Thank you for standing by. Welcome to the Boston Properties fourth quarter in 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question- and- answer session. To ask a question during this session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to Ms. Helen Han, Vice President, Investor Relations. Ma'am, please go ahead.
Thank you. Good morning and welcome to Boston Properties fourth quarter and full year 2021 earnings conference call. The press release and supplemental package were distributed last night and furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G. If you did not receive a copy, these documents are available in the investor relations section of our website at investors.bxp.com. A webcast of this call will be available for 12 months. At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
Although Boston Properties believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in yesterday's press release, and from time to time in the company's filings with the SEC. The company does not undertake a duty to update any forward-looking statements. I'd like to welcome Owen Thomas, Chief Executive Officer, Doug Linde, President, and Mike LaBelle, Chief Financial Officer. During our Q&A portion of our call, Ray Ritchie, Senior Executive Vice President, and our regional management teams will be available to address any questions. I would now like to turn the call over to Owen Thomas for his formal remarks.
Thank you, Helen, and good morning, everyone. I'd like to start by introducing Helen Han, who's our new Head of Investor Relations. Helen was formerly Head of Marketing for our Western region, has been with BXP for over 15 years and has a deep wealth of knowledge about our company and people. Welcome, Helen. Great to have you here. Today I'm gonna cover BXP's operating momentum, the economic conditions that serve as a backdrop for BXP's operations as we enter 2022, the current private equity capital market conditions for office real estate, as well as BXP's capital allocation activities and growth potential. BXP's financial results for the fourth quarter reflect the impact of the recovering U.S. economy and increasing needs for our clients for securing high-quality office space. Our FFO per share this quarter was above market consensus and the midpoint of our guidance.
We completed 1.8 million sq ft of leasing, our third consecutive quarter of significantly higher leasing activity. It was 55% above the fourth quarter of 2020, and in line with our pre-pandemic leasing levels. With an average term of 8.6 years on the leases signed this past quarter, lease commitments by our clients continue to be long-term in nature. This success can be attributed to not only our execution, but also the enhanced velocity and economics achieved in the current marketplace for premium quality assets with great amenities and transit access, which are the hallmark of BXP's strategy and portfolio. Now, turning to 2022, we believe the market and economic factors which impact BXP are on balance very favorable.
Though the Omicron variant has been a setback and the course of the pandemic has proven hard to forecast, most experts believe conditions will improve in 2022, resulting in more workers returning to the office and further improved space demand. The economic recovery in the U.S. continues, with consensus GDP growth predicted to be 4% in 2022, and innovations in technology and life science remain promising and well-funded, a key driver for office and lab space demand. Capital flows into the real estate sector will also likely grow further as investors, one, rebalance their portfolios away from equities due to strong performance from the lows of the pandemic, and two, have a reluctance to allocate these funds to fixed income due to rising interest rates. New office supply has also slowed down given the demand uncertainties created by the pandemic, another long-term positive for the office business.
Moving to the challenges, interest rates are rising, which will likely continue due to the Fed's current focus on inflation and signaling it will raise the Fed funds rate multiple times in 2022. BXP had significant and well-timed refinancing activity in 2021 and therefore faces limited debt financing needs in the coming year. Inflation is a greater challenge and has several dimensions. Rising construction costs will require higher rental rates to make developments feasible. However, over time, higher replacement costs should increase the value of our existing portfolio of buildings. The labor market is also very tight, which contributes to our clients' hesitancy in bringing their employees back to an in-person work environment. As we have stated repeatedly, we believe this phenomenon will change over time, given widespread corporate dissatisfaction with the decaying of efficiency, retention, and culture associated with remote work.
Though challenges persist, we see 2022 market conditions as a favorable backdrop for BXP to continue to perform. Moving to the real estate capital markets, an all-time record of commercial real estate sales volume was achieved in the fourth quarter, and private capital at market activity for office assets was similarly robust. $39 billion of significant office assets were sold in the fourth quarter, up 35% from the previous quarter and up 90% from the fourth quarter a year ago. Cap rates are stable or declining for assets with limited lease rollover and anything life science related, and activity is increasing for assets facing nearer-term lease expirations. The Boston market was particularly active with two major life science recapitalization deals in Cambridge selling for around $2,200 a sq ft and sub 4% cap rates.
Three significant deals in the Seaport district selling for approximately $1,500/sq ft on a fee simple basis, with cap rates at or below 4%, and two CBD sales at $700-$950/sq ft, with cap rates in the low 4% range. Notably, in New York City, two major assets in the Hudson Yards area sold in full or part for an average of approximately $1,400/sq ft and cap rates of 4.5%-5% on a stabilized basis. In the District of Columbia, four transactions completed aggregating $750 million, with pricing averaging approximately $550-$600/sq ft on a fee simple basis and cap rates in the low 5% range.
Pricing in Seattle continues to escalate, with deals closed or announced in South Lake Union priced above $1,200/sq ft, a new local record, and a sub-4% cap rate, in Fremont at over $1,000/sq ft and a low 4% cap rate, and in the CBD at around $750/sq ft and a mid-4% cap rate. Regarding BXP's capital market activity and starting with acquisitions, we closed on the previously described 360 Park Avenue South acquisition in New York City in December and placed the project into our active development pipeline. Two of our strategic capital program partners will co-invest in the deal as capital is drawn for redevelopment, bringing our interest to 42% on a stabilized basis.
We continue to have elevating dialogues with potential private equity partners, are pursuing an active pipeline of both on and off-market deals in many of our markets, and anticipate additional acquisition activity of value add assets with capital partners in 2022. In 2021, we also completed non-core asset sales of $225 million and anticipate higher disposition volumes in 2022. We completed a very active quarter with our development pipeline. We delivered fully into service 100 Causeway Street in Boston, the Marriott headquarters at 7750 Wisconsin Avenue in Bethesda, and the lab conversion project at 200 West Street in Waltham. In the aggregate, BXP's share of these projects represents 1.5 million sq ft of development and $460 million of investment.
The three assets are 98% leased, being delivered below budget and ahead of schedule at a projected stabilized cash yield in excess of 8% and are projected to add $41 million to our NOI on a stabilized basis. Given the market cap rates I previously described for high-quality office of 4%-5%, we expect these projects in the aggregate will create approximately $380 million of value above our $460 million in cost for BXP shareholders. Also, we partially placed into service Reston Next in Reston. We are continuously refreshing our development pipeline by adding, just this past quarter, 360 Park Avenue South and 103 CityPoint, a speculative ground-up lab development aggregating 113,000 sq ft in our CityPoint development in Waltham.
We have a very active pipeline of office and lab developments and redevelopments ready to announce when they commence, expected later in 2022, and Doug will describe the strong leasing success we are achieving with our lab developments. After all these movements, our current development pipeline aggregates 3.4 million sq ft and $2.5 billion of investment is already 59% leased and projected to add approximately $190 million to our NOI over the next three years. In summary, we had another active and successful quarter with strong leasing and financial returns and are excited for our prospects for continued growth in 2022.
We expect significant growth in our FFO per share this year, driven by improving economic conditions and leasing activity, continued recovery of variable revenue streams, delivery of a well-leased development pipeline, completion of four new acquisitions in 2021, a strong balance sheet combined with capital allocated from large-scale private equity partners to pursue additional new investment opportunities as the pandemic recedes, a rapidly expanding life science portfolio in the nation's hottest life science markets. Well-timed refinancing activity in 2021 and lower capital costs. With that, I'll turn it over to Doug.
Thanks, Owen. Good morning, everybody. Hope you all had a good New Year. I'm gonna focus my remarks this morning on our leasing activity. As was evident in the second press release we sent out last night, our leasing activity press release, we had a pretty strong fourth quarter with activity spread around Boston, New York, San Francisco, and the metropolitan Washington, D.C. regions. We ended the year with an occupancy pickup of about 40 basis points. As we sit here today, the end of January, we have signed leases for our in-service portfolio that have yet to commence, so they're not in our occupancy figures, of more than 925,000 sq ft.
That 925,000 sq ft represents an additional 180 basis points of potential occupancy increase and includes about 115,000 sq ft of 2023 commencement, so the majority of it is 2022. We begin 2022 with over 1.4 million sq ft of leases in negotiation on space in the in-service portfolio. More than 425,000 covers currently vacant space, and about 450,000 covers 2022 expirations. During 2022, we have about 2.8 million sq ft of expirations in the in-service portfolio.
Over the last decade, total leasing for this company has ranged between 3.7 million sq ft in 2020, so that's in the midst of the early pandemic and the economic shutdown, and over 7.7 million sq ft in those years where we've signed some pretty large build-to-suit leases. Now, it's true some of the leasing we do each year encompasses early renewals, and we'll talk about some of that today, and leases on new developments, but a significant portion of the leasing we do each year is on near-term renewals and available space in the portfolio.
