Houston Office Marketview

MARKETVIEW Houston Office, Q4 2018 Houston’s absorption positive for the first time in 2018

Vacancy Rate Avg. Asking Rate Net Absorption Under Construction 18.6% $29.00 PSF 590,320 SF 2.23 MSF

*Arrows indicate trend from previous quarter. Figure 1: Houston Office Market Trends MSF 60 25% 50 20% 40 15% 30 10% 20 10 5% 0 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Direct SF Sublease SF Vacancy (%) Availability (%) Source: CBRE Research, Q4 2018.

HOUSTON MARKET FINISHES 2018 STRONG EXPIRING SUBLEASE MEANS HIGHER VACANCY In a reversal of course, Houston saw positive net absorption overall in the fourth quarter for the first After peaking at 23.0% in Q2 2018, total availability time this year. Specifically, the consulting, dropped to 22.4% in the fourth quarter. While technology and energy industries all boasted positive availability declined, vacancy continued to climb and absorption. On the downside, the Energy Corridor peaked at 18.6%, partly a result of more than 1 struggled with 197,000 sq. ft. of negative absorption, million sq. ft. of sublease space expiring and largely due to Amec Foster Wheeler vacating all of becoming vacant rather than being absorbed. Energy Center I. The move followed a merger with Persistent sublease space rolling vacant will likely the Wood Group. put downward pressure on asking rents in the The fourth quarter saw wild movement in oil prices, coming quarters despite the early signs of recover. with West Texas Intermediate Crude (WTI) first peaking at $76.90/bbl on October 3rd and closing the FLIGHT TO QUALITY CONTINUES quarter at $45.41/bbl. Flight to quality persists in the major submarkets. Class A properties recently delivered or renovated NEW OFFICE SPACE with modern amenities continue to outperform their Q4 2018 saw deliveries of over 1 million sq. ft. of less modern peers with higher occupancy and rental office space. The North submarket captured the rates. With new construction Class A properties lion’s share of these deliveries. American Bureau of demanding premium rents, tenants are willing to pay Shipping and a new owner-occupied campus for for the added benefits of the latest technology and Hewlett-Packard Inc. accounted for a whopping efficiencies. 704,800 sq. ft.

Figure 2: Houston Office Market Statistics

Net Total Total Average Under Q4 2018 2018 YTD Sublease Deliveries Submarket Rentable Vacancy Availability Asking Rate Construction Net Net (SF) (SF) Area (%) (%) ($/PSF) (SF) Absorption Absorption CBD 42,343,647 15.4 19.7 1,820,123 40.48 1,884,925 100,561 -226,439 Class A 30,126,479 14.8 19.8 1,504,564 44.65 1,884,925 115,483 -240,180 Class B 11,362,895 17.5 20.2 314,208 31.35 -13,724 26,526 Allen Parkway Corridor 3,489,406 9.2 9.9 23,360 32.74 -41,645 -102,436 Class A 2,239,467 8.4 9.4 23,360 34.56 -13,546 -81,091 Class B 1,044,530 11.7 11.7 - 30.22 -25,315 -42,919 Clear Lake 5,408,326 21.4 21.5 5,185 18.48 2,368 -3,523 Class A 1,855,697 11.5 11.8 5,185 24.61 9,583 4,523 Class B 2,534,777 30.2 30.2 - 17.84 -9,040 10,627 East 2,261,420 10.6 11.2 6,513 18.73 -14,305 27,769 Class A 356,376 10.6 10.6 - 26.80 6,000 12,714 Class B 1,528,393 10.7 11.6 14,513 18.50 -26,302 -10,254 Energy Corridor 23,974,486 20.2 26.2 3,215,282 29.00 86,255 -197,158 -360,929 Class A 18,134,479 17.7 25.3 1,395,200 32.87 -107,926 -39,040 Class B 4,934,870 28.3 28.9 239,641 23.98 -94,349 -299,353 Far West 1,455,680 17.1 21.8 69,553 25.08 -1,204 54,365 Class A 666,230 11.1 20.5 62,657 27.11 6,208 64,120 Class B 671,015 24.5 25.6 6,896 25.25 -7,297 -3,717 FM 1960/Highway 249 7,065,511 16.3 17.6 86,166 19.75 156,000 80,655 -60,169 Class A 1,613,043 8.8 9.5 10,029 30.19 156,000 19,359 -35,700 Class B 4,130,056 19.3 20.8 64,793 20.04 6,412 -58,463 Greater Pearland 333,000 7.8 11.3 11,683 28.92 0 -14,435 Class A 250,000 3.7 8.4 11,683 30.88 0 1,913 Class B 80,000 20.4 20.4 - 27.80 0 -16,348 Greenway Plaza 11,858,290 18.0 26.0 949,583 33.50 188,547 146,581 232,289 Class A 6,219,744 17.6 32.2 907,006 37.25 65,672 210,461 Class B 3,348,258 13.6 14.7 37,088 29.56 52,819 7,688 Katy Freeway 6,073,695 12.7 14.1 83,025 33.77 -44,468 128,542 Class A 4,278,905 13.35 15.3 81,212 43.01 -40,215 82,366 Class B 692,659 7.3 7.3 - 18.41 16,919 104,602 Kingwood 947,942 11.8 11.8 - 20.98 -37 -16,436 Class A 351,676 20.5 20.5 - 21.26 6,255 -11,127 Class B 467,516 4.6 4.6 - 20.17 -6,267 -5,248 North 5,595,896 12.4 12.9 25,647 25.84 704,800 413,474 386,240 Class A 4,626,573 11.6 11.6 - - 704,800 399,276 404,121 Class B 932,423 16.8 19.6 25,647 25.84 8,406 -18,381 North Belt/Greenspoint 11,550,397 49.5 50.2 90,183 20.35 -349,961 -766,795 Class A 3,910,378 59.0 59.0 0 25.77 -212,095 -614,663 Class B 5,603,876 50.4 52.0 87,883 18.29 -51,134 -385,215

