Peter M. Moglia
Co-Chief Executive Officer and Co-Chief Investment Officer at Alexandria Real Estate Equities
Thank you, Steve. I'd like to start by thanking you for teaching me so much about teamwork, managing people, operational excellence, the necessity of taking a deep breath every now and again, expanding my vocabulary and being a sounding board and confidante throughout our partnership. I started this Co-CEO relationship with alacrity. The use of that word is an example of your influence, and I was not disappointed. I will greatly miss our regular chats, but I'm glad you will be around when a good talk is needed.
With that said, I'm going to update the audience on the progress being made on our value creation pipeline and related construction costs and supply chain trends then conclude with remarks on the dispositions completed this quarter. As Hallie referenced in her overview, our 1,000 plus tenant base is of the highest quality as it includes 17 of the 20 biopharma companies, the most innovative and well-funded large cap public biotech companies in the world and a stable full of the most promising and fastest growing private companies in the industry, which have been rigorously underwritten by a deeply technical and experienced team.
This highly curated tenant base provides opportunities that have been consistently fueling our external growth for over a decade. And if you connect the dots, it's no coincidence that 87% of our leasing activity comes from it. The best companies are those that grow and we have grown along with them. The past quarter, we completed over 915,000 square feet of leasing in our development and redevelopment pipeline which aggregates to an excess of 2.3 million square feet for only half a year at a time when people are worried about the product type we invented, because others pretending to be equals are struggling with their tenant base. Our results in the wake of others struggling should tell you something. Life science real estate is not for everyone, success takes years of experience in designing and building the right product in the right location, deep relationships with the highest quality life science companies and company creators, operational excellence and most important during times like these, a very deep understanding of the industry.
We delivered 375,394 square feet in the second quarter spread amongst 6 projects including the full deliveries of the 8 and 10 Davis, part of our Alexandria Center for Advanced Technologies in the Research Triangle and 5505 Morehouse Drive in Sorrento Mesa. The weighted average yield of these delivered projects was a healthy 7.8% and they will contribute over $20.6 million in net operating income moving forward. The remainder of the pipeline that is either under construction or expected to commence construction in the next 6 quarters has decreased by approximately 200,000 square feet from last quarter, but is still projected to add more than $665 million in annual rental revenue over the same number of quarters reflecting higher revenue per square foot developed.
As of quarter end, 78% of this remarkable pipeline was either leased or under negotiation, meaning we have an executed LOI with 95% of the activity year-to-date coming from existing relationships, reinforcing the quality of our tenant base given that this category of leasing is typically driven by consolidation necessitated by growth. It also highlights the extraordinary loyalty of our tenants and the trust we have earned through many years of high-quality service.
I'm also pleased to report that despite continued volatility in construction costs and supply chain disruptions, our pro forma yields are neutral to slightly improving relative to last quarter and there have been no adjustments to our delivery timing. That is a good transition to our construction costs and supply chain update. The bad news first. There are still upward pressures on construction and material prices stemming from high energy costs and now labor costs are becoming a bigger issue than in the past. As the U.S. exports more natural gas to Europe, it becomes more expensive here, and one direct impact has been an increasing glazing costs of 20% to 40%. In addition to a 35% increase in aluminum over the past 12 months, glazing is impacted by the cost of natural gas as it's heavily used in its production.
As mentioned last quarter, elevated diesel prices have a significant impact on construction costs as earthwork machinery runs on it and our contractors have been seeing fuel surcharges in the billings from these subs. Crude oil was up 71% from February '21 through February '22, and although pricing is slightly improved since then, it's not providing any significant relief. Other costs that continue to be overly elevated over the past quarter include construction machinery, which is doubled, Gypsum, which is up over 1500%, one of our contractors blames this on elevated housing construction, which uses about 50% of the supply, semiconductors are up 276% due to heavy demand by the automotive industry and switchgear and other industrial and electrical equipment is up 73% due partially to demand and partially to elevated cost of components that go into that equipment.
Labor which accounts for approximately 60% to 70% of construction costs has been relatively stable over the past couple of years due to pre-arranged wage increases negotiated into labor agreements, but many of those are now up for renewal and negotiations are reported to be intense. Due to career changes for many in the industry after layoffs caused by COVID-19 work stoppages, there is a smaller pool of labor, and combined with the higher cost of living wages are expected to be much higher in the future.
Supply chain issues remain despite improvements in transportation, mainly due to the war in Ukraine and a ripple effect from shortages in components. One of our surveyed contractors closely track supply chain related impacts to their jobs nationally and found that from September of 2020 through February 23 of this year, supply chain impacts averaged 5.89 per day. From the beginning of the war on February 24 through June 8 of this year, there have been 38.12 impacts per day. As a result, extraordinary lead times remain for equipment used in our product type, including generators, building controls, transformers, switchgear, electrical panels, air handlers and chillers, all of which have lead times that are double what they normally are, many exceeding a year. Much of the delay is due to a ripple effect of missing components, a generator can be 90% complete, but can take an additional 6 months to finish because of the missing component or two from a vendor with a huge backlog.
The good news is that despite the shortage in skilled labor productivity is improving. Contractors are starting to see cancellations or projects being put on hold, lightening their backlogs, which will eventually reduce demand and ease, both pricing and supply chain problems. This can be seen in expected escalations from one of our major GCs who projects them to be 6% to 8% this year with a bias towards the longer end but a reduction to 4% to 5% in 2023. We continue to closely manage these conditions and approximately 80% of our cost for development and redevelopment projects under construction are subject to a guaranteed maximum or other contracts that enable us to mitigate the risk of inflation. We have contingencies behind those contracts to account for scope creep and unknowns, the other 20% is from projects that are currently pending guaranteed maximum contracts that are in process, and those projects include larger cost contingency allowances in their performance.
Moving to our asset sales. Interest rates are certainly influencing real estate pricing broadly and we've been told by our investment brokers that they are seeing a 25-basis-point widening and other hot product types such as industrial. So we may see it with lab office assets as well. It is certainly reasonable expect that may happen, but we do believe that the scarcity of well-located Class A lab office assets will help mitigate that. You can certainly find industrial product almost anywhere, but for sale Class A lab product is still very hard to find. So despite the increasing interest rate environment, there continues to be strong demand for life science assets demonstrated by our partial interest sales in Cambridge and Mission Bay and our outright sale of 12 assets in the Route 128 and 495 suburbs of Boston. The partial interest sale of 300 Third Street in Cambridge closed at the end of the quarter and was sold to an existing partner relationship for a 4.3% cash cap rate at a price per square foot of $1,802, a $113 million gain over book value. As of as the sale date, we have achieved an 11.6% unlevered IRR on this asset.
The partial interest sale at 1450 Owens in Mission Bay was also purchased by an existing relationship and as a development asset that included reimbursement for infrastructure and pre-development costs. Parsing those reimbursements out, yields a land value of $324 per buildable square foot indicative of the high-value of our land bank. Lastly, our 12 assets suburban portfolio sale in Greater Boston sold at a strong cash cap rate of 5.1% and the sales price per square foot of $542. Although these assets served our tenant base well for a number of years, we believe we can create more value long-term with the capital from this sale by reinvesting it into our development and redevelopment pipeline focused on the creation and expansion of our mega campus platform.
The great progress made on the construction and leasing of our high-quality value creation pipeline paired with our ability to realize strong exit cap rates during the quarter, once again demonstrates our ability to create significant long-term enduring value for our shareholders. Thanks for listening. And with that I'm going to go ahead and pass it over to Dean.