With 2.8 million sq ft of exposure, 925,000 sq ft of signed leases, 1.4 million sq ft in January of deals in the works, so for 2.35 million sq ft, and with an annual expected leasing probably somewhere between 3.7 million sq ft-7.7 million sq ft, we believe our occupancy is on an upward trajectory as we enter 2022. The second generation statistics this quarter merit a little granular explanation. San Francisco is flat due to a 50,000 sq ft lease down at our North First project, where we are doing short-term deals with kick-outs to allow us the flexibility to commence construction on the station project. The SF leases, so our CBD portfolio, had a roll-up of 13% if you take out that 50,000 sq ft lease.
In New York City, we terminated a lease with Citibank and went direct with their subtenant, which is operating a conference center. The new rent for that floor is discounted, but Citi made us whole through a cash termination payment. Excluding that, New York City had a 5% roll-up. Now, there's no question that Omicron and the wave that hit us in November slowed some return to office dates. However, none of the leases that we have in negotiation have been delayed or impacted by a change in our customers' need for space. While the month of December and the first two weeks of January were slow, our leasing teams have had a very busy few weeks with more signed LOIs and more active discussions.
I would note that the vast majority of those conversations in our CBD locations have continued to be from the financial services and professional services sectors. That very well may be due to the function of the space that we actually have available in our portfolio. The only area of our business where we've seen a slight Omicron blip is on parking revenue. Transient collections are down modestly from our forecast for the month of January, and we haven't quite achieved the same anticipated pickup that we thought we would in monthly permits. We believe that this will be short-lived, and we'll start to see our projections turn in February. I wanna provide a few observations about our regional activities, and let's start with suburban Boston life sciences.
We broke ground on our 880 Winter Street 243,000 sq ft lab conversion in July 2021, seven months ago. We've signed leases for 165,000 sq ft, and we are in negotiation for all of the remaining lab space. The first tenant is expected to occupy during the back half of 2022. Net rents are up 20% from our initial underwriting in March 2021. At 180 City Point, we're negotiating a lease for about 50% of the new 329,000 sq ft building. Steel erection hasn't started yet, and we're expecting it's gonna start next month, and we're hopeful to deliver the space in the fourth quarter of 2023, but the leasing success that demonstrates what's going on in the market.
We are eagerly awaiting the November expiration of our leases in the Second Avenue buildings we purchased last June, where we can offer 140,000 sq ft of lab space and expect a significant roll-up in rents. With demand continuing to outpace supply, we will commence construction, as Owen said, on another 113,000 sq ft at CityPoint, which is in our supplemental. We're calling it 103 CityPoint. Very clever. Construction drawings are complete, and we expect to break ground this quarter with a late 2024 delivery there. Our traditional Route 128 office leasing is also extremely busy. There is office demand out there. This quarter, we agreed to recapture and re-lease 1265 Main Street, a 120,000 sq ft office building at CityPoint in Waltham.
We completed a 10-year lease as is with a 21% increase in the net rent. At 140 Kendrick Street in Needham, we've announced Wellington's commitment to lease 105,000 sq ft, and we found a way to reposition the building as a net zero installation, which was extremely important to both BXP and Wellington. In addition, we have commitments for two other tenants for the remaining 80,000 sq ft of this project, which is currently under lease and expires in November 2022. Finally, we're working on another 73,000 sq ft early recapture in Back Bay at our CityPoint complex. This totals 378,000 sq ft of traditional suburban office leases. These transactions will have rent roll-ups between 7% and 40% on a cash basis. Our CBD Boston activity this quarter was primarily small transactions.
We completed 12 deals for 80,000 sq ft. The average markup was 17% on a cash basis. At the moment, there are a few large office requirements in the Boston CBD, and there is gonna be new construction deliveries in 2023. Our largest block of CBD space and exposure is at 100 Federal Street, where we'll be getting back 150,000 sq ft in early 2023. In New York City during the quarter, we had activity across the portfolio. We executed a full floor lease at Dock 72. We completed a 108,000 sq ft lease at Times Square Tower.
We completed more than 180,000 sq ft of leases at 601 Lex, 42,000 sq ft at 250 West 55th, 89,000 at the General Motors Building, and over 120,000 sq ft in Princeton. The individual mark-to-market in New York vary greatly. You'll recall the single floor I called out last quarter, which really retarded our statistics, where the rent went down by 50%. Well, we signed that 15-year lease extension for that floor, and the rent is now up 71% on a cash basis. The leases we completed at the General Motors Building were flat, while the leases at 250 West 55th Street range from up 2% to down 19% on a cash basis. Our current activity in New York continues to be strong.
We have multi-floor lease negotiations underway at GM, 601 Lex, and 510 Madison, along with a number of smaller transactions in those buildings. Total activity is in excess of 525,000 sq ft. As Owen discussed, we completed the purchase of 360 Park Avenue South. We are working to complete our base building system modification plans as well as our amenities program. Even though we haven't formally begun to market the asset, we have been responding to inquiries and tours. Physical construction work will commence during the month of February, so in a couple of weeks.
In the San Francisco CBD, large tech demand has largely been absent from the market, other than companies upgrading their space through opportunistic sublet space at buildings like our 680 Folsom, the Macy's and the Riverbend subleases, and at 350 Mission, the Salesforce sublet. The bulk of the activity on a direct basis has been in the financial district, and it has been confined to the better buildings with professional services and financial firms. We went out on a limb this quarter, and we asked John Cecconi and his team from CBRE, who does work for us, to segment the premier buildings in the city. People can debate whether it's the perfect list or not, but it totaled 20 million sq ft or about 23% of the market and includes our entire CBD portfolio.
The current vacancy in this portfolio of 20 million sq ft is 5.3%. If you add sublet space, it grows to about 8%. Now, I've made the point before, but you can't simply look at the overall market availability statistics and make assumptions about where rents and concessions might be in this market. We completed 112,000 sq ft of CBD deals this quarter, and our cash rents increased by 7% with an average starting rent of $103 a sq ft. Similar to our lab success in Boston, our venture with ARE successfully executed a full building lab lease at 751 Gateway in South San Francisco. The venture intends to commence the conversion of 651 Gateway to a life science building over the next few months.
The advantage for this project is time to delivery relative to a new building, where we can shave 6 months off versus ground up construction. Last quarter, I described our efforts to gauge pricing as we consider the restart of Platform 16 in San Jose. Our total base building construction cost increased just over 13% relative to the pricing we had 24 months ago. We continue to see meaningful cost increases and material availability issues across all trades in all of our markets. As an example, the lead time on base building mechanical systems, once you have approved drawings, has doubled from 20 weeks to 40 weeks, which means you have to make decisions much earlier in a construction schedule or risk delays. We're doing that. The Class A Silicon Valley leasing markets had a particularly strong 2021 with very healthy net absorption.
Just last week, we got wind of another 500,000 sq ft office tenant expansion, not one of what we refer to as the tech titans, in the Northern Peninsula. Platform 16, if we start, won't deliver until early 2025. I'm gonna finish my remarks this morning on Greater Washington. During the fourth quarter, we completed 11 office leases in Reston, totaling over 140,000 sq ft. Every deal was on previously vacant space. Rents have held firm in the low $50s, with 2.5% annual bumps to the low $60s, with similar bumps for our new project at RTC Next. The first phase of RTC Next has been delivered to Fannie Mae, as Owen described, and we completed our first non-anchor lease during the quarter. This project is 85% leased.
It is transformative to the Reston skyline, and it's a five-minute walk to the heart of the town center retail, where we completed over 60,000 sq ft of retail leasing, again, with new tenants on currently vacant space. In the district, we continue to chip away at our current availability with our JV assets with about 100,000 sq ft of leasing. We've delivered 2100 Penn to our anchor tenant for their tenant improvements, and we're working on filling the remainder of that building. In Boston, in New York, and in the metropolitan D.C. area, we have seen a swift reduction in COVID-related cases. Our daily tenant activity is starting to rise again. Employers continue to search for new employees. To circle back to Owen's comments about quality, employers are gonna wanna use their physical space to encourage their teams to be together.
Our mantra has been to create great places and great 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 office, it's even more important to have the right space and place when they are here. With that, I'll turn the call over to Mike.
Great. Thank you, Doug. Good morning, everybody. This morning I plan to cover the details of our fourth quarter performance and the changes to our 2022 earnings guidance. For the fourth quarter, we announced funds from operations of $1.55 per share, which exceeded the midpoint of our guidance range by $0.05 per share and was $0.03 per share above consensus estimates. The performance of our portfolio drove $0.04 of the improvement and higher than projected management and development fees added $0.01. I would place the portfolio outperformance in four buckets. First, income from earlier than anticipated leasing, particularly in San Francisco and Reston. In San Francisco, we executed two ten-year renewals aggregating 65,000 sq ft at a significant pickup in rent and several smaller new leases with immediate delivery.
