Quarterly Market Overview First Quarter 2015

Quarterly Market Overview First Quarter 2015 FOR IMMEDIATE RELEASE

For more information, please contact: David Mendel, Public Relations Manager Phone: 713.629.1900 ext. 258 E‐mail: [email protected]

HOUSTON’S FIRST QUARTER COMMERCIAL ACTIVITY SLOWER BUT STEADY AS MARKET ADJUSTS HOUSTON — (April 22, 2015) — Houston’s commercial real estate activity is slower but steady as the market adjusts to the energy downturn, slower job growth and the relocations of energy-related firms to campus facilities, according to quarterly market research compiled by Commercial Gateway, the commercial division of the Houston Association of Realtors. The first quarter reported office net absorption of 405,058 square feet, representing the 16th consecutive quarter of positive absorption, to start off the year on a positive note despite low oil prices and slower job growth. The same quarter last year reported 1.1 million square feet. As in previous years, Class A properties represent the bulk of the growth, 861,555 square feet of positive absorption, offset by Class B properties reporting a negative 640,574 square feet; Class C properties reported 184,077 square feet of positive absorption. The market activity is clearly tied to job growth, substantiated by the Greater Houston Partnership’s (GHP) just-released employment numbers: The Houston-The Woodlands-Sugar Land metro created 82,500 jobs in the 12 months ending March 2015, according to the Texas Workforce Commission (TWC). Every major employment sector in the Houston metro area reported job growth over the past 12 months, the GHP reported; “however, the March employment report tells a more sobering story when looking at monthly changes. The impact of the decline in oil prices is reflected in several energy-related sectors with mining and logging, which in Houston is mainly oil and gas, losing 700 jobs.” For the quarter, 11 properties with 16 new buildings were completed, adding almost 3.7 million square feet to the market. The new buildings, including three owner-occupied or singletenant, contributed almost 2.2 million square feet of absorption. Upon completion, the new properties collectively were almost 61.8% leased with rental rates averaging $35.93, higher than the Class A overall rate of $32.49. Contributing heavily to the first quarter’s absorption were 1 million square feet attributed to ExxonMobil’s Phase II of occupied space in its new campus south of The Woodlands,

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640,000 square feet for CyrusOne’s data center in the West along with Academy’s 200,000 square feet in its expansion building in Katy, also in the West. The largest multi-tenant building to be completed this quarter was Energy Tower IV at 450,552 square feet, which recorded almost 141,000 square feet of move-ins with Technip’s 103,987 square feet leading the way. The second largest multi-tenant building to be completed this quarter was Skanska’s West Memorial Place at 330,000 square feet; its largest tenant move-in was Petroleum Geo-Services (PGS) with 122,000 square feet. Two other larger multi-tenant projects, Westchase Park Building 2 at 300,000 square feet and Beltway Lakes Building 4 at 270,000 square feet, came onto the market without preleasing. Construction starts continued during the fourth quarter, but at a slower pace. Overall, the Houston under-construction office market boasts 47 properties with buildings totaling almost 14.1 million square feet. Collectively, the buildings are 56.6% preleased, with 34 buildings classified as multi-tenant. The multi-tenant properties represent about 7.9 million square feet or 56.1% of the under-construction total and are currently reporting 23% preleased space. The largest project under construction is Phillips 66’s 1.2 million-square-foot campus in the Westchase area, while the largest spec building under construction with the largest availability remains Hines’ 609 Main at Texas building with1.05 million square feet. New spec starts this quarter included Havenwood Office Park in the north sector with 240,470 square feet. Amegy Bank officially started construction on its new 350,000-square-foot headquarters off 610 Loop in the Galleria/Uptown submarket; Amegy plans to occupy all but 97,912 square feet, which is up for lease. The Greater Houston Partnership also broke ground on its new, 110,000-square-foot building near the George R. Brown Convention Center. Few new office projects have been announced this year, and a variety of proposed projects set to break ground late last year have been placed on hold pending a major tenant commitment. The current 12.6% vacancy rate is an increase from the 11.2% vacancy recorded last quarter, and the 11.1% during the same quarter a year ago. Class A space overall is at 10.5% vacancy, with the North/The Woodlands/Conroe submarket showing the lowest Class A vacancy of 5.6% followed by the Westchase submarket at 7.4% and the Inner Loop submarket at 7.7%. The West submarket is recording the lowest overall vacancy of all submarkets at 7.3%. Seven of the 13 submarkets are recording single-digit vacancies in Class A space, with five of the 13 boasting single-digit vacancies overall.

