urban areas, the employees are moving back into the cities into those same apartments, which by the way didn't grow during the pandemic and so unlikely they're planning on working at home in those apartments on a frequent basis and we're seeing this in our portfolio as we move from 51% occupancy in January to 82% at the Hub House project that's the Hub on Causeway project, from 10% to 41% at the Skyline in Oakland and from 79 to 93 at Reston Signature. Then our restaurant activity is up materially. And only is really being limited now by the challenges that the operators are having with labor, both in the front and the back of house. We have begun to move away from percentage rent assistance to our retail tenants and back to contractual fixed rent. Believe it or not in Reston, we actually had a tenant request a modification back to fixed rent because the percentage rent was creating a higher payment to us.
Sublet space continues to be a major topics during many of our conversations with investors. Last quarter I described, the dynamics of opportunistic sublet space and discussed our belief that many of the visceral announcements made by tenants that we're putting space on the market would reverse as organizations begin to plan their in-person work strategy again. This quarter at 535 Mission, a tech company without subletting any space withdrew 40% of their 100,000 square feet availability. In Manhattan CBRE is reporting that there has been a drop of about 5.9 million square feet out of a total of 19.3 million square feet that was put on post COVID and about 67% of that was backfilled by the prime tenant. Yes, there is a lot of sublet space on the market, but a large portion is going to be reoccupied, some is not actionable because of short terms. It has unworkable existing conditions or quite frankly users just don't like the comfort of the lessors profile and some of it's getting leased like the three floors that were completed at 680 Folsom in San Francisco that macys.com had on a sublet market. The headwinds from sub-let space exists, but they are going to dissipate as companies begin to come back to work.
Now as I pivot my remarks to the Boston Properties office and life science portfolio specifically, I'm going to describe the level of activity that I think is counter to the headlines of weak market conditions across the office sector in the United States. The BXP portfolio includes a number of iconic high quality, well maintained, and continually upgraded assets. When there is market weakness, our assets outperform. We spent a lot of time discussing our portfolio vacancy last quarter in our forward expectations. We experienced quicker than expected revenue commencement on signed leases and saw basically flat vacancy relative to the prior quarter. We were down 10 basis points on a 45 million square feet portfolio and this included taking back 66,000 square feet of non-revenue space that I talked about last quarter at the Hub on Causeway from the cinema that had never opened. We now have new signed leases for 640,000 square feet of space that have yet to commence and are not included in our occupied in-service portfolio.
So on a relative basis, here's my view of the markets and I'm raking it based upon activity in the portfolio, active lease negotiations, tours, RFPs from best to least. Boston Waltham, we don't have any available space in Cambridge, so we have no activity there. San Francisco CBD, Northern Virginia, Midtown Manhattan, Peninsula Silicon Valley, West LA, Princeton and finally DC CBD, all of the transactions. I'm going to talk about are post COVID negotiations, meaning they all began in the latter half of '20 or into 2021, so just to change things up this quarter let's start with LA. Last quarter, I acknowledge our disappointment that we were unable to keep 200,000 square foot tenant at the Santa Monica Business Park. Less than 30 days later, we had a signed lease for 140,000 square feet of that space to a growing tech company. During May, we completed a 350,000 square feet long-term extension and expansion at Colorado Center with a media company. In total, this 490,000 square feet, had a weighted average expiring rent that was effectively equal to the starting rent of that space and 200,000 square feet of the expiring rents were at above market holdovers. This follows our immediate release of the 70,000 square feet vacancy that we had from a defaulting tenant in the first quarter. We have a number of smaller deals in negotiation in Santa Monica Business Park and we're responding to requests from tenants that would prefer to go direct on some of the sublet availability at Colorado Center.
In Boston, during the second quarter in the CBD we signed 6 leases totaling 55,000 square feet and the average rent starting represented a growth roll off of about 20%. In each case, the tenant was either renewing or expanding. We have 7 additional leases in the works totaling 70,000 square feet. Obviously, most of them are small since we don't have much in the way of availability in our Boston portfolio. In the suburban Boston portfolio, we completed 60,000 square feet, the average weighted cash rent on those leases was up 17%. Life science organizations are dominating activity in this market. We commenced construction on 880 Winter Street that's the lab life science renovation that we're doing in Waltham and have signed an LOI for 60,000 square feet. We started the building on July 5 and are exchanging proposals with over 180,000 square feet of tenants for the 220,000 square feet building, and it will be delivering in August of next year. We've been responding to new inquiries just about every week on that space. Asking rents in the market for lab space are in the high '60s to mid '70s triple net, which are well above our underwriting when we planned this project about 15 months ago.