In Reston, we signed a 90,000 sq ft new lease with a technology company with space delivery on lease signing. We also collected payments from several tenants on receivables that we had written off in 2020. Second, we achieved higher service income due to an increase in utilization from better physical occupancy in New York City during the quarter. Just prior to the impact of the Omicron variant, our New York City portfolio census was running close to 70%, which represented a big pickup from the third quarter. Third, we experienced stronger parking revenue and hotel performance. Parking revenue totaled $23 million for the quarter, up 8% from the third quarter. It's now running at 82% of its pre-pandemic rate.
That means there's an incremental $20 million or 11 cents per share on an annual basis we should be able to recapture to reach prior levels. Our hotel operated at 50% occupancy during the quarter. For the full year, 2021, it operated just above break even, only contributing $600,000 to our FFO. This compares to its contribution in 2019 of $15 million, a difference of $0.08 Per share that we should recover in the next couple of years. Fourth, we recognized income from the delivery of the 733,000 sq ft Marriott World headquarters development a month earlier than we anticipated. In addition to delivering it early, our costs came in well below budget, so its investment return profile is exceeding our expectations as well.
The last item I would like to mention about the quarter is a reminder that as we guided last quarter, we incurred a loss on extinguishment of debt of $0.25 per share for the redemption of our $1 billion of 3.85% senior notes that were due to expire in early 2023. We funded the redemption with an $850 million, 2.45% senior notes issuance in the third quarter. This was an opportunistic trade due to our views that interest rates were likely climbing. We feel good about our decision as rates have increased by about 50 basis points since we locked in at a 1.3% ten-year treasury rate.
We made a similar decision with our $1 billion mortgage refinancing on 601 Lexington Avenue that we closed this quarter at a 2.79% coupon for 10 years. The underlying loan carried an interest rate of 4.75% and was not expiring until April 2022. We had the opportunity to pay it off with no penalty starting in December 2021. We closed it on the first day available and priced off a 1.48% 10-year treasury rate, again, significantly lower than current rates. Despite increasing the mortgage by approximately $400 million, we will see lower interest expense due to the 200 basis point reduction in the overall coupon. As Owen mentioned, we now have limited debt expirations over the next couple of years. Now I'd like to turn to 2022.
Doug described the leasing activity we are seeing heading into the year, which adds to the confidence we have in our growth profile. As a result, we're increasing our FFO guidance range to $7.30-$7.45 per share for 2022. Our new midpoint is $7.38 per share, and it's $0.03 Higher than last quarter. The increase is coming from higher projected contribution from the in-service portfolio, as well as higher anticipated development fee income. You will notice that we brought down our same-property NOI growth by 25 basis points this quarter, which might appear inconsistent with an increase in our guidance.
The reduction is primarily due to the stronger performance we experienced in the fourth quarter of 2021, which increased our starting point. This includes the earlier than projected leasing in Q4 that is reflected in our higher occupancy, one-time cash receipts from our collections, and higher than expected service income where our future projections are more conservative. In addition, Doug described two lease recaptures in our suburban Boston portfolio where we have new tenants coming in at higher rents, but we will have some downtime between leases. The rent during the downtime is being covered by the exiting tenants, but that's recognized as termination income, which is excluded from our same property income. All of these are positive results. We only brought down the top end of the range, so in effect, the bottom end is actually higher.
Our new assumption for 2022 same property NOI growth is 2%-3% from 2021. We also reduced our assumption for 2022 cash same property NOI growth, and our new range is 5%-6%, which represents strong growth year-over-year. The only other meaningful change to our guidance is an increase in our assumption for development fee revenue to $24 million-$30 million, an increase of $2 million. The improvement relates to additions to our development pipeline at 651 Gateway and 360 Park Avenue South. Overall, we continue to project strong FFO growth of more than 12% in 2022 from 2021 at the midpoint of our range. We expect our near-term growth to come primarily from delivering new office and life science developments and our 2021 acquisition program.
These are expected to add an incremental $0.43 per share or 6.5% to our 2022 FFO at the midpoint. Our guidance does not assume any new acquisitions in 2022. We also project a benefit from our well-timed refinancing activity last year, resulting in $0.35 per share of lower interest expense and debt extinguishment costs in 2022 at the midpoint of our range. For the first quarter of 2022, we're providing guidance for funds from operations of $1.72-$1.74 per share. As a reminder, our first quarter results are always lower due to the timing associated with stock vesting and payroll taxes, plus the seasonality of our hotel. In summary, we remain confident in the growth trajectory of our business.
We're seeing strong leasing activity in our portfolio that we expect to result in occupancy and income gains in 2022 and 2023. In addition to the $2.5 billion of existing development we have underway that we will deliver over the next two years, we have numerous sites under ownership where we're working towards new starts in the coming months. That completes our formal remarks. Operator, can you open up the lines to questions?
Thank you, sir. At this time, to ask a question, you will need to press star one on your telephone keypad. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Sir, we have our first question from Manny Korchman from Citi. You may ask your question.
Great. It's Michael Bilerman here with Manny. Owen, I was wondering if I can get your opinion. You know, Boston Properties has always been focused on, you know, the highest quality office space, the highest quality buildings in the top markets, which has, you know, been very good for the company over the history. As we think about going, you know, post-pandemic, you talked about the desire of companies to have great space to encourage and provide a reason for their employees to come back. How do you think this bifurcation in the marketplace is gonna play out in terms of, you know, the type of spaces that you own today in that A-plus arena and then everything else?
Because that class A-plus is a minority of the entire office stock, how do you think all of that class B and C office space will trend? Is it just gonna be a rent inducement which may depress rents overall? Is it just gonna need a substantial amount of capital to redevelop those assets either into more modern office space or into other property types? How do you think all of that's going to ultimately affect the broader office market?
Yeah. There's a lot there to unpack, Michael, but I'll do my best. Agree with what you said at the outset. BXP strategy, back to our founders, is to have great buildings and great locations. You know, we say it today, more great place and space. It's always been a hallmark of the company's strategy. It's always worked, and it's actually even more important because of the pandemic. You know, and Doug and I in our remarks kind of articulated, you know, what you said, which is we do think companies are gonna return to the office. We do think hybrid is here to stay, and we do think it's gonna be very important for CEOs and company leadership to have great offices that their employees wanna work in.
Having buildings that have great amenities, that are located near transit, all those things are gonna be increasingly important to entice workers to come back to the office. I think the bifurcation between the top of the market and the rest of the market is growing right now, and it's gonna grow further. Doug gave you the very interesting stat on San Francisco. You know, the aggregate availability stats on San Francisco are 27%, and he gave you the data on the top 20% of the market, which is actually 5% vacant. That's incredible, you know, if you think about it.
The bifurcation is increasing. Now coming to your question, you know, what's going to happen with the more modest quality buildings? I think it's very case by case, building by building, city by city, and neighborhood by neighborhood. I do think the office markets will recover, the economy will grow. Some of those buildings will get leased as office. I do think it's gonna be very competitive and probably harder to push rents. You know, land in places like Manhattan is incredibly valuable, so there could be a reuse of a lot of these properties. I mean, you know, many offices that were created for large corporate users have large floor plates, and they're not very well suited for conversion to residential because of the bay depth.
There are exceptions to that, and I'm sure we'll see creative developers, you know, change some of these buildings to residential. Some may get torn down and made into something else. You know, there have been buildings in New York that have been renovated, where, you know, setbacks were put into an older building and floors added to the top. So there'll be a lot of creativity that goes into it, and I think slowly over time, you know, you'll see some conversion of this stock. And between the economy growing and some stock being taken offline, I think the markets will ultimately firm up. But this bifurcation between quality and commodity is going to continue and widen.
Hey, guys, it's Manny here. Just, Mike, I have a question for you. If I think about your guidance in totality, I think everything you mentioned on the call today was a positive and a lift to guidance, notwithstanding the ranges, given a better 2021. Now, what are the negatives offsetting some of that? Because if I add together all of the positives, I'm getting more lift than sort of the lift to your midpoint. Are there negatives we need to think about? Is it something else within the range that's keeping you from raising more? Is it just conservatism? Like, how do we think about that? Thanks.
Look, I mean, sure, there's conservatism in this environment. I mean, we're delighted to see the increase in the leasing activity. That leasing activity that Doug is talking about is, you know, will result in signed leases. The question for us is, when do those leases go into occupancy? How much of that goes into 2022, and how much of it is a little bit later? Because in many cases, we have to wait until the tenants build out the space to start recognizing revenue on these spaces. We have to judge how long that is gonna take. I think our trends are very positive, but the sales cycle and the build-out cycle is, you know, not immediate, in all cases. We have to judge that into our guidance.