*Although Class C is not listed separately, totals are inclusive of all classes of data.

Figure 2: Houston Office Market Statistics (continued)

Net Total Total Average Under Q4 2018 2018 YTD Sublease Deliveries Submarket Rentable Vacancy Availability Asking Rate Construction Net Net (SF) (SF) Area (%) (%) ($/PSF) (SF) Absorption Absorption North Loop/Highway 290 7,982,880 21.2 21.3 8,341 20.74 -23,575 -204,840 Class A 2,137,544 36.1 36.1 0 24.80 -34,826 -234,892 Class B 4,515,189 18.7 18.8 8,341 17.44 4,736 43,342 South Main/Medical Center 2,584,022 8.2 8.0 - 23.03 4,368 -28,747 Class A 879,722 6.5 6.5 - 32.21 3,896 -4,436 Class B 630,845 6.5 6.5 - 21.93 751 397 Southwest Freeway 12,829,648 16.6 19.6 388,790 17.86 187,200 -22,724 -238,232 Class A 3,607,588 6.4 14.2 280,835 29.77 10,065 81,233 Class B 4,577,225 24.4 26.7 105,031 17.68 187,200 -55,669 -175,985 Westchase 19,667,654 22.0 27.8 1,150,127 26.25 187,011 -18,490 -78,765 Class A 7,442,779 19.8 31.3 854,453 39.23 -14,348 163,146 Class B 9,198,188 24.0 27.1 282,295 22.97 -2,251 -231,642 West Belt 6,043,748 16.0 24.2 496,819 27.97 52,529 -49,659 Class A 3,867,709 18.6 28.5 385,282 29.99 60,208 -17,673 Class B 2,113,975 11.8 17.1 111,537 23.34 -7,679 -31,986 West Loop/Galleria 33,342,663 17.3 20.9 1,207,963 33.67 104,579 247,331 16,489 Class A 17,541,341 15.3 20.5 917,108 39.32 235,287 290,686 Class B 12,355,738 20.9 22.9 252,516 27.88 -4,526 -262,808 Woodlands 8,339,812 8.5 9.3 67,805 31.54 256,020 197,128 Class A 6,333,614 7.2 7.8 34,577 34.35 255,059 131,311 Class B 1,644,397 13.8 15.8 33,228 27.29 4,309 53,501 Suburban Total 171,161,476 19.4 23.0 6,101,264 25.82 343,200 1,271,192 489,759 -882,144 Class A 86,312,865 17.2 22.9 4,941,845 33.46 156,000 1,271,192 653,912 407,972 Class B 61,003,930 22.3 25.0 1,059,766 21.64 187,200 -195,477 -1,333,162 Houston Total 213,505,123 18.6 22.4 7,921,387 29.00 2,228,125 1,271,192 590,320 -1,108,583 Class A 116,439,344 16.6 22.1 6,446,409 37.08 2,040,925 1,271,192 769,395 167,792 Class B 72,366,825 22.4 24.3 1,373,974 23.13 187,200 -209,201 -1,295,636 Source: CBRE Research, Q4 2018.

