Peter M. Moglia
Chief Executive Officer and Co-Chief Investment Officer at Alexandria Real Estate Equities
Thank you, Hallie. I'd like to start by thanking all the teams of the company for your never-ending dedication, high-quality work product, and collaborative spirit that made Steve's transition to retirement seamless as we all expected it would be. Steve continues to be actively involved in certain projects and we consider him an invaluable resource to the executive management team. Since Steve is no longer on the calls, I'll cover leasing as well as updating you on other key topics of the day, such as the development pipeline, construction costs, and the harvesting of our value creation.
As we sit here today, Alexandria has an equity market cap and credit rating in the top 10% among all publicly traded U.S. equity REITs, a North American asset base of 74.5 million square feet, 431 properties in operation, development, and redevelopment, and over 1,000 innovative tenants to inform our investment and operating strategies. We should note that it has taken over 28 years to reach these milestones. One cannot create such a dominant position in an industry overnight and it takes far more than great real estate to do it.
Our vast network, operational excellence, and technical know-how are just a few of the many reasons we are a one-of-a-kind company and a class by ourselves. The life science industry has grown significantly in recent years with the success of new modalities such as mRNA and cell therapy and we have grown along with it by capturing the majority of investment opportunities that have come about from those inventions and others.
With the onset of market volatility, we are seeing a normalization of demand, and although in the near term, we don't anticipate seeing the same level of activity we saw the record-breaking year of 2021, we continue to see healthy demand manifesting into solid leasing numbers.
With respect to the leasing of our value creation pipeline, which is expected to add approximately $645 million in incremental annual rental revenue from 4Q '22 through the third quarter of 2025, we leased approximately 330,000 square feet in the third quarter. Although that total is approximately one-third of the record-breaking 2021 quarterly average, it is 18% higher than the previous five-year average, indicating we have returned to a normal run-rate of leasing. With that leasing, our 7.6 million square feet of projects under construction and pre-leased near-term projects leased reached 78% leased, up 4% over last quarter. During the quarter, we delivered approximately 330,000 square feet at a weighted average yield of 7.1%, which will add approximately $30 million in annualized NOI to our P&L.
Transitioning to overall leasing. The third quarter results continue to demonstrate Alexandria's ability to outperform even in turbulent times due to our significant differentiation among all who seek to participate in life science real estate, which can be summarized with four unassailable attributes, irreplaceable AAA locations adjacent or in close proximity to the country's best life science research institutions, operational excellence in the running of our tenants' mission-critical facilities, mega campuses, providing highly-valued optionality, scalability, and amenities, and a curated roster of over 1,000 tenants, including the most impactful and creditworthy research companies and entities in the world, providing unmatched industry insight.
Despite current macro economic conditions, demand for Alexandria's best-in-class facilities continues to be at pre-2021 normal run rate. Examples of this include: in the third quarter, leasing volume was 1,662,069 rentable square feet, which is above our 10-year quarterly average of 1.3 million square feet and well above our pre-2021 five-year average of 1.1 million square feet. Year to date, leasing volume of 6.4 million square feet is above our five-year average of 6 million square feet and we still have the fourth quarter to add to these totals.
In the third quarter, cash and GAAP increases continue to be very healthy with 22.6% cash increase and a 27.1% GAAP increase. And our operating asset mark-to-market continues to be a -- to be healthy at approximately 30%. In our quarterly examination of construction costs, the theme that jumps out at us is that overall cost and supply-chain issues are starting to ease, but contractors don't trust what may happen tomorrow. The disruption brought about by COVID in 2020 was exacerbated by the stimulus implemented to mitigate it and as we all know, has led to inflation not seen since Jimmy Carter's Presidency.
This inflation caused serious losses to the construction industry as contractors were legally bound to deliver projects within lump-sum or gross-maximum budgets that had become grossly underfunded with every passing month as the economy opened and pent-up demand for construction materials and labor threw the system violently out of equilibrium. These losses have caused contractors to keep pricing high despite anticipated reductions in cost. Therefore, we need to remain cautious about projecting any easing of conditions until the construction market can be confident another shoe is not going to drop and that time has not come yet.
It's easy to understand this mindset because evidence of an easing is only anecdotal at this point. Steel, copper, lumber, and labor costs had shown signs of leveling off but escalations from the third quarter of '21 to the third quarter of '22 totaled 12.3%, well above normal. And lumber just spiked again two weeks ago. That said, supply has started to catch up with demand. Inventories of materials are still low but improving. Freight transportation is trending down, contractor backlogs though strong through '23 are finding openings due to canceled projects, and fewer new projects are starting.
This opening up of capacity has slowly returned the ability for general contractors to get three bids from some subs. Grassroots to normalization, you could call it but there are storm clouds on the horizon in the form of billions of dollars of work anticipated to build mega chip factories and the $1.2 trillion Infrastructure Investment and Jobs Act signed into law last November, which could roll-back any easing of construction and supply-chain conditions.
Overall, we do expect construction costs to begin reverting to the mean due to the easing of contractor backlogs and relatively better availability of materials but Alexandria will continue to conservatively underwrite construction cost escalations in our pro-formas. We have a deep and experienced team that works in lockstep with our underwriters to ensure we are accounting for the latest trends in our current and future projects.
Interest rates continue to wreak havoc on investment markets and we feel fortunate that are scarce product type continues to be in demand during such a turbulent time. Evidence of this can be seen on Page 5 of the supplemental where we present the results of certain asset dispositions, which have raised $2.2 billion in capital to date, including $1.26 billion in the third quarter. Included in those dispositions was the completion of the previously announced partial interest land sale at 1450 Owens in Mission Bay to a development JV partner for a land value of $324 per buildable foot, the sale of a portfolio of asset spanning the sub-markets of South San Francisco and Greater Stanford for a 5.2% cash cap rate, a one-off asset along the I-15 corridor for a 5.3% cap rate, two assets on Carroll Road and Sorrento Mesa for a 4.6% cap rate, a partial interest sale of a campus in Sorrento Mesa for a 4.6% cap rate, and a partial interest sale of a high-quality asset and Merryfield Row and Torrey Pines for a 4.1% cap rate.
The low five cap rates achieved in the San Francisco portfolio and the I-15 sale in San Diego are indicative of the age of the assets. Still attractive Workhorse assets do not reflect the higher-end profile of our core. The strong sub-five cap rates for the partial interest sale of the Summers Ridge Campus and the Carroll Road assets are more representative of our asset base.
The Merryfield Row asset is purpose-built lab by Alexandria, and like many of our other purpose-built assets, is one of the best located and most attractive assets in its sub-market, in this case, Torrey Pines. The 4.1% cap rate was influenced by the growth in rents in Torrey Pines since the lease was signed but the lease has almost 12 years of term remaining before that upside can be realized, so its quality and location really drove the value.
I'd also like to note that the scarcity value we talk about being a driver for keeping our cap rates lower relative to other product types can be seen in transactions by others. Just last month, Biogen completed a sale-leaseback in Cambridge for $2,185 price per square foot value and The Carlyle Group sold the 77,000 square foot Blackstone Science Square building in mid-Cambridge for a 4.1% cap rate at a price just short of $2,000 per square foot. As the Fed continues to pull levers to battle inflation, we expect we will see cap rates move up, but much less on a relative basis to other product types, and thus, we remain well-positioned to fund our value creation pipeline efficiently and at a relatively attractive pricing by harvesting our value creation among other sources.
With that, I'll pass the call over to Dean.