I think that's part of it. We brought up the low end of our guidance pretty significantly. The reason that we're doing that is that some of the activity that we're seeing and getting leads us to the computation that we don't believe it's possible to be at that low end that we had before, because we've gotten some of this stuff. We haven't, you know, gotten enough at this point to feel like, you know, we should be increasing the high end, so we've kept the high end where it is. That's how we kind of build our guidance ranges. There really hasn't been, you know, any kind of meaningful negative occurrences that are in our guidance.
You know, we talked a little bit about the same store, which is mostly due to positive things that happened. So there's really no negative occurrences that we put in any of the items that we put in our guidance that were at all meaningful.
Great. Thanks very much.
Sir, we have our next question from Nicholas Yulico of Scotiabank. You may ask your question.
Thanks. I just had first a question on maybe you can give us a feel for, you know, what the rent spreads were on new signings, not just, you know, the commenced statistics that you give for the fourth quarter.
Okay. I thought I did that all the way along. If you just sort of go back and look at my remarks, I basically said that, you know, the leases that we signed this quarter were, I think I said, you know, between 7% and 14% in the greater suburban Boston market. It was up 5% plus or minus in certain of the assets in New York City and flat in other assets in New York City, 7% in Embarcadero Center. Washington, D.C., the issue is that all the space that we leased was vacant. So there is, you can't have a markup on a vacant space, obviously, because it's infinite.
In general, they were, you know, trending positive, call it +2%, you know, at 250 West 55th Street in some leases, and -17% on a couple of other leases, to +71% on the lease that we signed at 601 Lexington Avenue with the tenant that, you know, had short-term space that we cut a good deal on for them, you know, a year ago. It was really variable, but in net-net, it was all positive.
Okay. Thanks, Doug. Second question is just going back to San Francisco, you kind of have this interesting dynamic going on there where your rents are up at Embarcadero Center. Even look like they're up, you know, average rents in the buildings up versus the end of 2019 at this point, yet the occupancy is down. You know, and it's down, like, you know, looks like it's down, like, over 700 basis points on average for those buildings. Sort of worse than the overall portfolio. Also looks like the vacancy there is around 11% for those buildings, which, you know, I'm trying to square away with when you talked about 5%.
Vacancy for some of the premier buildings in San Francisco. Just trying to understand like what's going on with those buildings and versus the market out there.
Yes. Just to sort of refresh what I said. The top call at 20 million sq ft of space includes the vacancy at Embarcadero Center. That's in that statistic of 5% overall for that quote-unquote portfolio of premier buildings. The vast majority of our availability in Embarcadero Center is the low rise of EC-one and the low rise of EC-two. Unfortunately, we don't have very much in the way of blocks of space, so it's, you know, a floor here and a floor there. We have activity on some of that space.
Some of that space is, you know, needs to be fully demolished, because it's got, you know, in some cases, had asbestos from the original user of the space 25 years ago, and where the tenant moved out, and some of it is, you know, a space with just an installation that doesn't make sense anymore. We will make hay on some of that space during 2022. We don't have rosy projections for getting to 5% availability in those buildings during the year, but we're pretty confident that the space is gonna lease at healthy rents. Obviously, low rise in Embarcadero Center 1 is different than the top of EC-4, right? There's a rent differential between those two kinds of space.
Okay. Very helpful. Thank you.
Sir, our next question from Craig Mailman of KeyBanc Capital Markets. You may ask your question.
Thanks. Mike, maybe just to follow up, how much of that $0.04 kind of upside in the quarter was from the collections on the payments? How big is that bucket as we head into 2022?
You know, I would say it was close to $0.01 for the quarter. You know, I don't think I can tell you right now exactly how big that is. We're not assuming that we're gonna be really collecting anything more. So I'm not looking at anything that I think is significant that would be coming in 2022, you know, on collections. You know, we're projecting zero effectively for that number. I would say that you know, the one thing that could happen in 2022 is the return to accrual of some of the tenants that are in non-accrual.
We're not projecting any of that either, but we're watching these tenants, you know, some of the retail tenants and other tenants that we have, that we're not accruing rent for right now. As they continue to kind of be successful and pay rent and generate sales, there's the ability for us to bring those tenants back to accrual, you know, which will, in certain cases, have an impact on our earnings, although it would be a non-cash impact on our earnings. It's just bringing back kind of a former straight line. That's another impact that will come.
Okay
out of some of the things that happened in the last two years.
Okay. You don't necessarily need to do a blend and extend, you just have to feel better about their ability to pay for it to flip back to accrual.
Yeah. I mean, we may do an analysis and make judgments every quarter on all of the tenants that we, you know, wrote off their accrued rent balances in 2020, and try to figure out when it's justified for us to bring them back.
I mean, I think, Craig, that Mike has talked about in, you know, in the past that there are sort of three primary buckets of tenants that are in that those areas. Co-working is one. It's the largest. Then what I guess you would refer to as entertainment retail. We have a number of cinema operators in all of our markets that we're on non-accrual with. Then we have a number of local operators, mostly in the food and beverage, that you know still are struggling relative to where they were in 2019, you know, from a revenue perspective because of the you know lack of foot traffic in certain parts of the country.
Okay. That's helpful. Then, just separately, it seems like you guys got approvals at the MTA site or it continues to move along. Can you just kind of give us some thoughts on how to think about maybe that site or in general, how you guys are thinking about developments here as construction costs are rising, rents on, you know, new space are holding steady. Kind of just your thoughts on what required returns would need to be to think about starting that in more near to medium term.
Yeah. Let me give you a general comment, and then I'll ask Hilary, who is officially here as our new regional leader in New York, to comment on 343 Madison Avenue. It is quite clear that construction costs have been going up at, you know, call it very high single digits on an annual basis. If you don't have rents that are appreciating at a commensurate rate, your returns are gonna be challenged, right? Unless you have great land basis. We happen to have that in our portfolio across our life science development platform because we have lots of embedded opportunities in the portfolio. We have a long runway to go.
I described what's, you know, what's going on with platform 16, and our calculus there is, you know, that market continues to have some real strength to it, and we probably will see outsized rental rate growth over the next couple of years because of the lack of class A inventory. Therefore, you know, we will likely, with our partners, you know, have a decision in the next couple of months as to whether or not we wanna move forward with that because it's not gonna deliver until 2025. Those are the kinds of conversations we're having. I'll let Hilary describe, you know, sort of the timing associated with 343 Madison, 'cause that's a decision that's really not, you know, in front of us tomorrow.
There's some work to do with regards to, you know, getting the site quote-unquote, "Enabled" to truly commence construction. Hilary?
Thanks, Doug. I would first of all echo what Owen said about, you know, high-quality new construction office assets commanding premiums and rents relative to more commodity A. That's something that obviously weighs in favor of the potential at 343 Madison. In terms of our ability to launch construction of the project, we do have some legwork ahead of us in terms of demolition and in terms of some work that we have to do with the MTA to be ready to proceed. It's a decision that we'll be making, you know, in the sort of, I'd say, near to medium future, but it's not an immediate decision ahead of us.
Thanks.
Sir, we have our next question from Steve Sakwa of Evercore ISI. You may ask your question.
Thanks. Good morning. Maybe the first question just broadly on San Francisco. You know, it's been the biggest kind of urban city that's really struggled to bring people back, and crime and homelessness have really kind of deteriorated the living conditions in the city. So I'm just curious, sort of Owen or Doug, what your sort of conversations are with the mayor or other business leaders in the city to kinda right the ship in San Francisco, and what do you think the timeline looks like for that?
Morning, Steve. Look, I think I would acknowledge what you're saying, and I've said it on previous earnings calls. San Francisco, the city of San Francisco, not the Silicon Valley, has been hit the hardest of all of our markets because of the pandemic. I think it's related to one, technology companies being frankly behind the other clients that we have in terms of returning people to office, and also I would say very restrictive COVID regulation, very conservative COVID regulation in San Francisco, you know, occupancy requirements, mask wearing, all that kind of thing. Look, and Bob may wanna comment on this. I think there's an increasing voice in San Francisco that is concerned about the issues that you raise around homelessness and crime and getting the city open.
It is our hope, you know, over time, that those voices will be heard and San Francisco will be able to recover. Again, we look at the whole Bay Area as the leading computer science knowledge cluster in the world, and we do think that bodes very well for the city of San Francisco, but acknowledge that these factors that you mentioned do need to be addressed. Bob, is there anything you wanna add?
Yeah. The mayor has publicly stated that things have to change, and she's working on a plan right now to get more policing and more cops out on the street. I think you will see a change. Owen and I were on a call with other business leaders in San Francisco yesterday, and there's clearly an outcry from the business community that things have to change. I think given some time, you will see a change, and hopefully, the DA gets recalled, and we get somebody in there that will start enforcing the laws.