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Rental rates represent a 5.9% increase during the past year with the current overall averaged weighted rental rate of $26.18. Class A rates, now at $32.49 citywide and at $39.07 in the CBD, experienced a slight increase from the same quarter last year. CBD’s Class A rates increased 4.0% in the CBD from the same quarter last year. Rates overall have shown increases due to new space with higher rents entering the market along with increased operating expenses due to tax jumps. Concessions are reportedly being offered to entice some tenants, but none are being offered across the board. Overall sublease space has increased 25% from the same quarter last year. Almost 3.5 million square feet of sublease is available today; additional listings being marketed and available at a future date total another 2.3 million square feet. Sublease space has gradually increased over the last two years as tenants expand into newly built space and leave their old space in addition to other firms just trying to reduce their bottom lines as their workforce is also reduced. If this trend continues, firms will be able to take advantage of possible reduced rates with limited terms while the market continues to adjust. Commercial Gateway Member/Broker Comments on the Houston Office Market: Mario A. Arriaga, First Group “The Houston area’s commercial real estate market is starting to experience a few negative effects of the energy market downturn, with slower job growth and, subsequently, reduced absorption in the office market. In my specific area north of the city, it is difficult for us to acknowledge the slowdown today as we watch the thousands of ExxonMobil employees relocating and requiring places to live and shop. The company reportedly has about two-thirds of its 10,000-person workforce in place, and those people are joining the many other corporate employees who have recently relocated to Southwestern Energy’s new headquarters building just south of The Woodlands along with other companies who have relocated to properties in the north. “Development in some areas is slowing, primarily in the office sector, but demand in the retail and residential markets is still very strong. A few developments have been put on hold waiting for the completion of infrastructure improvements, including both the Grand Parkway and the extension of the Interstate 45 HOV from FM 1960 south of The Woodlands to the South Loop/Texas 336 in Conroe, along with other road improvements surrounding the area. These infrastructure improvements will open up the area to even more development.”

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David Baker, Executive Vice President, Houston Operations, Transwestern “The Houston office market saw some big leases signed in the first quarter, but overall activity has slowed as tenants exercise caution in the current energy climate. Net absorption was high due to a large volume of preleased deliveries; however, we anticipate absorption will slow, and in some cases, sublease space will be added through 2015.” Matt Gaby, Associate, NAI Partners “We have seen many changes in the Houston office market. The downturn in the energy industry has led to some staggering levels of sublease availability, which is at the highest it has been over the last 10 years. Over 13% of the total available space (class A and B) is now sublease space. That number represents a 9.5% increase since the fourth quarter of 2014. ”During the first quarter we have seen a rise in concessions from landlords in all submarkets. However, the decrease in asking rents has not been drastic yet, although we expect this to change by the end of the second quarter. We anticipate rental rates to drop slightly in light of the large amount of available sublease space citywide and the continued softening demand. Some companies are deciding to postpone relocations and renewals with the anticipation of possible better deals in the near future. “Net absorption for the quarter was negative, down a bit more than 50% from last quarter. The current market conditions in the energy industry have had a large influence on this number because over 2 million square feet of office space was leased throughout the city. Occupancy remains strong for many landlords, which explains why we have not yet seen rent reductions despite what seems to be a softening market.” John Spafford, Executive Vice President, Director of Leasing, PM Realty Group “After just over four years of robust office space demand resulting in 16.7 million square feet of direct net absorption, Houston’s office leasing market has experienced slower growth in recent months as a result of the uncertainty in the energy markets. A significant factor contributing to the slower office market growth has been new supply and corporate office space users – such as ExxonMobil, Shell Oil, Halliburton, Southwestern Energy relocating from just over 2.1 million square feet of leased space into new corporateowned office space developed within the past six months. Nevertheless, Houston’s office leasing market still managed to post modest absorption gains totaling 24,923 square feet during the first quarter, bringing the trailing 12-month absorption tally to just under 2.4 million square feet.

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“Houston continues to lead the nation with just under 15.5 million square feet under construction – including corporate-owned projects – with 64.3% of this space either preleased or committed by an owner-user. Within the competitive leasing market, developers delivered nine new office buildings totaling nearly 1.9 million square feet, which was already 31% pre-leased. West Houston accounted for 59% of the deliveries this past quarter with Katy Freeway/Energy Corridor contributing 1.1 million square feet. This submarket, which has absorbed 629,473 square feet. over the prior 12 months, remained one of the top performing submarkets in the city with 265,901 square feet of direct space absorbed during the quarter. The largest move-ins during the quarter involved Petroleum Geo-Services, Technip and Spectrum Geo all occupying newly delivered space. “With slower employment growth anticipated on the horizon, Houston’s office market should experience reduced direct absorption growth in 2015 – but should still exceed the 20-year historical average of 2.5 million square feet per year. Houston’s office market is scheduled to deliver nearly 8.7 million square feet of new lease space in 2015, excluding corporate-owned projects. As a result of the new deliveries, office leasing volume and direct occupancy levels will slightly decline in 2015 but not enough to significantly impact rents. However, increased sublease space availability could cause concessions to slightly rise as energy companies that tied up space anticipating future growth look to right-size in the short-term.” Houston Industrial Market Houston’s industrial market continues to expand with positive net absorption of almost 1.4 million square feet during the first quarter of 2015, according to statistics released by Commercial Gateway. This quarter’s absorption represents the 21st consecutive quarter – five years – of positive absorption, with 16 quarters recording more than 1 million square feet each. This absorption is considerably less than the same quarter last year and any quarter during the previous two years but is a positive sign in today’s marketplace of energy layoffs and cutbacks. Major deals recorded during the quarter include Professional Packaging Systems’ 171,000 square feet and Woodfield Distribution’s 48,600 square feet in Sugar Land Interchange Distribution Center in the southwest sector along with three deals to fill up DCT’s Northwest