Figure 3: Recent Significant Transactions

Lease (Tenant) Property Submarket Total SF Sale (Buyer) Property Submarket Total SF

HPE Springwoods Village North 568,000 Crow Holdings 3303 Weslayan Street Greenway Plaza 402,156 Waste Management Kirkwood Atrium Capitol Tower CBD 284,000 Next Investments Energy Corridor 122,715 of Texas Inc. Office Park PROS Holdings Kirby Collection Greenway 118,000 Harold Gibson Polk Jr 812 Main Street CBD 71,010 BP America Park at Cornerstone FM 1960 / West Memorial Place 2 Energy Corridor 91,300 Park at Cornerstone LLC 66,500 Production Co. Executive Highway 249 West Loop / 1505 Highway 6 Encino Energy San Felipe Plaza 76,407 Eureka Properties I LLC Energy Corridor 63,487 Galleria South Source: CBRE Research, Q4 2018. *Although Class C is not listed separately, totals are inclusive of all classes of data.

CONTACTS

E. Michelle Miller Research Operations Manager [email protected]

Bryan Strong Sr. Research Analyst +1 713 577-1558 [email protected]

Leon Trakhtenberg Research Analyst +1 713 577-1559 [email protected]

CBRE OFFICE LOCATION

CBRE Houston 2800 Post Oak, Suite 500 Houston, TX 77056

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway.

SURVEY CRITERIA CBRE’s market report analyzes existing single- and multi-tenant office buildings that total 20,000+ sq. ft. in the Houston market, some owner-occupied buildings and campuses are included. CBRE assembles all information through telephone canvassing, third-party vendors, and listings received from owners, tenants and members of the commercial real estate brokerage community.

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. MARKETVIEW Houston Office, Q3 2018 Sublease availability continues to bleed off as terms expire

Vacancy Rate Avg. Asking Rate Net Absorption Under Construction 18.5% $29.06 PSF -492,511 SF 2.77 MSF

*Arrows indicate trend from previous quarter. Figure 1: CBD v. Suburban Absorption MSF 60 25% 50 20% 40 15% 30 10% 20 10 5% 0 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Direct SF Sublease SF Vacancy (%) Availability (%) Source: CBRE Research, Q3 2018.

HOUSTON PAST THE OIL DOWNTURN, CBD VACANCY INCREASES, TOTAL AVAILABILITY CONTINUES TO FEEL EFFECTS OF ENERGY MOVES DROPS FROM Q2 AS SUBLEASE SPACE EXPIRES According to the Greater Houston Partnership, Overall total availability dropped by 20 bps in the Houston has now turned the corner on the recent third quarter after reaching a peak of 23% in the oil downturn, and has returned to growth in the previous quarter. The concurrent increase in energy sector. However, this has not yet shown in vacancy points to sublease terms expiring and downtown. CBD Class A net absorption was again becoming vacant rather than being absorbed. negative in the third quarter. Negative net Continued sublease space rolling vacant will likely absorption was driven by two factors: sublease drive down asking rents in the coming quarters, as space expiring and becoming vacant, and landlords become motivated to fill vacant space. projected vacant space from previously announced energy moves hitting the market. Shell’s lease FLIGHT TO QUALITY CONTINUES expiring and vacating 910 Louisiana contributed As sublease space continued to draw down and over 125,000 sq. ft. of negative absorption to the expire, the flight to quality continues in the major CBD class A total. Third quarter overall net submarkets. Class A properties recently delivered absorption was -492,511 sq. ft., bringing the 2018 or renovated with modern amenities continued to total to -1.7M sq. ft. of net absorption. While the outperform their less modern peers. Several Houston MSA again saw negative absorption, the energy firms are in the process of moving from third quarter was 234,000 sq. ft. less negative than legacy class A leased space into single-tenant the previous quarter. The bright spots in the third recently purchased buildings in West and quarter were in West Houston, with Katy Freeway Southwest Houston. Occidental, Shell, and and Energy Corridor submarkets contributing Schlumberger are a few of the names moving to 133k sq. ft. of positive absorption as oil prices company-owned properties. showed continued stability.