Yeah. I also think, Steve, I would just also add, too, I think there's a circular logic around the, crime homelessness situation and, return to office. I mean, obviously, the streets need to be safe for people to return, but the more people that you have on the streets going to the office, I would allow that I think that creates safety because, policing is obviously important, but also, protection from each other is also a key to security in cities. Both of these things need to happen in tandem.
Okay, thanks. Second question. Maybe Doug, you know, you talked about the large pipeline of deals that you've got, and, you know, I know it's hard to, you know, maybe, just collectively talk about deals or put averages. You know, when you think about the space needs and how people are planning and whether they're downsizing or upsizing, just, you know, what's sort of the general discussion that you're seeing kinda with the deals that are sort of in progress today and, you know, what other changes do you sort of expect from a design perspective and, kinda space utilization?
I would say categorically that, you know, 80% of the tenants that we are having conversations with today are growing, not shrinking. I would say that most of those customers are in the financial asset management, VC, private equity world in both New York, San Francisco, and Boston, and then some tangential professional services companies. I would say the professional services companies are probably the 20% that is probably not growing and would consider some modest reduction in their space. The architectural decisions associated with planning for 2022 and beyond, believe it or not, are very, very consistent with what they were in 2019. You know, the way people are planning space are, for the most part, the same.
On the margin, there is no question that architects are talking to their clients about trying to create better and more interesting quote-unquote common areas or community areas or gathering areas or conference rooms, however you wanna define it, from a client perspective. But the physical space that's being utilized by these companies that are in our portfolio growing right now, I don't think you would be able to distinguish, you know, much about what is being built in 2022 versus what was built in 2019. To some degree, it's a little bit of a surprise.
If you go back to listen to, you know, my comments in calls, you know, over the last, call it 6-8 quarters, I think that we're still not in a position where anybody who is in a what I would refer to as a technology or a corporate business understands what the cadence of their team is gonna be as they come back to the office. It's very hard, I think, to make monumental changes until you really understand what the impacts of that cadence is and whether or not it works.
I mean, people truly don't know, I believe, how productive and how accepting a quote-unquote hybrid or a partial workday in person is gonna work through lots of industries until you know they start to you know encourage and get their folks back. You know, we're just unfortunately we've been delayed in getting there. I wouldn't be surprised for there to be changes in the next cycle, but it's not there yet.
Great. Thanks. That's it for me.
Speakers, our next question from John Kim from BMO Capital Markets. You may ask your question.
Thank you. Good morning. Owen, you mentioned in your prepared remarks the widespread corporate dissatisfaction with reduced efficiency and employee retention. I was wondering if you could elaborate on that statement. Is this purely anecdotal, and does that include tech companies who have been really pressing this snooze button on returning to work?
Yeah. Well, I think by definition it's anecdotal, although there are surveys that have been done by, you know, various service providers in architecture and in real estate. It is from a. We have 53 million sq ft filled with some of the leading companies around the country, and we speak to our clients, and we speak to potential clients as well, and I think we have a good handle on this. I would just summarize it by saying that I have not spoken yet to a business leader who thinks working fully remote is good for their companies, and they wanna make change. I think what's been making the change more difficult to happen are really two things. One, these new variants that keep coming up.
We had Delta at Labor Day, and we've had Omicron over the most recent holiday, and that's delayed the return to work. I think the other thing that's out there is the tight labor market. You know, you've watched all the NFL playoff games over the last couple of weekends. I don't see a lot of empty seats. Theaters in New York are full. Restaurant reservations are hard to get. People are certainly comfortable doing a lot of things in person, yet they're not coming back to the office. I do think the tight labor market is impacting business leaders' willingness to, you know, be more aggressive about having their employees come back to work.
I do hear from them concerns about the retention that they've had, the difficulty in training new employees, turnover rates for employees that have been hired post-pandemic versus turnover rates that were of employees that were with the company before the pandemic. You know, all these metrics, you know, when CEOs look at them, they have concern. Yes, by the way, on the technology side, we have spoken with many, many corporate leaders at major technology firms. I would describe that as slightly differently in that they had a remote-enabled workforce before the pandemic, because they're technology companies. Look at the kinds of spaces that they all created, you know, with all of the collaboration space, the amenities they provide, food service, and all those things. That was all going on even before the pandemic.
I think what the pandemic is driving is those kinds of strategies by companies in other industries. It's migrating, you know, across the industry landscape.
Owen, a couple of additional comments.
Yeah. It's Bryan Koop.
Bryan Koop from Boston. A trend that we're definitely seeing, and it started probably 90 days ago, but has accelerated over the last 30, is every time our team comes back from a tour, there is a noticeable change in who's on the tour. Tremendous amount of C-suite players, many leaderships of all departments, et cetera. We've done tours with as many as 10-15 people. Highly unusual in the past where the leaders would definitely come in later. They're coming in much earlier, and they are far more proactive about the design of the space, what the goals are, and what their intentions are. There's a real realization, we think, by these leaders that, you know, going to work is no longer an obligation.
Going to work is a destination, and they wanna make sure there's as many things at that destination as humanly possible for them. It's been really refreshing to see this proactivity of the leaders. Our team has been really having a lot of fun coming back going, "You wouldn't believe who was on this first tour.
That's great. Thank you. My second question is a follow-up on the positive commentary you've had versus your guidance. Doug, you mentioned 180 basis points of embedded occupancy uplift from signed leases not commenced. I think that number increased a little bit from the prior quarter. You kept your occupancy guidance basically flat from current levels at the midpoint. Is this purely just due to timing of leases that you plan to sign, or do you also expect termination, you know, leases terminated to increase as well?
It's actually 100%, John, based upon the timing of when the actual rent commencement's gonna be. I mean, I'll just sort of give you the kind of example that sort of we're working on and how it sort of manifests, right? We have lease expiring at 601 Lexington Avenue in the latter half of 2022. We are already in discussions, lease negotiations, like paper is moving back and forth, with a tenant on 150 out of 200,000 sq ft of space that's expiring.
I don't know how that is gonna shake out as to whether or not we're gonna end up demoing the space and then delivering it to them or they're gonna take it as is. The difference between those two things is 18 months, potentially, of term in terms of when we are able to recognize the revenue.
We have so many of those kinds of quirky transactions, if you will, going on, that you're gonna hear me talking about, I suspect, as we move into the year, a larger and larger amount of space that we have leased that is where that's signed, that's not yet an occupancy, that number's gonna grow, which I think is a great thing, and because that revenue is assuredly coming in, and it's very contractual and it's very long-term, but it's, you know, in the short-term, it's hard for us to sort of gauge how it's gonna impact our occupancy numbers.
Great. Thank you.
Speakers, our next question from Jamie Feldman from Bank of America. You may ask your question.
Great. Thank you, and good morning. You know, all this talk about CapEx and improving assets, how are you thinking about just the cost to run your business and the CapEx load for your business versus history? Is it gonna cost a lot more to stay competitive in this new environment, or is it kind of similar to what it's always been?
I think it's for our portfolio, it's probably similar to what it's been because we've done so much already, right? I mean, I've, you know, I don't mind doing this 'cause I think it's important. When you look at our major CBD assets, which is where the bulk of the cost will be, the new project has occurred, right? If you go, for example, to Market Era Center, we just spent a lot of money and a lot of time rebuilding all of the lobbies at EC one, two, three, and four. If you go to 100 Federal Street, you see that we rebuilt and created this really unusual place at the base of the building.
If you go to New York City and you look at what we did at 601 Lexington Avenue with The Hugh and the redo of the lobby that was, you know, done at 399 with the facade and the changes that were made to 599, we've been doing this work on a consistent basis. I don't think you're gonna see a major change in the way we are continuing to wanna do that to all of our buildings on a consistent basis. I don't think you're gonna see a quote-unquote, you know, big spike in CapEx. I do think it's gonna be consistent. You know, we think of it that way.
You have to be refreshing your buildings and thinking about how you can maintain and upgrade your mechanical systems, your destination, which is your elevator systems, your lobby entrances, the amenities in the buildings. You know, we've talked earlier, I think, in past calls about what we're doing at the General Motors building, right? We've got a major amenity center that we've been working on for three years, and it's gonna, you know, hopefully be opening up at the end of this year. And it's gonna be a, you know, from our perspective, a real change for what those tenants have at, you know, literally in their building for both health and fitness and conferencing as well as food and beverage.
It's like we're just doing that all the time everywhere, and I don't think you should anticipate that it's gonna stop, but I don't think you should anticipate that it's gonna somehow increase.
Okay. In terms of your comments about people wanting more common space, you think that affects just the TI load or not necessarily?
Well, there are two reasons, you know, TIs are going up across the board. The first is, it's a more competitive market, right? There is more available space and therefore economics are more competitive. Two, it's a lot more expensive to build out space today. I mean, the increases that we're seeing in the escalation on the TI side for any kind of installation are very significant. Our contribution to that is not even making up for what the tenant is ultimately gonna be putting in their space.