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Crossroad’s Logistics Centre Phase I: Lenox International’s 190,000 square feet, Rittal’s 171,000 square feet and Hesselbein Tire’s 73,000 square feet. The Hardy Distribution Center also reported a 144,000-square-foot deal with Texas Tissue Converting during the first quarter. Net absorption was shared by all industrial types during the first quarter with warehouse/ distribution properties accounting for 479,460 square feet of absorption, or 35.6% of the total. High tech/R&D reached a high of 422,098 square feet, or 31.4% of the total. Flex/service center space represented 352,081 square feet of absorption, or 26.2% of the total. Vacancy marginally increased to 6.0% from 5.9% last quarter but below the 6.4% of the same quarter a year ago. This could be attributed in part to 1.2 million square feet of finished, vacant product entering the market along with a marketwide slowdown. Vacancy for warehouse/distribution space citywide is 6.2% with manufacturing space at 4.1%. Houston is still considered one of the healthiest industrial markets nationwide due to its balance of supply and demand. More than 1.7 million square feet in 24 buildings came online during the first quarter. Collectively, the new buildings are currently 28.3% leased and represent about 476,000 square feet of absorption, or 35.4% recorded for the quarter. The largest spec buildings completed during the first quarter and without preleasing include Building 7 in Beltway Crossing Northwest at 441,000 square feet in the Northwest and Building One in Beltway North Commerce Center at 352,680 square feet in the Greenspoint area. Completed owner-occupied space includes Data Foundry’s new data center of 350,000 square feet also in Greenspoint and Mitsubishi’s new 100,000-square-foot project in Pearland. All other completed spec buildings were smaller than 100,000 square feet with 14 buildings less than 20,000 square feet. Construction activity is still setting records. Currently, 120 buildings are underway in 73 projects representing more than 7.8 million square feet. Major spec projects without major preleasing include Fallbrook Pines’ 709,045 square feet, Mason Ranch Industrial Park’s 656,740 square feet and Fallbrook 1 Pinto Business Park’s 500,400 square feet. Proposed industrial buildings are continuing to be announced. 

On the west side, Daikin Industries announced plans in January for a major expansion, a 3- to 4-million square foot manufacturing/R&D facility on 90 acres in Northwest Harris County. Parkside Capital is looking at building expansions in West 10 Business Park.

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In the north, Duke Realty is expanding the Point North Cargo facility, and KTR Capital has announced plans for over 400,000 square feet of planned space. New buildings have also been announced in Pinto Business Park, including a recent build-to-suit for Alfa Laval, Inc., which will include both office and manufacturing space for the U.S. subsidiary of Alfa Laval AB.



The southwest corridor around Beltway 8, Highway 90 and Highway 288 will be a hotbed of new activity in the coming months if even some of the proposed space breaks ground. Trammell Crow and Artis REIT are gearing up for Park 8Ninety, which could offer up to 1.75 million square feet, and NAI Partners just announced the first groundbreaking in Gateway Southwest with plans for more than 400,000 square feet. The Levey Group has also announced plans for 5 Corners Business Center, a potential 750,000 square-foot project, and CRESA has started marketing its 500,000+-square-foot project called the Lower Kirby District off 288. Rental rates increased steadily during the past year and currently average $7.85 per

square foot per year citywide, representing an 18.1% increase from the same quarter last year. More importantly, rents quoted for all new space completed in the first quarter averaged $10.23 per square feet. Rental rates quoted are grossed up and weighted and averaged based on available space. Most new buildings are now quoting net rents and passing on the increased taxes and operating costs. Sublease space increased 7.2% from last quarter to more than 1.6 million square feet. This quarter’s total is an increase of 20.6% from the same quarter a year ago, but is still below square footage totals in 2013 and back through 2010. Commercial Gateway Member/Broker Comments on the Houston Industrial Market: Michael B. Keegan, Vice President, NAI Partners “As the price of oil appears to stabilize around $50 per barrel, the crane-served manufacturing building market remains very quiet. On the other hand, the bulk distribution front-, rear- and cross-dock loading product has seen big surges in activity in every major Houston market, especially in the east and southeast sides of Houston. “While the pullback in oil is having some impacts on the industrial market, there are other areas that are booming. Indeed, Houston's economy varies with oil, but it is one of and possibly the fourth largest economies in the U.S. that is diversified beyond upstream oil. For example, expansion of the Port of Houston is projected to contribute to key

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economic growth of the Houston region. Houston's port is the number one import and export in tonnage in the U.S. and is the leading container port on the Gulf Coast. This means significant growth for Baytown, Channelview, Deer Park, Galena Park, Jacinto City, La Porte and many other east and southeast markets of Houston. “The east side of Houston is currently undergoing a huge expansion in its already large petrochemical industry. This area’s complex facilities produce nearly a quarter of the nation's fuel. So, while Houston is experiencing a pullback in the upstream oil industry on the west and northwest sides of Houston, it is simultaneously experiencing great growth on the east side in downstream refining, petrochemical business, and construction. Those petrochemical manufacturers take natural gas and turn them into consumer goods, such as plastics, textiles, rubbers, adhesives, and other everyday items that we all use. Thus, the drop in activity in upstream oil on the west and northwest sides of Houston is being offset on the east and southeast sides of the downstream side associated with the Port region and petrochemical markets.” Mark G. Nicholas, SIOR, Executive Vice President and National Director, JLL Houston “The industrial market in Houston continues to be very busy. We are seeing a lot of consolidations due to the many mergers and acquisitions happening, but our market has been resilient, and we are still closing lots of transactions. “Many of the mergers and acquisitions in the oilfield service sector are having to determine which of the duplicate facilities to keep operating and which to sell off. “Brokers are being asked to consult a lot more with clients, being more thorough and looking at every angle of the deal in order for it to be the most cost effective for the company. But deals are still happening, and activity levels remain high. “Becoming more cost effective has made firms look more closely at the bottom line as they examine cutting both costs and even square footage 25% to 30%. Overall costs have gone up so most companies are making sure they are getting exactly what they need in the deals they are making. Landlords are also asking tenants to put more into the deal due to the increased costs which include operating expenses, which have jumped 30% in some places.

