Peter M. Moglia
Chief Executive Officer and Co-Chief Investment Officer at Alexandria Real Estate Equities
Thanks, Hallie. I just had my 25th anniversary with the Company, In addition to that milestone reminding me of how fast time moves by brought about a nostalgic look back at my time at Alexandria. I recall my interview with Joel, where I learned about this novel idea of forming a real estate company to serve the life science industry, which made me both nervous as nobody had ever done it before and equally inspired to help enable an industry that was hell bent on changing the world.
After serious contemplation, I decided that, if I was going to make it different in the world, this was a heck of an opportunity to do it. Plus after having been in real estate for about eight years at that point, I could see a tremendous value in offering mission-critical facilities over commodity product. I could not have made a better decision as it all proved out.
Alexandria has played a critical role in the evolution of the life science industry over the last three decades by creating and growing the ecosystems and clusters that ignite and accelerate the world's leading innovators in their pursuit to advanced human health, which is our solid mission. In addition, we've built an irreplaceable world-class asset base of robust and highly differentiated properties and campuses that attract a diversified best-in-class tenant base who values our expertise and operational excellence by providing 75% to 85% of our leasing quarter-to-quarter.
The result of all this is we have built a brand without here that puts us in a position where we don't rely on third parties to bring us tenants. They come to us directly as we are a trusted partner with a long successful track record of developing and operating mission-critical facilities. This is an important distinction in any part of the cycle, but perhaps even more when things have slowed down.
Our results prove it out. Thank you for indulging me on that retrospective. I'm going to go and briefly touch on our development pipeline, construction costs, leasing and asset sales and then hand it over to Dean. In the first quarter, we delivered 453,511 square feet in five projects into our high barrier to entry submarkets. Annual NOI for these deliveries totals $23 million, and the initial stabilized yield is strong at 7.3%. At quarter end, projects under construction and near-term projects expected to commence construction over the next four quarters totaled 7.6 million square feet and are 74% leased or under negotiation.
This is very similar to last quarter, but in response to the uncertainty and volatility in the markets, we have made a strategic decision to reduce 2023 construction spend by $250 million by pausing or delaying projects that had been classified as under construction, so we can focus our capital on the most strategic projects that have the most attractive terms, enabling our highly bedded and vast tenant base. The reduction in spend results in NOI from deliveries primarily commencing from the second quarter of '23 through the first quarter of '26 to be approximately $610 million.
After commenting on construction costs for the past two years, I can still say they remain volatile but are on their way to stabilizing. The availability and price of commodities such as steel, copper, aluminum and concrete, continue to fluctuate due to shortages of raw materials, low yields for mines, high demand from electrification or low capability utilization rates in the mills and fabrication shops due to labor shortages.
Cost of materials and supply chain volatility were the initial drivers of construction inflation, but now the primary driver is labor with a triple whammy of wage increases, shortage of workers and the inefficiency of the remaining labor force due to the retirement of older, more skilled labor. There are 330,000 open construction jobs today and the time it takes to train the new entrants to be highly skilled as measured in years. So these inefficiencies will be with us for a while.
Specific to life science buildings, the availability of switchgear and equipment such as HVAC units and generators are -- has slightly improved but their lead times are still extraordinarily long with custom air handlers taking 27 weeks longer to get than before COVID and switch gear and generators and astounding 64 weeks longer. Even worse is the availability of large transformers provided by the utility companies, which can take as long as three years now to get.
What's driving these delays are chip shortages and demand from electrification projects happening all over the world as investors, governments and end users demand improvement in carbon emissions. As you can imagine, the cost of this equipment is reflective of these shortages and paired with high labor cost is making new laboratory office projects more expensive to build than ever before.
The upside for us is that 84% of our costs for our active development and redevelopment projects are under GMP or other fixed contracts with contingencies behind that. So, we are largely locked in. Anyone contemplating a speculative development these days will have to contend with these delays and associated high costs, which will put the feasibility of building and financing the project at considerable risk. One reason, we will likely not see the supply many are expecting beyond what is under construction today.
Transitioning to leasing, our strong brand loyalty, mega campus offerings and operational excellence continue to drive strong leasing numbers in a challenging market. The 1.2 million square feet leased in the first quarter is above our five-year pre-2021 average and is the 12th consecutive quarter with leasing volume above one million square feet. We achieved attractive economics primarily from our vast tenant base, accounting for 85% of the leasing this quarter, resulting in a rental rate increase of 48.3%, which was the highest in company history and a strong cash rate of 24.2%.
