Douglas T. Linde
President and Director at Boston Properties
Thanks, Owen. Good morning, everybody. I'm going to begin my remarks this morning with a few comments on the supply chain and its impact on our capital expenditures, both for new construction and our existing assets. So the impacts of the supply chain are both in time and money. Schedule is one of the criteria we use when we bid our jobs. And to-date, we've been able to award bids while maintaining the schedules necessary to get our tenants in their spaces as required.
The supply chain challenges have made the process much harder, but we are still able to deliver the current development pipeline on time and within budget. And as you all know, we have contingencies that are in our budget and at some point, we are using those contingencies. However, in the near term, as we look at new jobs, there are fewer material choices, and we are working closely with our consultants and our contractors to make sure that they are not specifying critical path items that could impact schedules.
Our construction teams are working a lot harder at figuring out exactly how the key and the parts are put together. We are intentionally minimizing oversea items and we're releasing our material packages as early as possible. Trucking issues are real. And at times, we are being forced to air freight as well as stockpile materials offsite, hence the use of some of our contingencies.
There's no single answer to how much more is it going to cost. But when we're budgeting jobs that will start eight to 12 months from now, we're using a 5% to 6% escalation in our total construction costs. We are in the process of rebidding our Platform 16 base building project, which was previously budgeted in late 2019 with an eye towards our 2022 restart. And we will have a real-time perspective in mid-November. But as today, we just don't know what that's going to be.
Supply shortages are also impacting our operating budgets. Energy is a material input into our operating expenses. While our largest utility cost is electricity, we are mostly hedged for 2022, and we have been successfully increasing our procurement from Green Power. We are still exposed to the marginal cost of electrical generation in the Boston region where we expect double-digit increases from last year.
Cost for security, cleaning and engineering, labor continues to increase due to labor shortages across all those trades. However, our lease contracts take two forms. We have net leases, under which 100% of the operating expense and real estate taxes are paid by the tenant, and we have gross leases with a base year that is set upon the lease commencement with increases in expenses over that base year added to the rental obligation of the tenant. In other words, our exposure is on our vacant space and for new or renewal leases, where we are setting a base. This is a pretty small percentage of the total, so it really doesn't have a material impact on our actual operating results as we look at 2022.
As you saw in our supplemental, our second-generation leasing statistics were weak this quarter, and they need some finer explanation. I wish we could put all this into our press release, but we simply can't.
The universe of square footage that is encompassed in the statistics is about 500,000 square feet and it includes 105,000 square feet of short-term transactions, 18 to 24 months, that we signed in the heart of the pandemic with tenants that were not in a position to make a long-term commitment but they were prepared to extend for a negotiated discounted as-is deal.
One of those tenants has since agreed to lease space for 13 years, where the interim rent was $60 a square foot and they'll be paying $103 a square foot, and this is in a New York asset. If you eliminate that 105,000 square feet, the statistics that we would have shown you changed dramatically, going from down 14% to effectively flat. You should also note that our transaction costs were also significantly below our run rate since there were no TIs involved in any of these short-term deals.
Our life science and office portfolio make up 91% of our revenues. As we look towards 2022, we currently have more than 800,000 square feet of signed leases that have not commenced. In 2022, lease expirations for the whole portfolio, not just our share, totaled about 2.9 million square feet, and we already have renewal conversations underway on over 25% of that space. Historically, we have leased well over 1 million square feet a quarter each and every year. The question will be when those new expected leases will commence?
Occupancy should slowly edge up in 2022. The changes in the quarter occupancy this quarter are due to the addition of the Shady Grove and Seattle acquisitions, not a degradation in our occupancy in our existing portfolio.
Now let me give you a sense of what's going on in our portfolio today. New York is a good place to start. Tour activity, proposals and ultimately, leases continue to be very consistent with the commentary we've been providing during the last few quarters. The high-end buildings are seeing good activity. Brokers that advise the small and midsized financial firms and professional services firms are very busy and their clients are taking action. Many of those users are incrementally increasing their space requirements as they continue to acquire people and AUM. Sublease space continues to gradually melt from the statistics. You may remember that we were asked about a 200,000 square foot sublet at 399 Park Avenue during various conference calls in 2020. That space has been taken off the market as the user reoccupies. Now there still is significant supply of direct and sublease space in New York City and our view is that net effective rents remain down 10% to 15% from pre-pandemic levels.
During the quarter, we completed eight deals totaling 113,000 square feet in the CBD portfolio. Many of these spaces were vacant, but the two largest had a roll up of 8% in one case and a roll down of 4% in another. About 70,000 square feet of leases are in the category of leases that will not have a revenue commencement until sometime in mid '22.
Last week, we signed a lease at Dock 72 for 42,000 square feet. We don't anticipate this tenant completing their buildout until the latter half of '22. We have an additional 340,000 square feet of leases under negotiation in New York right now, including almost 200,000 square feet at Dock 72. We don't anticipate revenue commencement on 65% of that space until 2023. One of the themes for next year is going to be a pickup and sign leases with contribution to occupancy or revenue flow-through occurring when tenants complete their installations in late '22 or '23, and we don't necessarily control those times. At Carnegie Center, down in Princeton, we did eight leases for 38,000 square feet and have another 106,000 square feet in active lease documentation.
One final note on New York before I turn to the other markets. Our culinary collective, The Hugh, has opened at our 53rd Street campus in 601 Lex. This is as good an example of placemaking as we can point to in our portfolio. As users who want to encourage their employees to come back to work, this type of experience will dramatically enhance their physical space offering. It's why we do what we do.