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“Investors are also still very active in Houston, and we are seeing both foreign and domestic players shopping for deals in the market. I’m currently working with clients from many different areas including Korea, China and Asia.” Founded in 2001, Commercial Gateway, the commercial division of the Houston Association of Realtors (HAR), is a commercial information exchange of commercial real estate professionals engaged in every aspect of property sales and leasing, appraisal, property management and counseling.

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Houston-Area Office Market Summary 2015 First Quarter No. Class Bldgs * A 34 Central Business District

(10,160)

(10,160)

0

$28.60

60,998

C

9

770,896

138,327

17.9 %

1,983

1,983

0

$18.97

0

70

40,337,042

3,752,868

9.3 %

(411,266)

(411,266)

1,635,000

$36.33

915,913

A

40

12,690,178

1,111,907

8.8 %

194,267

194,267

2,684,804

$29.22

233,220

B

55

5,349,787

738,613

13.8 %

(202,937)

(202,937)

0

$24.19

310,263

C

8

393,192

11,850

3.0 %

(6,332)

(6,332)

0

$24.85

0

103

18,433,157

1,862,370

10.1 %

(15,002)

(15,002)

2,684,804

$27.20

543,483

A

39

4,077,565

372,853

9.1 %

13,672

13,672

133,500

$28.50

24,761

B

21

1,434,592

150,135

10.5 %

9,987

9,987

20,879

$21.99

79,566

C

1

91,000

26,528

29.2 %

3,852

3,852

0

$16.50

0

61

5,603,157

549,516

9.8 %

27,511

27,511

154,379

$26.14

104,327

A

31

4,962,137

1,244,975

25.1 %

(405,180)

(405,180)

0

$24.94

130,500

B

42

4,684,819

1,478,309

31.6 %

(253,296)

(253,296)

0

$18.44

60,121

C

28

2,167,820

498,124

23.0 %

39,986

39,986

0

$12.40

0

101

11,814,776

3,221,408

27.3 %

(618,490)

(618,490)

0

$20.02

190,621

A

37

10,983,629

847,611

7.7 %

(207,061)

(207,061)

1,025,151

$31.76

134,237

B

100

9,641,923

1,333,895

13.8 %

(219,845)

(219,845)

0

$26.09

28,021

C

77

4,455,894

383,305

8.6 %

10,477

10,477

0

$17.72

8,915

214

25,081,446

2,564,811

10.2 %

(416,429)

(416,429)

1,025,151

$26.71

171,173

A

72

9,861,183

553,648

5.6 %

1,046,413

1,046,413

2,391,707

$31.74

143,163

B

76

4,672,072

808,825

17.3 %

(28,985)

(28,985)

0

$17.58

19,941

C

32

1,136,292

166,542

14.7 %

17,046

17,046

0

$12.36

0

180

15,669,547

1,529,015

9.8 %

1,034,474

1,034,474

2,391,707

$22.14

163,104

A

6

51,670

7,630

14.8 %

0

0

360,000

$25.50

0

B

17

732,310

73,300

10.0 %

5,923

5,923

0

$18.27

1,211

C

6

243,603

69,025

28.3 %

0

0

0

$13.25

0

29

1,027,583

149,955

14.6 %

5,923

5,923

360,000

$16.33

1,211

A

39

4,150,962

1,032,002

24.9 %

(8,964)

(8,964)

803,559

$30.11

116,611

B

62

5,625,397

1,212,087

21.5 %

(71,383)

(71,383)

0

$20.29

100,480

C

22

831,022

143,475

17.3 %

0

0

0

$18.89

0

123

10,607,381

2,387,564

22.5 %

(80,347)

(80,347)

803,559

$24.45

217,091

North/The Woodlands/Conroe Subtotal

Northeast

Northeast Subtotal

Northwest

Northwest Subtotal

Wted Avg Sublease Rent *** Avail $39.07 854,915

8.9 %

Inner Loop Subtotal

North/The Woodlands/Conroe

Under Construction 1,635,000

715,410

Greenspoint Subtotal

Inner Loop

Net Absorption Current YTD (403,089) (403,089)

8,016,377

Fort Bend County Subtotal

Greenspoint

Vacancy Rate 9.2 %

27

Energy Corridor Subtotal

Fort Bend County

Vacant SF 2,899,131

B

Central Business District Subtotal

Energy Corridor

Bldg SF ** 31,549,769

© Copyright 2015 Commercial Gateway, the Commercial Division of the Houston Association of REALTORS ® This information has been compiled from various sources and is provided without guarantee or warranty.