It's all sort of part of the same challenge, which is, you know, the issues associated with the supply chain and the amount of people who are working across all kinds of industries and all kinds of trades and labor.
Okay. I appreciate your comments. It sounds like you generally think there's more at least flat or maybe even expansions on the leasing you're seeing. What are tenants saying about the hoteling decision? Do you think that decision's been made for a lot of people already, or do you think that's something that they're gonna figure out as time goes on, just in terms of do people sign up for space as needed, or do they have dedicated spaces?
I think that there are companies who are predicting that they will have space that is not necessarily available to every person every day, meaning there's gonna have to be some sharing of space. I think that it's on the margin, but I think it's absolutely happening and it's gonna be, I think, not for the entire organization. It's gonna be for certain components of it. Let me give you an example. You know, we have a customer who's in the asset management business, and I think their portfolio managers are gonna 100% have dedicated offices.
I think if they have a group of people who are, you know, in the technology side of their business, who don't necessarily have to be in the mothership anymore, in a CBD location, they may take some suburban space, and those people may not have a physical, permanent home as a seat, but they'll have a place where they can go when they wanna go to work, right? You're gonna see those types of decisions that are being made. But we've seen very little decision by large companies that are saying, "Okay, no longer are we allowing people to have their physical space dedicated to them on a day-to-day basis, and they're gonna have to sign up on a daily basis." You're not seeing that with the Googles or the Facebooks or the large tech companies.
We're seeing those people continue to want their groups together and want their people to, again, as Bryan said earlier, be encouraged to come to work. If you're being encouraged to come to work, you wanna have a physical place where you know you're gonna be going when you're there.
Okay, great. Thank you.
Our next question from Alexander Goldfarb from Piper Sandler. You may ask your question.
Great. Morning, and thank you. Two questions. Big picture one, Owen, and then Mike, a guidance question. Owen, I understand the need for companies to get people back to the office, culture, perpetuation of the company, training and all that stuff. We're now going on the third year of this sorta new normal and, you know, absent a weaker economy that suddenly weakens the labor market and gives, you know, managers more leverage. At what point do the tenants suddenly say, this new normal is the new normal, and maybe we do need to adjust how we lease space or use space? That part, you know, I'm sort of curious, 'cause we're now on, as I say, year three of this sorta new normal.
Yeah. Morning, Alex. Yeah. Look, I think a lot of our clients are predicting a new normal, and that's from full-time in-person work to more hybrid work. You know, as we've talked about over and over again, we don't see our clients saying, we don't need an office anymore. Again, we, you know, we keep talking about this leasing statistic for the fourth quarter of 1.8 million sq ft. It's pre-pandemic levels for us. If people weren't gonna use their offices, why are they making these lease commitments? You know, we see employers bringing their employees back to the office. And again, as I mentioned, I think there's. By the way, I think with many workers today, there's pandemic fatigue.
I don't think this is true across the board. It's very anecdotal, but you hear that more and more of employees wanting to come back for the camaraderie, for the learning, the training that goes on in the office. I do think this will change. Look, we need this Omicron variant to cool off. We need some of these health security issues to you know get back into a position closer to where they were last fall when we started to see some very serious increases in our census, and we think that will be going on as the winter and spring progress in 2022.
Well, I mean, there's definitely mask and COVID fatigue. That's for sure. Mike, on the guidance front, it's a three-parter, so to channel John Kim on a three-parter. First is what degree of dispositions are in the guidance, and if you guys do the elevated dispositions, would that impact guidance? The next is, you mentioned $11 million of missing parking. Is that quarterly or annual? And then finally, on the third quarter call, you mentioned $52 million to go on the COVID recovery. So just curious how much of that is in your 2022 guidance.
There's no dispositions in the guidance. You know, we never kinda guide to dispositions because we don't know when they're gonna happen, you know, not necessarily similar to acquisitions. You know, we just don't put it in, and in our press release, we indicate that that is the case. With respect to the parking, you know, it was $20 million and 11 cents that we're still short. We've been kind of, you know, seeing an improvement of a couple million dollars a quarter. I would say between $2 million and $3 million a quarter. I think in the first quarter, we may take a little bit of a step back, because in January, there's been a little bit of a step back, and Doug talked about that.
Our expectation is that later in the first quarter, we're gonna see, you know, that start to improve again. I think that, you know, we will get some out of that, certainly, you know, not the entire $20 million, we'll get.
What about the $52 million of COVID recovery that you mentioned on the third quarter call?
I think that we're about at $45 million right now. We've got, again, you know, parking is $20 million. Hotel is, if you look at the fourth quarter hotel, we earned about $1 million, so that's $4 million annually. It should be $15 million, so that's $11 million. Then the retail is the rest of that. It's about $14 million. I think from the retail, you know, I don't think there's that much in 2022. I think we've got some big retail, you know, that we're working on, where we're signing leases, where the income's gonna come in in 2023. I would expect that we won't get much of that in our guidance in 2022, but it'll come in 2023. We
Basically, you're at $45 million to go now.
Yep.
Great. Awesome. Thank you.
Yep.
Sir, we have our question from Rich Anderson from SMBC. You may ask your question.
Thanks. Morning, everyone. So a lot of talk about what's the future for office, and we don't know, hybrid, so on. Let's say you get some clarity about where office is going at some point in the future. Can you see Boston Properties making some strategic shifts in how you go about things? In other words, maybe you know, you enter Seattle, maybe you think about a Sun Belt market like some of your multifamily brethren have been doing, or perhaps if you believe in hybrid long term, that you do more in the way of co-locating residential to sort of capture that angle of the business. Just any comments on that would be helpful. Thanks.
Yeah, we have a well-thought-through perimeter of our business, which is the gateway markets of the country, and we did enter Seattle 'cause we felt it was in that category. In our strategy, we have businesses that we think have strong growth potential. Seattle's one, L.A. is another, life science is another. We also have a multifamily business, you know, that has been growing slowly, primarily off sites that we have under our control. We would certainly be interested in additional multifamily. We're gonna be devoting our investment capital to building out in the perimeter that we currently have, and we have a wealth of opportunities of sites in our core markets and in some of these growth areas that I described.
Okay. Fair enough. Just a quick one. When you look at the entirety of the portfolio, what do you estimate the mark-to-market to be today? Perhaps a comment on market rent growth, you know, kinda aggregating up all the observations that were made today.
I'll let my financial folks tell me what they think the current mark-to-market is. I mean, it's just a mathematical exercise that we do every quarter. I just don't know what the result is at the moment.
It's somewhere around 5% in the overall market.
We are not projecting growth in rents across any of our markets other than in the life science business in calendar year 2022. We think that there is enough supply on the market that there's gonna be continued pressure. That doesn't mean rents aren't going down and concessions probably aren't going up much more than they currently have gone up. We've talked about this before. I mean, you know, let's use New York City as the poster child example. I think everybody knows where you can cut a 10- or 15-year deal relevant to concessions in a high-quality building in Midtown Manhattan, and that's where the deals are getting cut. The rents are what the rents are.
As what, you know, when, you know, we've talked about before, when the overall vacancy gets to a point where there feels like there's a tightness in the market, then, you know, rents will start to rise. We're not there yet. I think we're being honest about our expectations. Again, for our portfolio, the bulk of our availability is in the suburban Boston market, where we're transferring what were office building rents into lab rents and getting tremendous embedded growth. Obviously, we're putting capital into those buildings. We continue to have lots of embedded growth in California in our CBD portfolio there as well. We're seeing it also in our portfolio in, you know, in the downtown Boston market at buildings like the Prudential Center and 111 Huntington Avenue and, you know, 200 Clarendon Street.
We're feeling good about, you know, the short-term prospects for continued, relatively speaking, mark-to-market upsides, but we're not anticipating a strong recovery in overall market rents in the next year to sort of drive that any further.
Okay. Good enough. Thanks very much.
Our next question from Caitlin Burrows from Goldman Sachs. You may ask your question.
Hi, good morning. Maybe just a question on value add development. Wondering how big of a value add opportunity does quite the quality and the obsolescence it creates in the lower quality end of the broader office market represent for BXP opportunities like 360 Park Avenue South? And then how do you balance that opportunity with the risk that comes with having to retenant the buildings, making it maybe more like a spec development project?
Yeah. Caitlin, I think the answer to that is case by case. You know, we have an-
Okay.
All of our regions are tasked with trying to find opportunities like 360 Park Avenue South, and we pursue most of the deals that we think are, at the end of the day, that we can create one of those top 20% buildings that Doug described earlier. It's sometimes, you know, those deals we're disciplined about how we invest our capital and our return requirements. Sometimes all the stars align, and we get deals done like 360, and sometimes we don't. We're gonna continue to chase them. You know, as I said in my remarks, I have every anticipation that we'll do some more deals this year.