Figure 2: Houston Office Market Statistics

Net Total Total Average Under Q3 2018 2018 YTD Sublease Deliveries Submarket Rentable Vacancy Availability Asking Rate Construction Net Net (SF) (SF) Area (%) (%) ($/PSF) (SF) Absorption Absorption CBD 42,343,647 15.1 19.8 2,236,800 41.05 1,884,925 -117,003 -327,000 Class A 30,126,479 14.4 19.5 1,523,363 45.16 1,884,925 -255,918 -355,663 Class B 11,362,895 17.3 21.3 448,187 31.43 142,122 40,250 Allen Parkway Corridor 3,489,406 8.1 8.3 7,525 33.01 -61,447 -60,791 Class A 2,239,467 7.8 8.1 7,525 33.73 -43,441 -67,545 Class B 1,044,530 9.3 9.3 - 31.72 -17,700 -17,604 Clear Lake 5,408,326 21.5 21.7 14,463 18.34 40,164 -5,891 Class A 1,855,697 12.0 12.7 13,371 24.46 37,436 -5,060 Class B 2,534,777 29.9 29.9 1,092 17.62 523 19,667 East 2,261,420 10.8 11.0 6,513 18.59 41,933 42,074 Class A 356,376 12.3 12.3 - 25.48 - 6,714 Class B 1,528,393 10.2 10.6 6,513 18.02 13,773 16,048 Energy Corridor 23,974,486 19.4 27.3 1,912,236 28.41 33,526 -163,771 Class A 18,134,479 17.1 26.9 1,779,102 32.38 -15,232 68,886 Class B 4,934,870 26.4 28.6 107,809 23.76 77,882 -205,004 Far West 1,455,680 17.0 21.1 59,954 24.90 36,387 55,569 Class A 666,230 12.0 20.0 53,058 26.11 40,917 57,912 Class B 671,015 23.5 24.5 6,896 24.96 -2,065 3,580 FM 1960/Highway 249 7,065,511 17.1 18.0 66,440 17.33 19,987 -140,824 Class A 1,613,043 10.0 11.0 15,106 29.19 -23,377 -55,059 Class B 4,130,056 18.8 20.7 48,994 16.62 -3,076 -64,875 Greater Pearland 333,000 7.8 11.3 11,683 29.11 - -14,435 Class A 250,000 3.7 8.4 11,683 31.42 - 1,913 Class B 80,000 20.4 20.4 - 27.80 - -16,348 Greenway Plaza 11,858,290 19.2 27.6 993,285 33.95 96,206 85,708 Class A 6,219,744 18.7 33.9 949,239 37.50 62,987 144,789 Class B 3,348,258 15.2 16.2 33,247 31.00 16,153 -45,131 Katy Freeway 6,073,695 11.8 13.0 71,526 34.47 99,506 173,010 Class A 4,278,905 12.2 13.8 66,579 44.32 107,840 122,581 Class B 692,659 9.7 9.7 - 20.31 30,846 87,683 Kingwood 947,942 11.8 11.8 - 21.44 -19,905 -16,399 Class A 351,676 22.3 22.3 - 21.85 -18,552 -17,382 Class B 467,516 3.2 3.2 - 16.00 -2,153 1,019 North 4,914,759 8.7 9.1 18,510 26.85 704,800 769 -27,234 Class A 3,945,436 6.5 6.5 - - 704,800 2,982 4,845 Class B 932,423 17.7 19.7 18,510 27.66 -2,213 -26,787 North Belt/Greenspoint 11,550,397 46.4 49.7 375,021 20.44 170,161 -416,834 Class A 3,910,378 53.6 60.2 256,056 25.72 48,443 -402,568 Class B 5,603,876 49.5 51.6 116,665 18.19 -68,355 -334,081

*Although Class C is not listed separately, totals are inclusive of all classes of data.

Figure 2: Houston Office Market Statistics (continued)