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Houston-Area Office Market Summary 2015 First Quarter No. Class Bldgs * A 20 Southeast

(48,986)

(48,986)

0

$18.60

2,622

C

47

2,011,292

359,208

17.9 %

33,211

33,211

0

$17.04

0

121

7,658,474

1,315,700

17.2 %

(76,055)

(76,055)

0

$20.51

19,686

A

5

1,227,586

406,149

33.1 %

24,821

24,821

0

$19.64

16,168

B

52

6,008,695

1,595,202

26.5 %

19,149

19,149

0

$17.72

1,711

C

82

4,936,096

616,260

12.5 %

48,700

48,700

0

$13.53

8,168

139

12,172,377

2,617,611

21.5 %

92,670

92,670

0

$17.03

26,047

A

48

18,069,584

2,080,226

11.5 %

(19,427)

(19,427)

1,447,955

$35.88

348,062

B

76

9,659,305

1,156,415

12.0 %

(124,739)

(124,739)

0

$25.68

310,485

C

18

1,133,574

105,665

9.3 %

8,469

8,469

0

$17.24

0

142

28,862,463

3,342,306

11.6 %

(135,697)

(135,697)

1,447,955

$31.76

658,547

A

45

7,249,275

637,257

8.8 %

684,594

684,594

2,026,488

$27.84

69,083

B

40

3,403,821

245,804

7.2 %

183,807

183,807

0

$17.76

77,009

C

39

2,588,814

81,108

3.1 %

5,532

5,532

0

$15.31

1,440

124

13,241,910

964,169

7.3 %

873,933

873,933

2,026,488

$24.21

147,532

A

33

8,954,144

660,279

7.4 %

1,789

1,789

1,517,000

$35.94

140,596

B

51

6,836,887

944,017

13.8 %

100,891

100,891

0

$22.47

151,362

C

19

833,492

154,013

18.5 %

21,153

21,153

0

$18.40

0

103

16,624,523

1,758,309

10.6 %

123,833

123,833

1,517,000

$27.17

291,958

A

415

84,524,838

9,329,757

11.0 %

1,264,644

1,264,644

12,390,164

$30.45

1,373,465

B

646

61,449,865 10,317,874

16.8 %

(630,414)

(630,414)

20,879

$21.10

1,142,792

C

379

20,822,091

2,615,103

12.6 %

182,094

182,094

0

$15.20

18,523

1,440

166,796,794 22,262,734

13.3 %

816,324

816,324

12,411,043

$24.33

2,534,780

A

449

116,074,607 12,228,888

10.5 %

861,555

861,555

14,025,164

$32.49

2,228,380

B

673

69,466,242 11,033,284

15.9 %

(640,574)

(640,574)

20,879

$21.59

1,203,790

C

388

21,592,987

2,753,430

12.8 %

184,077

184,077

0

$15.39

18,523

207,133,836 26,015,602

12.6 %

405,058

405,058

14,046,043

$26.18

3,450,693

Suburban Subtotal

Houston-Area

Houston-Area Total

0

Wted Avg Sublease Rent *** Avail $26.78 17,064

17.1 %

Westchase Subtotal

Suburban

Under Construction

581,272

West Subtotal

Westchase

Net Absorption Current YTD (60,280) (60,280)

3,400,257

Uptown Subtotal

West

Vacancy Rate 16.7 %

54

Southwest Subtotal

Uptown

Vacant SF 375,220

B

Southeast Subtotal

Southwest

Bldg SF ** 2,246,925

1,510

* Number of buildings calculated on specific buildings at each property address. ** Includes all general-purpose existing office buildings 20,000 square feet or larger. *** Rental rates weighted and averaged based on available space.


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Houston-Area Office Statistical Summary No. of Period

Office SF

Bldgs

Vacant SF Direct

Sublease

Vacancy Rate Total

Direct

Sublease

Net Absorption Total

Direct

Sublease

Avg* Gross Rent Total

Direct

Sublease

2015 Q1

207,133,836

1,510 26,015,602

3,450,693 29,466,295

12.6 %

1.7 %

14.2 %

405,058

(255,489)

149,569

$26.18

$28.30

2014 Q4

203,069,986

1,484 22,802,149

3,195,204 25,997,353

11.2 %

1.6 %

12.8 %

1,712,330

(152,487)

1,559,843

$25.26

$26.34

2014 Q3

201,032,258

1,467 22,130,530

3,042,717 25,173,247

11.0 %

1.5 %

12.5 %

919,950

84,296

1,004,246

$25.04

$26.83

2014 Q2

199,702,442

1,458 21,746,160

3,127,013 24,873,173

10.9 %

1.6 %

12.5 %

2,115,885

(375,772)

1,740,113

$24.96

$25.88

2014 Q1

197,991,304

1,449 22,056,941

2,751,241 24,808,182

11.1 %

1.4 %

12.5 %

1,102,240

(241,993)

860,247

$24.73

$23.45

2013 Q4

196,801,300

1,445 22,165,177

2,616,113 24,781,290

11.3 %

1.3 %

12.6 %

799,788

(316,361)

483,427

$24.13

$24.62

2013 Q3

195,754,637

1,438 22,437,411

2,299,752 24,737,163

11.5 %

1.2 %

12.6 %

1,798,414

(264,946)

1,533,468

$24.14

$24.76

2013 Q2

193,211,330

1,424 21,582,681

2,034,806 23,617,487

11.2 %

1.1 %

12.2 %

574,856

(295,404)