In Northern Virginia, our leasing team is seeing a consistent flow of inquiries, tours, lease proposals and -- ultimately -- completed transactions. During the quarter, we completed seven leases totaling 70,000 square feet in Reston, and we're in lease negotiation on another seven deals totaling 125,000 square feet. The tech tenants that have identified the DC metro market as a fertile area for workforce expansion are continuing to grow, and their growth is going to be in Northern Virginia.
In addition, the contractors that service the Defense and the Homeland Security are also expanding. There are significant vacancy in northern Virginia. But the urban market core Reston is under 10% vacant, and it continues to dramatically outperform with starting rents in the high 40s to low 50s gross. And with our Reston Next project opening up this week, the rents are starting to hit the low 60s. The Reston Next development is welcoming Fannie Mae into the building this month, and we are actively marketing and leasing the remaining 160,000 square feet of available space.
Our Reston Town Center retail placemaking is also very active. During the quarter, we completed a lease with a new theater operator for 50,000 square feet. Last week, we signed a 20,000 square foot lease with a local restaurant distillery and yesterday, a new 20,000 square foot fitness operator. We have three more restaurants totaling 22,000 square feet that are close to execution. This 115,000 square feet of leased retail is not expected to have any revenue contribution until 2023.
In the District of Columbia, we continue to chip away at our current availability at Net Square 901 New York Avenue and Market Square North. We completed seven leases for 49,000 square feet during the third quarter and have signed another 32,000 square feet during October. Just as an aside, we completed a major repositioning of Net Square this year. And year-to-date, we've signed 162,000 square feet over eight transactions. When we do our work, our buildings lease.
The urban downtown recovery in San Francisco continues to lag our other markets. Very few businesses have commenced their return to work, downtown streets remain quiet, much of the ground plane remains closed, and the city has had a very restrictive mass mandate. As Owen pointed out, daily consensus continues to be significantly below all our other urban markets. There's been a reduction of sublease space in the market stemming from active lease commitments and re-occupancy plans, but overall availability continues to be elevated. This description while accurate overlooked important subtleties in the market.
Pre-pandemic, there was very little available space in high-quality, multi-tenanted buildings, particularly those with views. Broadly speaking, those conditions still exist for that segment of the market. The bulk of the demand in the last 18 months has come from traditional financial asset management and professional services firms that have focused on the best space in the best buildings. This has resulted in very little change to leasing economics in the best buildings, particularly in spaces we've used. We've discussed this on recent calls, and it continues today.
This quarter, we've completed over 100,000 square feet of leases, including full floor transactions in Embarcadero. The average starting rent was just over $100 a square foot on those full floor deals, a 21% increase over expiring rents. We are negotiating leases on another 106,000 square feet right now. And from what we've seen, these experiences are being repeated in a competitive set north of market. In contrast, sublet transactions are being closed at significant concessions to pre-pandemic economics, but with no capital.
Life science activity at our Gateway development continues to be healthy. The BXP ARE joint venture has signed an LOI with a full building user for 751 Gateway, 230,000 square feet and we're actively responding to proposals for our anticipated redevelopment of 651 Gateway, about 300,000 square feet, which won't commence until the third quarter of next year.
Further down the Peninsula and Mountain View, activity has picked up in the last 30 days. This quarter, we completed two full building deals totaling 58,000 square feet. We're seeing less information gathering exercises and a lot more active tours with RFPs and the need for immediate occupancy or early 2022 occupancy.
There are, as Owen said, large tech requirements active in the Silicon Valley. For those of you who saw that the Tesla announcement that they're moving their headquarters to Texas, you may have missed that they leased 325,000 square feet in Palo Alto contemporaneously with that announcement.
High-quality new construction availability is very limited in the valley, and we're actively considering when we should restart the construction of Platform 16 next to Diridon Station and the future of Google development in San Jose.
Finally, let's touch on Boston. In the high-end market in the Boston CBD, particularly in the Back Bay, there is currently limited availability, particularly with used space. Rents have remained at pre-pandemic levels and concessions are only marginally higher. As we move closer to 2023, there will be additional new construction supply entering the market in the CBD, but not the Back Bay.
As Owen mentioned, the big lease for the quarter was the early renewal with Wellington. They agreed to expand by 70,000 square feet at Atlantic Wharf, and we're going to terminate 156,000 square feet at 100 Federal Street in 2023. The space we're getting back is leased at a rate that's below market, so we're optimistic that we can create additional value through this relet.
We completed an additional 73,000 square feet of leases in our Back Bay portfolio, and we have about 50,000 square feet of leases under negotiation today in that same group of properties. The Boston retail portfolio is also very active. We have signed an LOI for the 118,000 square feet formerly occupied by Lord & Taylor, as well as 40,000 square feet of in-line space that's currently vacant or in default. This 158,000 square feet will likely commence paying rent in early '23. As we move to the suburbs, life science is dominating our activities.
Last week, we signed our first lease at 880 Winter Street, our lab conversion that we started four months ago, 37,000 square foot deal, which we'll deliver in the middle of next year, and we are in the final stages of negotiation on another 128,000 square feet, which will bring that 224,000 square foot building to 74% leased, and we have active dialogue on the rest of the space. And during the quarter, we signed over 105,000 square feet of leases with life science tenants at 1,000 Winner, 1,100 Winner and Reservoir Place traditional office buildings. As we move into '22, we're developing plans to convert additional available office space in Waltham into lab space.
So to summarize, we've seen a recovery in employment, as Owen discussed. Employers are aggressively looking to hire, capital raising in the venture world is breaking through levels never seen and IBO takeouts are at a historically high levels. Conditions are right for recovery in office absorption. Employers are going to want to use their physical space to encourage their teams to be together. Our mantra has been to create great places and spaces to allow our customers to use space as a way to attract and retain their talent. If you believe that employees may be spending less time in their offices, it's even more important to have the right space in place when they're present. And I'll stop there and give it over to Mike.