Net Total Total Average Under Q3 2018 2018 YTD Sublease Deliveries Submarket Rentable Vacancy Availability Asking Rate Construction Net Net (SF) (SF) Area (%) (%) ($/PSF) (SF) Absorption Absorption North Loop/Highway 290 7,982,880 20.9 21.0 6,636 20.85 -131,448 -181,265 Class A 2,137,544 34.4 34.4 - 25.06 -201,123 -200,066 Class B 4,515,189 18.8 18.9 6,636 17.49 83,098 38,606 South Main/Medical Center 2,584,022 8.3 8.5 3,138 22.80 -13,220 -33,115 Class A 879,722 6.9 7.3 3,138 32.21 838 -8,332 Class B 630,845 6.6 6.6 - 21.94 -6,375 -354 Southwest Freeway 12,829,648 16.4 19.8 427,443 18.13 187,200 -338,721 -215,508 Class A 3,607,588 6.7 14.8 292,449 28.72 -13,908 71,168 Class B 4,577,225 23.2 26.1 130,860 18.81 187,200 -207,016 -120,316 Westchase 19,667,654 20.9 28.0 1,408,850 26.58 -167,554 -60,275 Class A 7,442,779 18.1 30.9 952,981 39.56 145,511 177,494 Class B 9,198,188 23.5 28.1 427,033 22.91 -287,739 -229,391 West Belt 6,043,748 18.4 31.0 759,868 27.75 -18 -102,188 Class A 3,867,709 20.1 37.1 654,574 30.10 -3,397 -77,881 Class B 2,113,975 15.9 20.9 105,294 22.47 3,379 -24,307 West Loop/Galleria 33,342,663 18.2 20.8 870,294 33.84 -64,909 -230,842 Class A 17,541,341 16.8 20.3 603,872 39.16 42,779 55,399 Class B 12,355,738 21.0 22.9 231,608 27.80 -111,601 -258,282 Woodlands 8,339,812 11.5 13.0 124,969 31.04 -116,925 58,892 Class A 6,333,614 11.2 12.6 83,844 33.12 -168,309 -123,748 Class B 1,644,397 14.0 16.5 41,125 27.10 40,167 49,192 Suburban Total 170,480,339 19.4 23.5 7,138,354 26.05 892,000 -375,508 -1,371,903 Class A 85,631,728 17.2 23.9 5,742,577 34.17 704,800 2,394 -245,940 Class B 61,003,930 23.1 25.2 1,282,282 21.67 187,200 -442,472 -1,126,685 Houston Total 212,823,986 18.5 22.8 9,140,802 29.06 2,776,925 -492,511 -1,698,903 Class A 115,758,207 16.4 22.8 7,274,940 37.09 2,589,725 -253,524 -601,603 Class B 72,366,825 22.1 24.6 1,730,469 23.06 187,200 -300,350 -1,086,435 Source: CBRE Research, Q3 2018.

Figure 3: Recent Significant Transactions

Lease (Tenant) Property Submarket Total SF Sale (Buyer) Property Submarket Total SF

1500 Old Spanish South Main/Med Vinson & Elkins 801 Texas CBD 212,000 NewQuest Properties 795,596 Trail Center Exelon Generation Co. 1001 Louisiana CBD 93,813 Davidson Kempner Western Geophysical Westchase 554,385

Cardtronics 2050 W. Sam Houston Westchase 52,544 Howard Hughes Lake Front North The Woodlands 257,025 West West Firmspace BBVA Compass Plaza 50,952 David Weekly Homes 1111 N Post Oak 109,395 Loop/Galleria Loop/Galleria Linn Thurber 3555 Timmons Greenway Plaza 28,090 Davidson Kempner U.S.A. Building North Belt 78,895

Source: CBRE Research, Q3 2018. *Although Class C is not listed separately, totals are inclusive of all classes of data.

CONTACTS

Robert C. Kramp Director, Research & Analysis – Texas-Oklahoma Region [email protected]

E. Michelle Miller Research Operations Manager [email protected]

Bryan Strong Senior Research Analyst +1 713 577-1558 [email protected]

CBRE OFFICE LOCATION

CBRE Houston 2800 Post Oak, Suite 500 Houston, TX 77056

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway.

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. MARKETVIEW Houston Office, Q2 2018 CBD Class A demand positive in Q2 2018 for first time in 3 years

Vacancy Rate Avg. Asking Rate Net Absorption Under Construction 18.4% $29.02 PSF -726,722 SF 1.67 MSF

*Arrows indicate trend from previous quarter. Figure 1: CBD v. Suburban Absorption

Suburban Absorption CBD Absorption 2

-1

-2 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

Source: CBRE Research, Q2 2018.