279,452

$23.44

$21.01

2013 Q1

192,533,951

1,420 21,742,541

1,681,604 23,424,145

11.3 %

0.9 %

12.2 %

393,869

(49,559)

344,310

$23.26

$21.22

2012 Q4

192,476,753

1,419 22,199,664

1,632,045 23,831,709

11.5 %

0.8 %

12.4 %

1,120,277

37,432

1,157,709

$23.10

$21.63

2012 Q3

192,022,406

1,417 22,705,314

1,669,477 24,374,791

11.8 %

0.9 %

12.7 %

454,212

204,364

658,576

$22.92

$21.68

2012 Q2

192,217,396

1,416 23,182,916

1,873,841 25,056,757

12.1 %

1.0 %

13.0 %

1,158,213

346,625

1,504,838

$22.79

$22.74

2012 Q1

192,178,256

1,415 23,741,633

2,220,466 25,962,099

12.4 %

1.2 %

13.5 %

820,860

287,689

1,108,549

$22.73

$23.86

2011 Q4

191,960,321

1,408 25,461,914

2,508,155 27,970,069

13.3 %

1.3 %

14.6 %

942,031

496,847

1,438,878

$22.87

$24.15

2011 Q3

191,343,071

1,401 25,993,360

3,005,002 28,998,362

13.6 %

1.6 %

15.2 %

1,270,142

(222,073)

1,048,069

$22.68

$23.78

2011 Q2

190,576,026

1,398 26,627,679

2,782,929 29,410,608

14.0 %

1.5 %

15.4 %

78,544

71,935

150,479

$22.98

$23.50

2011 Q1

189,880,624

1,396 26,198,187

2,827,526 29,025,713

13.8 %

1.5 %

15.3 %

(208,556)

350,061

141,505

$23.22

$22.36

2010 Q4

188,903,287

1,394 25,530,782

3,177,587 28,708,369

13.5 %

1.7 %

15.2 %

(44,809)

422,532

377,723

$22.73

$22.35

2010 Q3

188,452,334

1,394 25,811,014

3,394,705 29,205,719

13.7 %

1.8 %

15.5 %

(148,926)

(175,513)

(324,439)

$23.06

$22.86

2010 Q2

188,452,334

1,394 25,577,963

3,220,668 28,798,631

13.6 %

1.7 %

15.3 %

689,745

557,095

1,246,840

$23.39

$23.51

2010 Q1

187,981,968

1,390 26,100,149

3,777,763 29,877,912

13.9 %

2.0 %

15.9 %

(1,346,348)

(94,915)

(1,441,263)

$23.94

$25.00

* Rental rates are averaged and weighted based on available space. © 2015 HRIS. All information is deemed reliable but not guaranteed. Page 12

Houston-Area Office Absorption by Class by Quarter

Class A 2015

Q1

861,555

2014

Q4 Q3

2013

2012

2011

2010

Class B

Class C

All Classes

(640,574)

184,077

405,058

1,447,953

268,774

(4,397)

1,712,330

955,886

(133,200)

97,264

919,950

Q2

1,948,587

171,026

(3,728)

2,115,885

Q1

987,099

165,203

(50,062)

1,102,240

Q4

608,883

272,608

(81,703)

799,788

Q3

1,809,844

78,677

(90,107)

1,798,414

Q2

836,376

(82,036)

(179,484)

574,856

Q1

229,455

235,552

(71,138)

393,869

Q4

566,957

639,219

(85,899)

1,120,277

Q3

405,430

18,446

30,336

454,212

Q2

1,066,677

63,081

28,455

1,158,213

Q1

43,439

643,622

133,799

820,860

Q4

793,753

65,449

82,829

942,031

Q3

1,457,485

(222,599)

35,256

1,270,142

Q2

218,266

(130,246)

(9,476)

78,544

Q1

195,659

(428,686)

24,471

(208,556)

Q4

416,133

(337,040)

(123,902)

(44,809)

Q3

526,692

(724,927)

49,309

(148,926)

Q2

524,438

136,335

28,972

689,745

Q1

(224,705)

(960,759)

(160,884)

(1,346,348)

Absorption square footage includes only net absorption for direct space; sublease space is excluded. © 2015 HRIS. All rights reserved. All information is deemed reliable but is not guaranteed. Page 13

Houston-Area Office Vacancy and Rental Rates* by Quarter

* Gross rental rates are averaged and weighted based on available space. © 2015 HRIS. All rights reserved. All information is deemed reliable but is not guaranteed. Page 14

Houston-Area Industrial Market Summary 2015 First Quarter

Market Area

Type Warehouse/Distribution Flex/Service Center

Inner Loop

4,711,061

135,932

2.9 %

(19,826)

(19,826)

0

$13.76

39,617

1,883,663

37,000

2.0 %

0

0

0

$4.32

0

HighTech/R&D

5

169,011

0

0.0 %

0

0

0

N/A

0

743

24,080,545

875,305

3.6 %

(119,852)

(119,852)

48,892

$7.86

92,583

Warehouse/Distribution

396

8,410,141

342,028

4.1 %

255,716

255,716

498,265

$8.96

4,800

Flex/Service Center

130

2,492,046

308,798

12.4 %

(69,815)

(69,815)

0

$12.39

18,000

60

1,317,590

117,943

9.0 %

(97,000)