Many of you have been asking about inflation and construction costs. When we do our construction budgeting, we always include an escalation expectation. So those numbers are baked into those numbers in our supplemental, it varies depending upon the labor market conditions, subcontractor availability and material costs. We've bid in our on budget for both 880 Winter Street and 180 CityPoint, so we figured out what the escalation would be and we hit it. Currently, we're carrying about a 4% to 6% escalation for base building jobs that we would bid in 12 months. Now, turning back to leasing. In Waltham, we are negotiating leases for another 70,000 square feet of space with life science companies at Bay Colony that is adjacent to 880 Winter Street and our Reservoir Place building. Our new acquisitions at 211 and 153 Second which Owen described have a lease expiration in the late '22 and the current rents on the space are dramatically below market. The expirations will land right in the sweet spot of the current demand in the Boston and the Waltham and the Lexington sub-markets. There is some pure office demand in the market and with more and more buildings being converted to life science, we actually expect the office markets going to tighten dramatically over the next few years. In New York, we continue to have significantly more tours than we had in comparable periods in 2019 and the second quarter is actually up significantly on a sequential basis from the first. We completed 10 office leases totaling 90,000 square feet including another full floor expansion at 399. In total, gross rents on leases signed this quarter were about 20% lower than the in-place rents. We are negotiating over 400,000 square feet of additional leases, including almost 250,000 square feet at Dock 72. The majority of the New York City leases will be for terms in excess of 10 years and we include 2 more expanding tenants at 399 Park Avenue. Activity at the street near the buildings is also picking up. We signed up a new fitness provider at 601 Lex, a new fast casual restaurant at 399 and we're negotiating a lease for all of the available restaurant space at Times Square Tower. And we plan an opening the Hue culinary collective at 601 Lexington in September.
In Reston, our building continue to have extensive activity. This quarter, we completed over 170,000 square feet of leasing of which more than 100,000 square feet was on vacant space. In addition, we have active negotiations on another 72,000 square feet including almost 60,000 square feet of currently vacant space. Reston Next is moving towards completion with the first tenant expected to take occupancy by the end of 2021. We have another 85,000 square feet of office renewals in negotiation in Springfield, Virginia. Retail leasing is roaring back in Reston Town Center. We have negotiated 35000 square feet of restaurant transactions and have almost 100,000 square feet of cinema, fitness, and soft good transactions in the Town Center. Pedestrian activity in Reston Town Center is as active as any location in our portfolio. Office rents are basically flat to slightly down on the re-let since the expiring cash rents have been contractually increasing by 2.5% to 3% for the last 10 years.
In San Francisco CBD, we completed 5 transactions totaling 54,000 square feet with an average roll-up of 8%. Why is it so low this quarter? While the square footage was impacted by a full floor transaction, it starts in the mid '90s where the tenant elected to forego any TI's for a lower rent. If you exclude that transaction, the mark-to-market would have been 17%. In addition, we have 8 active lease negotiations involving 143,000 square feet with an average rent starting of over $100 a square foot -- that is over $100 a square foot in this reportedly terrible market in San Francisco. The bulk of these spaces are in the higher floors at Embarcadero Center and they all have views. Pedestrian activity at the street plane, particularly in the CBD of San Francisco has improved over the last quarter, but it's still well behind Boston, Reston, and New York. And this has affected tenants' appetite for making space decisions. However, medium-sized technology users have begun to look for space. Sublease absorption has picked up in the city with about a million square feet of withdrawals or completed transactions. And as I said earlier, macys.com did 104,000 square feet at 680 Folsom our building.
In Mountain View, we continue to see a constant flow of medical device and alternative energy and automotive and other R&D users looking for space. We completed a full-building lease with an energy company with a healthy 60% mark up in rent and we have another 21,000 square feet lease in negotiation. There is some large tech tenants in the market today looking for expansion space and one recently executed leases for about 700,000 square feet of availability that was in Santa Clara. We are certainly pursuing those tenants for platform 16 and we have begun internal discussions about the appropriate time for the speculative restart of this building.
So to summarize, our leasing activity in the second quarter accelerated. Our portfolio is in great shape in LA. We continue to see strong economic transactions in the CBD of Boston, our suburban Boston portfolio and the CBD of San Francisco. We have significant activity in Reston and are covering our vacancy. New York tour activity is strong, we're doing deals but economic terms are weaker. We are expanding our life science investments across the company and in Greater Boston and South San Francisco our new construction is seeing strong demand at escalating rents. Mike.