Operator: Thank you. And I show our next question comes from the line of Anthony Paolone from JPMorgan. Please go ahead.
Anthony Paolone: Yes, thanks. I guess my question is, you mentioned earlier some demand from the AI space. And at the same time, just tech companies having overexpanded and shedding some space. Just wondering if you could put some more dimensions around how that nets out. Exactly how big is the AI demand and maybe perhaps, how much more is there to go before the rest of tech is rightsized?
Douglas Linde: Yes. So I’m going to give you what I would refer to as a simplistic view of it, and I’ll let Rod Diehl give you a more comprehensive view. So the simplistic view of it is on the East Coast, where there really isn’t much in the way of incremental AI demand, net-net most technology companies are when they’re renewing a lease, taking less space. On the West Coast, predominantly in the greater San Francisco marketplace and then skewing down into the CBD of San Francisco, there is more incremental absorption overall in technology. It’s all coming from AI. And I would say it’s taking the place of what were traditional technology companies. But Rod, you can go sort of plus that on a little bit more.
Rodney Diehl: Yes. Thanks, Doug. So yes, last year, of course, was a big year for AI in San Francisco. There was two very large leases that were completed. I believe that made up about 27% of the overall leasing activity for the year, which was pretty substantial. So coming into ’24, there’s still been activity on the AI front. There’s one of those larger tenants that did the deal last year is also in the market again for more space. So we’re watching that closely to see where that goes. So I think it’s definitely a bright spot. And these different companies often to find themselves as AI, but it’s broad across the spectrum of that technology. As you see that down in the Silicon Valley, in fact, there are some AI companies, many of them which are tied into the automotive industry. We have a couple of them in our own portfolio, and some of those are in the market as well. So definitely a consistent point of additional optimism and demand for the Bay Area.
Operator: Thank you. And I show our next question comes from the line of John Kim from BMO Capital Markets. Please go ahead.
John Kim: Thank you. You’ve been making a very compelling case between — the bifurcation between premier workspace and commodity office in the CBD portfolio, which really benefits BXP. But that same bifurcation exists in your portfolio between CBD and suburban, where it’s a 15 percentage point occupancy gap. So I’m wondering, just given that performance difference, does that make you reconsider your commitment to the suburbs?
Douglas Linde: So this is — let me start. This is Doug, and I’ll let [indiscernible] make a comment as well. We are committed to the geographic locations that we currently have occupancy and vacancy. The truth of the matter is that the majority of our availability is in suburban, part of it was self-inflicted. So part of it was during 2020 to 2022 when we were looking at the highest and best use for some of our Waltham suburban assets in our Lexington suburban assets. We deem that the value of those assets over the long term is life science facilities would be better than as “traditional office facilities.” And so we effectively cleared out some buildings. So 1050 Winter Street is an example and Reservoir Place and the other big colony buildings which are where the predominant amount of our availability is we’re effectively cleared out for those purposes.
And unfortunately, the market has not been helpful to us. And so we’re managing that availability. But quite frankly, we’ve had the opportunity to lease some of that space to office companies and we’ve made the decision, at least in one case that we think we’re better off holding off that building and doing it in a life science building when the appropriate economic model makes sense — we have a tenant that wants to pay the right rent for that building. Then our other large availability is in Princeton, and our Princeton portfolio is premier property defined by the other assets in the greater Princeton area. And we are — we have probably on an activity level more activity in Princeton right now than we do anywhere else in our New York portfolio on a relative basis.
I can’t explain why the pickup has occurred during the first and the second quarters of 2024, but it has. It’s predominantly associated with the pharmaceutical and life science industries, but not lab. It’s companies that are in that business that are — that have an SG&A function. And Hilary, you can comment on the Princeton market and I’ll let Bryan comment on the Waltham market.
Hilary Spann: Sure. Thanks, Doug. As Doug said, we’ve seen an incredible pickup in leasing activity in the Princeton market in the first and second quarters while — and that includes signed leases, but also leasing activity that continues now and we expect to be executed in the second and third quarters. A lot of it, as referenced, is new activities. Some of it includes clients that exist in the portfolio of Carnegie Center today and who have expressed needs to expand both from consolidation of business units or expansion of lines of business and from an increased experience of return to office. And so it’s a pretty diverse set of reasons that people are expanding. But to Doug’s point, the campus is pretty highly concentrated with pharmaceuticals and in particular, foreign pharmaceuticals, and that is where the bulk of the demand is coming from.
And so we’re incredibly encouraged by the amount of leasing activity, and we expect to see additional signed leases coming out of it in the coming quarters.