(97,000)

0

N/A

0

Manufacturing


(612)

(612)

0

$16.80

10,432

6.1 %

88,289

88,289

498,265

$10.66

33,232

4,760,657

9.0 %

353,110

353,110

1,505,126

$7.40

396,708

8,345,371

844,091

10.1 %

371,385

371,385

0

$8.48

54,474

Manufacturing

245

9,283,951

320,350

3.5 %

40,664

40,664

745,800

$6.67

103,714

HighTech/R&D

13

540,915

168,810

31.2 %

0

0

0

$12.00

0

1,761

70,998,140

6,093,908

8.6 %

765,159

765,159

2,250,926

$7.64

554,896

2,468

97,493,111

6,292,531

6.5 %

371,330

371,330

2,852,724

$8.06

410,212

Flex/Service Center

750

18,371,833

1,086,647

5.9 %

30,254

30,254

0

$10.76

121,017

Manufacturing

512

18,812,021

899,473

4.8 %

27,125

27,125

0

$5.55

100,810

HighTech/R&D

37

2,093,013

24,150

1.2 %

32,110

32,110

0

N/A

5,442

3,767

136,769,978

8,302,801

6.1 %

460,819

460,819

2,852,724

$8.14

637,481


698

22,626,778

543,416

2.4 %

(30,505)

(30,505)

12,000

$5.43

39,041

Flex/Service Center

134

2,737,236

172,800

6.3 %

(23,115)

(23,115)

0

$8.74

0

Manufacturing

151

5,976,845

174,700

2.9 %

141,781

141,781

0

$4.21

180,410

HighTech/R&D


13

342,024

0

0.0 %

0

0

0

N/A

0

996

31,682,883

890,916

2.8 %

88,161

88,161

12,000

$5.83

219,451

1,449

67,045,940

4,118,471

6.1 %

(396,565)

(396,565)

1,018,157

$5.74

33,280

Flex/Service Center

268

4,915,793

200,962

4.1 %

43,126

43,126

312,560

$10.13

0

Manufacturing

213

9,041,263

166,620

1.8 %

(38,660)

(38,660)

0

$9.15

5,585

HighTech/R&D

15

445,973

66,967

15.0 %

0

0

0

$14.78

0

Southeast Subtotal

1,945

81,448,969

4,553,020

5.6 %

(392,099)

(392,099)

1,330,717

$6.19

38,865


835

33,717,291

1,779,105

5.3 %

26,400

26,400

852,426

$8.57

35,006

Flex/Service Center

477

14,266,897

831,698

5.8 %

20,072

20,072

0

$13.53

32,950

Manufacturing

108

3,416,291

340,045

10.0 %

18,000

18,000

111,600

$5.52

0

HighTech/R&D

13

948,730

64,595

6.8 %

390,600

390,600

0

$29.60

0

Southwest Subtotal

1,433

52,349,209

3,015,443

5.8 %

455,072

455,072

964,026

$10.04

67,956


7,530

299,475,174

18,538,581

6.2 %

479,460

479,460

6,787,590

$7.32

972,013

Flex/Service Center

2,267

55,840,237

3,580,928

6.4 %

352,081

352,081

312,560

$10.99

266,058

Manufacturing

1,340

49,731,624

2,056,131

4.1 %

91,910

91,910

857,400

$5.89

390,519

$16.42

15,874

HighTech/R&D Houston-Area Total

1.5 %

52,827,903

South Subtotal

Houston-Area

7,956 776,725

322

Northwest Subtotal

Southwest

526,612 12,746,389

1,181


Southeast

14 600

Flex/Service Center

Northeast Subtotal

South

Net Absorption Under Wted Avg Sublease Current YTD Construction Rent *** Avail (100,026) (100,026) 48,892 $6.90 52,966

51

HighTech/R&D

Northwest

Vacant Vacancy SF Rate 702,373 4.1 %

186

North Subtotal

Northeast

Bldg SF ** 17,316,810

Manufacturing

Inner Loop Subtotal

North

No. Bldgs * 501

110

5,066,278

332,478

6.6 %

422,098

422,098

0

11,247

410,113,313

24,508,118

6.0 %

1,345,549

1,345,549

7,957,550

$7.85 1,644,464

* Number of buildings calculated on specific buildings at each property address. ** Includes all general-purpose existing industrial buildings 10,000 square feet or larger. *** Rental rates are weighted and averaged based on available space.


Page 15

Houston-Area Industrial Statistical Summary No. of Period

Building SF

Bldgs

Vacant SF Direct

Sublease

Vacancy Rate Total

Direct

Sublease

Net Absorption Total

Direct

Sublease

Avg* Gross Total

Direct Rent

2015 Q1

410,058,682

11,244

24,463,478

1,644,464

26,107,942

6.0 %

0.4 %

6.4 %

1,345,549

74,465

1,420,014

$7.85

2014 Q4

407,009,261

11,162

23,723,788

1,533,554

25,257,342

5.8 %

0.4 %

6.2 %

3,438,921

(138,893)

3,300,028

$7.74

2014 Q3

403,641,219

11,103

25,386,647

1,378,661

26,765,308

6.3 %

0.3 %

6.6 %

1,838,712

120,501

1,959,213

$7.36

2014 Q2

401,026,467

11,062

25,620,011

1,484,062

27,104,073

6.4 %

0.4 %

6.8 %

1,614,486

(88,457)