I do think some of the opportunities are not necessarily gonna be empty buildings.
Yeah. I mean.
360 was a little.
Yeah.
Unique from that perspective, and it creates a great opportunity for us to have a blank slate to rebuild this thing, right? Safeco Plaza was another one that is value add, and it's 90% leased. The opportunity there is really to improve the asset and roll up the rents over time. You know, we have very, very interesting opportunities that we underwrite and look at and try to figure out a way that we can invest capital and generate, again, as Owen said, the disciplined return that we're looking for.
Got it. Maybe just one on same-store occupancy following up on some of the past questions. I know you and Pester continue to give encouraging details on all the leasing progress, but so far, the same store or same property occupancy is down, suggesting so far that move-outs are happening at a faster rate. Just wondering if you could give some further detail on the same store, what has driven that, I guess, offset of leasing progress, and how you do expect it to change.
You know, my view on this is, during 2020, we were in the middle of a pandemic, and leasing velocity and activity slowed down. We did have leases that were expiring during that time, and we had tenants in that portfolio that had already made a decision that they were gonna move somewhere else, right? Those tenants moved out, and the velocity during 2020 was not there to replace those tenants at that time. You started to see our same-store occupancy slip a little bit. Right? What we're seeing now is an acceleration of leasing velocity. What Doug went through was a description that based upon what we have expiring over the next couple of years, the velocity we're seeing is gonna be higher than what is expiring.
Our expectation is that we're gonna start to increase the same-store occupancy as we complete those leases. It's really about the leasing velocity and the fact that our kinda cycle from signing a lease to getting occupancy could be 6-18 months, right? The stuff, the slower velocity in 2020 shows up in our occupancy in 2021. The acceleration that we're seeing in 2021 is gonna show up in our occupancy in 2022 and 2023, in my view.
Got it. Thank you.
Now our next question from Vikram Mahotra from Mizuho. You may ask your question.
Thanks so much. Just maybe two bigger picture questions. A lot of my other questions have been answered. You know, in the past, you've commented that, you know, San Francisco is more cyclical on the upswing and downswing, and you anticipate it to still recover faster than, say, New York. Is that still the case given sort of what you're hearing and seeing in both markets?
I think the distinction I would make is San Francisco clearly has the potential to increase much more rapidly. I mean, just to sort of, you know, ground everybody, 40+% of the embedded occupancy in CBD San Francisco are technology companies. If you know, if someone were to put a chart up that showed, you know, utilization of space and the Nasdaq Composite, there had been historically a pretty strong correlation. It got decoupled in 2020 with the pandemic. As I said, the technology companies have largely been absent from the leasing markets in Greater San Francisco for the past two years.
I can't tell you what the potential demand is from those sectors, but it typically can be very significant, and it can, you know, be dramatic in very short periods of time. I would tell you that I think San Francisco's volatility clearly could, you know, have dramatic positive going forward in 2023, 2024, or whatever you think the right timeframe is. New York City has a growing technology base, but it's primarily still a financial services, professional services, led demand base. You know, it's gonna have a more granular recovery relevant to San Francisco. That's sort of how we think about both those markets.
Okay, thanks. Where does FLEX by BXP go from here? Is it going to be a much bigger piece of the equation or are you putting more capital? Would you look to maybe have partnerships with other flex providers down the road, just in this new environment of tenants, you know, most tenants still going back to signing long-term leases like you sign, but maybe there's some need for more flex. Can you give us your thoughts on how flex changes from here on?
Yeah. Vikram, as we've said before, we believe in flexible workspace. We think that's a market that was created pre-pandemic, and it's here to stay for small companies and also larger users. I think, you know, it's gonna be something like a single-digit % of the market, but an important product. What needs to happen is that the flex space that's out there needs to refill both our own flex space as well as the flexible space that's been provided by the other operators. You know, given the pandemic, the occupancy of many flexible office offerings went down because tenants, you know, are less likely to pay rent if they don't have to. That occurred. I think what's going to happen is it's gonna refill.
Right now we're not investing additional capital in FLEX by BXP, but that's our decision today. We're gonna see how this market shakes out and revisit that decision in future quarters as the flexible office space market recovers.
I just make one last comment, which is most of the flexible space operators have, I would say, transitioned their philosophy from, we're gonna take a lease, and we're gonna put money in, and then we're gonna, you know, lease that space to someone else, to, "Hey, Mr. Landlord or Mrs. Landlord, we'd like you to put all the capital in, and we'd love to become your management partner," AKA, you know, the hotel chains, right? I find it hard to think there are gonna be a lot of landlords who are gonna be prepared to enter into a new arrangement.
Now, there are obviously a lot of orphaned flexible spaces in all of our markets that have been, you know, basically let go by the original tenant and are now in the hands of landlords. In many cases where that has occurred, those landlords may say, "Well, I'd rather not operate this myself, so I'm gonna let, you know, company X, Y, and Z become my, you know, my manager for this." I think you're gonna see that happen before you're gonna see new installations being contributed to the market with landlords who are prepared to basically do management deals.
Great. Thanks so much. Just to clarify, Mike, the comment you made, the 5%, is that a cash mark-to-market?
That's the mark-to-market. If you took the whole portfolio and what the rents we're getting today and said, we think the market rent today for every single one of these buildings is, you know, what we have today plus approximately 5%. That's what that is.
It excludes all the vacant space. It's only space that's currently leased.
Okay. Okay. Thanks so much.
Our next question from Ronald Kamdem from Morgan Stanley. You may ask your question.
Great. Just two quick ones from me. Just going back to D.C., I think last quarter you talked about some of the concession trends there. Any update, any color what you're seeing in the market and how that's trending?
Well, I'd like to tell you there's been a total recovery and concessions are back to 2013 levels. Jake, I think that this one's for you. I don't think that's the right answer, right?
Yeah, that's correct. Yeah, I would say that the concessions continue to remain escalated. What we are seeing though is that the actual lease terms are extending. You know, we've rode the wave sort of north of $300 a foot in concessions, but a lot of times those lease terms are in excess of 15 years.
Just to put some clarity, Jake is referring to both the tenant improvement and the free rent, right? There's a lot of that concession is not in cash, it's in downtime associated with when the rent commencement would be beginning for a new lease.
Great. The second question, just one on clarifying for sort of the 1Q guidance. I think you'd mentioned that, there's a seasonal drop. So if I think about if you back out the sort of for 4Q 2021, you're at $1.81 if you back out sort of the debt extinguishment. So from the $1.81 to $1.73, was there anything else that's baked in there other than sort of the G&A and the hotel that you called out? Or was that all of it? Just wanna make sure I got that right.
I think that the G&A and the hotel, you know, will be between $0.08 and $0.10 of it, and then there's some growth in the portfolio that would offset it.
Got it. Thanks. Those are all my questions.
The negatives on the G&A and the hotel are greater, right, than the difference between, I think $1.80 and $1.73, at the midpoint. There are some positive things from the portfolio. Interest expense is a little bit lower too.
Yep, makes sense. Thanks. That's all my questions.
Our next question from Derek Johnston from Deutsche Bank. You may ask your question.
Hi, everyone. Thank you. Hey, we're intrigued by the 360 Park Avenue South acquisition, then JV. Could you discuss the strategic thoughts to expand in this New York City sub-market? And really secondly, how the repositioning of the asset, the design or amenities has evolved versus maybe the more legacy or pre-pandemic projects.
I'm gonna allow Hilary to talk about our plans for 360 Park Avenue South. Owen, do you wanna just sort of make a comment on our interest in expanding in that marketplace?
Yeah. In New York, you know, we all talk about New York as a market. Well, it's three times bigger than all the other cities that we operate in. It's got 300 million sq ft, and it's a number of markets in and of itself. You know, I've said on prior calls, going into Midtown South is like entering a new market for Boston Properties, you know, based on its scale relative, and New York's scale relative to all the other cities. Midtown South has been a very attractive market to technology and, to a lesser extent, life science companies. The primary growth in the office business since the GFC has been in those two sectors, and we think that's an important district of New York, an important sub-market of New York to participate in.
We were delighted to be able to complete the 360 deal, you know, in December. Hilary, do you wanna talk about, you know, some of our plans for the building?
Sure. We will be undertaking a complete repositioning of the asset, both in terms of the building systems and in terms of the common areas and the tenant spaces. That will be designed, as Owen said, to attract that tech tenancy and media tenancy that prefers to be located in Midtown South. We're already seeing interest from tenants in the marketplace for the space. You know, the building, when we're finished with it, will be, for all intents and purposes, a new building in terms of the systems and the finishes. I think from that perspective, it's entirely consistent with what Boston Properties owns in the rest of New York and across the country. The distinction here is just the sub-market and the types of tenants that prefer to be officed in that sub-market.
