Over the past two decades, Alexandria (ARE) has created a strong niche for itself as a provider of high-quality properties to science and technology companies. Alexandria focuses on owning and operating properties in diversified sub-markets of top science and technology clusters. The company has a dominant presence in markets such as Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and Research Triangle Park.
As of the end of 3Q15, the company’s top five markets in terms of percentage of total annualized base rent are:
- Greater Boston – 35% of the total annualized base rent
- San Francisco – 19% of the total annualized base rent
- San Diego – 16% of the total annualized base rent
- New York City – 10% of the total annualized base rent
- Maryland – 8% of the total annualized base rent
Each of the company’s markets is driven by different sectors. For example, the Seattle market is mainly driven by technology and institutional businesses, while the San Diego and San Francisco markets are driven by biotechnology, pharmaceutical, and technology companies.
Alexandria is witnessing strong demand for urban campus and class A buildings in some of its major markets. In areas such as Cambridge, a sub-market of the Greater Boston market, and San Francisco, available space is in limited supply, which has resulted in a rise in rental rates and higher occupancy levels. The rental rate in the Cambridge market has increased from $55.80 per square foot in 2013 to $72.10 in 2015, while in San Francisco’s Mission Bay area, the rental rates jumped from $48 in 2013 to $64 in 2015. The higher rental rates and occupancy levels could boost Alexandria’s top line.
Other major office REITs such as Kilroy Realty (KRC), SL Green Realty (SLG), and Boston Properties (BXP) are following the same portfolio diversification strategy. The iShares S&P Mid-Cap 400 Growth ETF (IJK) invests ~0.5% of its portfolio in Alexandria. In the next part of this series, we’ll discuss Alexandria’s tenant management and lease expirations.