As we have noted previously, demand has normalized from the record year of 2021. Depending on who you ask, demand is at slightly below or slightly above pre-COVID levels. There are less tenants actively seeking space in the market today, which we believe is being significantly driven by uncertainty in the economy. As Hallie put it, this market is and will continue to warrant extreme prudence. However, we're not dependent at all on broker deal flow.
There are pending opportunities from our vast tenant base that the broader market likely does not see due to our direct relationships with company management teams. Such relationships are a huge differentiator for us and will continue to drive solid leasing even in tough environments. Some private and preclinical clinical stage companies are making do with the space they have today until they can better understand their ability to raise capital on its cost. Capital is available.
But as Hallie mentioned, BCs are more discriminate disciplined in demanding of future investments and companies with tenured management teams, strong differentiated technologies and near-term value inflection milestones are the ones that will rise above the fray. Those are the halves who by and large are Alexandria's tenants, which we have underwritten and placed into our world-class asset base, differentiated from the have nots tenant base of others who take on any tenant that can fill space with hope as their underwriting strategy.
On the supply side, we track high quality projects, we believe, are competitive to ours in the high barrier-to-entry submarkets. Accordingly, we're tracking direct vacancy in Greater Boston to be 2.8%. On lease sublease space is at 3.9% and unleased directly competitive with our AAA locations and building quality to be 1.5% to be delivered in 2023 and 5.1% to be delivered in 2024, a 1.3% total increase in availability from last quarter.
In San Francisco, direct vacancy is 3.5% and sublease space is at 5.8% and unleased supply directly competitive with our assets continues to be the highest in all of our markets at 6.6% and 8.9% to be delivered in '23 and '24, respectively. This is an increase of 3.4% in total availability over last quarter, largely driven by spec building in South San Francisco.
In San Diego, direct vacancy is at 4.1%, sublease space is at 2.3% and unleased competitive supply is 3.2% in 2023 and 5.4% in 2024, a slight increase of 0.2% over last quarter. Supply in all submarkets is very likely to be muted beyond what is under construction today due to high construction costs that I referenced, higher cost of capital and the lessening of generic tenant demand. We focus primarily on high barrier-to-entry markets where supply is inherently limited.
We focus primarily on high barrier to entry markets and brand mega-campus offerings in those AAA high barrier to entry market locations and operational excellence enables us to continually mine our vast and deep tenant base to drive our leasing activity, which will likely lessen the impact of generic supply. I'll end with some commentary on our value harvesting and recycling progress.
As we all know, the rapid rise in interest rates have not only increased investors' cost of capital, but created a lot of uncertainty causing a number of investors to remain on the sidelines. Adding to the difficulty to execute in this environment is the increasing desperation of a number of office building owners, trying to raise cash to stay afloat by offering quality long-term leased assets with credit tenants at 6.5% to 7.5% cap rates. Despite these challenges, the demand for high-quality life science assets which is vastly different from office assets continued in the quarter.
As noted in our press release, we were pleased to transfer an 18% interest in our current JV at 15 Necco, which we control and owned 90% prior to the sale. The asset is under construction and will not be delivered until the end of this year with cash flow commencing in mid-2024. The buyer will fund the remaining construction costs to deliver the property to our tenant until they reach a 37% ownership, which is expected to be the remainder of the cost to deliver the project.
Given that the receipt of cash flow is over a year away, it's difficult to translate the valuation to an operating cap rate. But to give you some color, the parties agreed to evaluation at closing to be $576 million or $1,665 per square foot, which is an initial yield of 5.25% on their investment based on in-place NOI at closing. But we also agreed to credit our partner $5.5 million in fees payable, because we sold 33% of the total 37% our partner purchased those fees equate to approximately $15 million in value.
Stripping that $15 million from the purchase price gets you to a total valuation of $561 million increasing the cap rate to 5.4%. If you want to tie that to the supplemental, the $66 million price for the 18%. And the other -- if you add the other $119 million to be funded to completion and divide it by the 33% we sold, you get $561 million. This was a great outcome for Alexandria as we were able to partner with a world-class investor to monetize the value creation and secure the capital for the remaining spend in an accretive manner, while retaining control of the asset and all management fees.
We have not yet closed on the other transaction we signed an LOI on in the fourth quarter, but we expect to do so in the second quarter. In addition to this transaction, we have signed letters of intent or purchase and sale agreements for a number of assets, including the office campus referenced in the press release, aggregating to a total sales price of $799.3 million. These future transactions and 15 Necco account for approximately 57% of the progress needed to meet the midpoint of our disposition guidance.
With that, I'm going to hand it over to Dean.