Okay. Thank you. The second question, what will it take to get office utilization back to 60%-70%? Do you see that happening in 2022? There really are slim pickings, guys, so please bear with me. If hybrid is here to stay, and I do agree with you, if I'm allowed to work from home two days a week and I show up to the office three days a week, is my office utilization 60% or is it 100% based on that agreement with management? Thank you.
Okay. I think the answer to your question is more people coming to work will be the thing that drives the utilization up. I'm being somewhat tongue in cheek, but that's honestly the answer. The way people define utilization depends upon their technology and the way they think about utilization of space. The way we think about it is how many seats are there in a particular building, and how many people use those seats on a daily basis? It may very well be that there are more people with card access to use those seats than there are seats.
For example, if you have a floor with 100 seats on it, but you give 125 cards out, you may have 100% utilization of that space, but you're only gonna be using, you know, 80% of your employees on a daily basis. I think the math is gonna be somewhat hard to get a feel for until we really understand how individual companies are choosing to use their space. We could certainly see situations where, you know, you have utilization that's 60% because every single person has an assigned seat, and only the days that they're there are those cards being used.
On the other hand, we may see installations where they have overallocated the number of seats, or the number of access cards for the number of seats they have, so they may be full, you know, more times than not, and you'll have a higher number. It's gonna be very difficult to judge what's going on until these companies, you know, decide what their own philosophy is with the respect to how they're gonna use their space.
Yeah. I would just add that an important point to what Doug said is, what we're seeing so far with clients that are utilizing hybrid work is they're saying, "Look, we'd like you to come in two, three, four days a week, but you have to be there on a certain day, like a Tuesday or a Wednesday." Because, you know, why do you want people to come in the office? You want them to be with each other and collaborate. You want at least a day or two, or more, for everyone to be in the office. I think that's.
If you look at our census trends that Doug talked about, it's always lower on Monday and Friday than it is in the middle of the week, because of these, I think because of human preference, but also because of the policies that companies and our clients are taking as it relates to hybrid work.
Thanks, guys. Thank you.
Our next question from Michael Lewis from Truist Securities. You may ask your question.
Thank you. I almost feel bad asking a question at this point, so I appreciate your time for thoughtfully answering all the questions. I just am gonna ask one. It's something you touched on a little earlier, but you know, every time I see a headline that you know, a company is pushing back their return to work, I think the implication is that you know, that's supposed to be concerning. You know, at this point, when return to office gets pushed back, you know, is that simply a timing issue, or do you think there's a risk that it's still causing more tenants to kind of figure things out and potentially cut or leave their office space?
You know, for example, if companies returned, you know, at Labor Day versus today, would the demands have been stronger longer term? You know, if it gets pushed back from today to the summer, you know, would demands have been stronger if they came back today? You know, basically, are we losing demand as the duration wears on longer, or do you think at this point that's kind of less relevant?
I would tell you that I think it's less relevant in terms of how employers are thinking about their space. I think it becomes more challenging depending upon the labor movements that are going on with particular companies. As companies, you know, are having a more and more challenging time dealing with where their labor is coming from, I think that has a more pressing implication on their utilization of space and where they want their space to be in the short term, than, you know, what the date is, per se. 'Cause people need to fill jobs. You know, I mean, there are...
We're aware of organizations that they're saying, "Okay, we can't fill the jobs, you know, in this particular market, and we have to fill them, you know, with a work from home or a remote location. We'll fill them that way," right? I mean, those are the kind of things that I think are, on the margin, gonna impact the, you know, the amount of space someone takes in the short term, but not the planning, because the delay in itself is impacting what their business model is.
That makes sense. Thank you.
Our next question from Anthony Powell from Barclays. You may ask your question.
Hi, thank you. You talked a lot about how there's an increase in demand for prime office buildings in most of your markets. Do you think this could lead to another cycle of new construction of office buildings of that type, or is that maybe limited given some of the rent dynamics? If so, when does that start to come online?
Well, I think that, as I mentioned in my remarks, given the pandemic, the uncertainties about office demand that we've discussed on this call, I do think it's slowed down the development pipeline in general. But that being said, I do think there will be demand for new office space in the future, particularly as technology and life science companies grow. And new, at least today, is, you know, very attractive to those customers, and I do think there will be development. We're gonna be doing some of it ourselves. But I don't see it as a, you know, quote, driving a whole wave of new development.
Thanks. Maybe just one more on pricing. I think you mentioned that you don't expect, I guess, rents to really go up meaningfully this year given the vacancies. That said, the lease spreads have been positive. Given the uncertainty, someone may argue that there should be even more pressure on rent. When you negotiate new leases with tenants, do you get tenants trying to take discounts, or do people kind of accept the market rents, and, you know, go from there? I'm just curious about the pricing psychology given all the uncertainty around office right now.
Well, we're so good at what we do that once we put a number on the table, they just say yes every time. Look, you know, every deal is different. Most of our clients are in the perspective that if they feel like they're getting a market transaction, they are going to transact at this point. They understand that, you know, depending upon what their choices are, some of our space may be at a premium or some of it may be at a discount to something else they're looking at, and they are able to rationalize whatever that premium or discount is. We have enough transaction volume in our own portfolio where we can point to, "Look, this is where we are doing deals. This is what the concession package is.
This is what the rent is. This is how much, you know, available downtime we might be able to give you. This is how much we're prepared to put into the deal for, you know, ancillary costs. That there's quickly a meeting of the minds with somebody who's ready to transact. Again, because there's been enough transaction volume, you sort of know where the market is at any one time. I can't tell you if that's gonna get better or worse in 2022, but it's sort of how we're dealing with things today.
All right. Thank you.
Sir, our last question from Daniel Ismail from Green Street. You may ask your question.
Great. Thank you. Maybe just to go back to the quality theme, how much does tenant mobility increase your quality space within a market? For example, is it your sense that tenants are more likely today to move around the city or leave a sub-market for a better space?
Let's just use San Francisco as the example right now. I think what you're seeing is that the market has gotten smaller from a geographic perspective, and some of the ancillary areas that were considered to be up and coming and a little bit on the sort of transitional edgy side are less attractive than the very sort of core marketplace. I think a lot of it has to do with the things that Owen described, which were access to transportation and access to amenities. Obviously, in San Francisco, things are, you know, slow in terms of the amenitization of the streets, but it will come back. I think that that's probably a similar construct in a place like New York.
I would tell you that Third Avenue is probably not nearly as interesting as Park Avenue is. You know, in a very hot market where there's lots of activity, Third Avenue has a lot more interest. As, again, as the markets get softer, there's a necessity to sort of go to better buildings and better spaces, and that generally means the core markets, not the peripheral markets. I don't know if any of my leasing colleagues would like to comment on that. Ray, Bob, Jake, Hilary.
Well, I think that clearly is the case in Reston, Doug. We saw, you know, our portfolio there materially outperforms, both in terms of occupancy, deal flow, and especially rental rates. We're attracting the tenant that may be in a unamenitized suburban campus, coming back to the urban core in Reston Town Center. From our perspective in D.C., Reston's really the poster child for that point.
Great. Thank you. Maybe just how does that impact capital deployment, and then your term for BXP? Say for instance, you know, 3 Hudson versus 343 Madison. Does that make you less concerned, or excuse me, more interested in either one of those projects or perhaps rule out any in the near term?
I think, Danny, to answer that question, it'll depend on the facts at the time. I mean, 3 Hudson, as we've been saying, given the size of that project at 1.8 million sq ft, we want an anchor tenant to go forward with that, and we'll evaluate the economics of that deal at the time. You know, I do think new is of increasing interest all over the country and in New York, so that'll help on the rents. But as Doug described, costs are up. Then 343, again, it's a brand-new building. It's got direct access into transit. It's got everything that we've been talking about on this call about quality, but we're gonna have to assess, you know, the economics at the time.
You know, Hilary described we've got some demolition and additional approvals that we have to put in place there before we can consider going forward.
Great. Thank you. Just last one for me. Mike, I believe you mentioned 70% utilization in New York. I'm just curious if I heard you correctly and then maybe if you guys can give a utilization rate for the total portfolio.
In New York City in the fall before Omicron, we were in the high 60s, kinda, you know, October-November timeframe.
It dropped precipitously. We were struggling to get to 25% in any one of our markets in the first, second, and third week of January. It started to rebound. I mean, it's going up. It's going up, you know, relatively slowly. On a sequential basis, the number of card swipes we're seeing is up probably 10% or 15% each week, but it's not anywhere close to where it was in October and November.
Got it. That makes sense. Thanks, everyone.
There are no further questions at this time. I will now turn the call over back to Owen Thomas for your closing comments.
I think we've said enough, operator. There will be no closing comments, and I thank all of you for your questions and your interest in Boston Properties. Thank you.
Thank you. This concludes Boston Properties' conference call. Thank you all for participating. You may now disconnect.