1,526,029

$7.10

2014 Q1

398,250,752

11,026

25,541,064

1,363,465

26,904,529

6.4 %

0.3 %

6.8 %

2,076,199

148,511

2,224,710

$6.64

2013 Q4

395,636,623

10,983

27,829,835

1,941,510

29,771,345

7.0 %

0.5 %

7.5 %

3,130,396

199,060

2,909,456

$6.60

2013 Q3

393,031,489

10,945

28,709,585

2,249,174

30,958,759

7.3 %

0.6 %

7.9 %

1,406,045

85,252

1,491,297

$6.55

2013 Q2

389,943,582

10,888

27,310,889

2,174,211

29,485,100

7.0 %

0.6 %

7.6 %

1,425,939

(448,240)

977,699

$6.36

2013 Q1

387,925,057

10,856

27,749,911

1,686,838

29,436,749

7.2 %

0.4 %

7.6 %

1,332,284

27,475

1,359,759

$5.94

2012 Q4

385,627,668

10,800

26,166,605

1,714,313

27,880,918

6.8 %

0.4 %

7.2 %

2,253,851

259,860

2,513,711

$5.79

2012 Q3

384,229,572

10,775

27,843,788

1,674,442

29,518,230

7.2 %

0.4 %

7.7 %

1,386,122

8,362

1,394,484

$5.73

2012 Q2

383,666,505

10,755

29,027,944

1,682,804

30,710,748

7.6 %

0.4 %

8.0 %

1,577,285

33,946

1,611,231

$5.61

2012 Q1

382,145,332

10,732

28,771,468

1,946,440

30,717,908

7.5 %

0.5 %

8.0 %

1,389,666

335,275

1,724,941

$5.58

2011 Q4

380,629,193

10,701

29,102,208

1,939,455

31,041,663

7.6 %

0.5 %

8.2 %

2,243,257

160,320

2,403,577

$5.53

2011 Q3

379,498,117

10,679

30,566,218

2,099,775

32,665,993

8.1 %

0.6 %

8.6 %

1,639,397

68,870

1,708,267

$5.46

2011 Q2

379,345,230

10,668

32,506,898

2,094,562

34,601,460

8.6 %

0.6 %

9.1 %

96,281

(59,701)

36,580

$5.37

2011 Q1

376,655,327

10,556

31,762,112

2,013,861

33,775,973

8.4 %

0.5 %

9.0 %

337,590

(134,971)

202,619

$5.59

2010 Q4

376,381,298

10,547

31,947,762

1,878,890

33,826,652

8.5 %

0.5 %

9.0 %

497,855

(14,162)

483,693

$5.47

2010 Q3

375,047,766

10,494

32,440,351

1,853,478

34,293,829

8.6 %

0.5 %

9.1 %

314,689

585,710

900,399

$5.48

2010 Q2

374,632,104

10,488

32,617,472

2,406,522

35,023,994

8.7 %

0.6 %

9.3 %

2,901,893

147,783

3,049,676

$5.64

2010 Q1

373,651,278

10,478

34,225,364

2,534,105

36,759,469

9.2 %

0.7 %

9.8 %

1,946,252

(202,279)

1,743,973

$5.45

Rental rates are averaged and weighted based on available space. © 2015 HRIS. All rights reserved. All information is deemed reliable but is not guaranteed and should be independently verified. Page 16

Houston-Area Industrial Absorption by Type by Quarter

2015 2014

2013

2012

2011

2010

Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

Flex/ Manufacturing Service Center 352,081 91,910 376,040 (102,754) 125,904 427,926 95,668 252,390 169,999 454,750 (201,531) 51,980 235,712 65,704 (45,859) (63,405) 85,507 294,045 144,932 268,394 490,925 202,257 153,636 80,346 51,967 337,516 (48,612) 537,804 (146,515) 90,211 (367,424) 52,971 123,407 (46,076) 188,845 (126,114) 227,652 (113,250) 293,402 362,699 (12,387) 42,018

Warehouse/ HighTech/R&D Distribution 479,460 422,098 3,154,366 11,269 1,278,932 5,950 1,297,741 (31,313) 1,429,444 22,006 3,284,777 (4,830) 1,085,203 19,426 1,698,435 (163,232) 945,439 7,293 1,696,686 143,839 885,820 (192,880) 1,481,565 (138,262) 994,685 5,498 1,909,691 (155,626) 1,694,551 1,150 515,173 (104,439) 109,659 150,600 170,965 264,159 199,496 791 2,279,339 (33,547) 1,898,796 17,825

All Types 1,345,549 3,438,921 1,838,712 1,614,486 2,076,199 3,130,396 1,406,045 1,425,939 1,332,284 2,253,851 1,386,122 1,577,285 1,389,666 2,243,257 1,639,397 96,281 337,590 497,855 314,689 2,901,893 1,946,252

Absorption square footage includes only net absorption for direct space; sublease space is excluded. © 2015 HRIS. All rights reserved. All information is deemed reliable but is not guaranteed and should be independently verified. Page 17

Houston-Area Industrial Vacancy and Rental Rates* by Quarter

* Gross rental rates are averaged and weighted based on available space. © 2015 HRIS. All rights reserved. All information is deemed reliable but is not guaranteed and should be independently verified. Page 18