ECONOMIC MOMENTUM REGION-WIDE, BUT EXPIRING SUBLEASE MEANS HIGHER VACANCY OFFICE SURPLUS CONTINUES TO DRAIN OFF Mergers, acquisitions and tenant consolidations Houston’s office- occupying upstream energy seen throughout Houston mainly by conventional sector continues to right size, evidence of the oil and gas occupiers have compounded the rising broad restructuring in the industry at a global rates of vacancy and availability. Vacancy level. Several large energy tenants vacated space increased 60 basis points in the past 90 days with and moved to owner- occupied buildings, placing Class B space being the main contributor, another additional available space in the leasing market indication of the move toward premium space by exceeding 500,000 sq. ft. to the North Belt and active tenants. While vacancy returning via Energy Corridor submarkets. Occidental expiring sublease and consolidations still weighs Petroleum is subleasing their entire building to on occupancy levels in the suburban submarkets, move to a newly constructed, owned property to total sublease increased modestly, reaching the west, pushing Greenway Plaza’s Class A around 9.7 million sq. ft., a figure still sublease total close to 875,000 sq. ft. significantly lower than this time last year when sublease peaked at 11.1 million sq. ft. With Negative net absorption was driven by suburban vacancy expected to remain elevated for the near- submarkets, specifically related to energy tenants. to mid-term – that being regularly above15% - However, Houston’s CBD saw positive growth for double digit area vacancy is becoming old news. the first time since early -2015. Tenants are leasing Still, tenants are active as 2019 is expected to be space in new construction, including 609 Main busy with at least five buildings scheduled to and several downtown buildings that have deliver. Several build-to-suit projects will be undergone extensive renovations to offer tenants completed in the North submarket and a classic space as the flight to quality gains steam. speculative project is coming online in the Southwest Freeway.

Figure 2: Houston Office Market Statistics

Net Total Total Average Under Q2 2018 2018 YTD Sublease Deliveries Submarket Rentable Vacancy Availability Asking Rate Construction Net Net (SF) (SF) Area (%) (%) ($/PSF) (SF) Absorption Absorption CBD 42,343,647 14.8 20.1 2,236,800 40.62 778,344 75,445 -209,997 Class A 30,126,479 14.2 20.2 1,819,030 44.92 778,344 105,169 -99,745 Class B 11,362,895 17.0 20.5 395,872 30.95 -22,844 -101,872 Allen Parkway Corridor 3,489,406 6.3 6.5 7,525 33.20 -10,491 656 Class A 2,239,467 5.8 6.2 7,525 34.66 -31,912 -24,104 Class B 1,044,530 7.6 7.6 - 29.84 10,483 96 Clear Lake 5,408,326 25.7 26.1 19,515 17.98 -32,045 -46,055 Class A 1,855,697 14.0 14.8 14,776 24.28 -35,012 -42,496 Class B 2,534,777 35.6 35.8 4,256 17.41 5,146 19,144 East 2,261,420 13.4 13.7 6,513 18.98 -7,990 141 Class A 356,376 12.3 12.3 - 25.48 -237 6,714 Class B 1,528,393 12.9 13.3 6,513 19.95 1,095 2,275 Energy Corridor 23,974,486 20.1 28.9 2,125,040 29.41 -80,209 -197,297 Class A 18,134,479 17.3 28.1 1,973,103 34.00 48,700 84,118 Class B 4,934,870 29.8 32.3 124,151 24.21 -127,186 -282,886 Far West 1,455,680 19.7 20.7 14,092 25.75 10,918 19,182 Class A 666,230 18.7 20.8 14,092 28.55 15,807 16,995 Class B 671,015 23.1 23.1 - 24.95 -1,751 5,645 FM 1960/Highway 249 7,065,511 18.3 19.5 86,530 18.74 -142,291 -160,811 Class A 1,613,043 8.6 9.6 17,084 29.19 -26,129 -31,682 Class B 4,130,056 19.6 21.2 67,106 19.41 -53,375 -61,799 Greater Pearland 333,000 7.8 11.3 11,683 29.11 -14,435 -14,435 Class A 250,000 3.7 8.4 11,683 31.42 1,913 1,913 Class B 80,000 20.4 20.4 - 27.80 -16,348 -16,348 Greenway Plaza 11,858,290 20.3 28.1 920,260 34.20 -26,118 -10,498 Class A 6,219,744 20.1 34.2 873,206 37.16 -2,530 81,802 Class B 3,348,258 15.6 16.7 36,255 31.05 -29,609 -61,284 Katy Freeway 6,073,695 13.5 16.2 164,908 35.53 98,904 73,504 Class A 4,278,905 14.7 18.5 159,961 44.09 67,402 14,741 Class B 692,659 14.2 14.2 - 21.50 37,837 56,837 Kingwood 947,942 9.7 9.9 2,000 22.82 -8,708 3,506 Class A 351,676 17.0 17.0 - 26.00 -6,405 1,170 Class B 467,516 2.8 3.2 2,000 20.18 54 3,172 North 4,914,759 8.7 9.1 18,510 29.40 704,800 -20,043 -28,003 Class A 3,945,436 6.6 6.6 - 30.50 704,800 -5,170 1,863 Class B 932,423 17.5 19.5 18,510 28.02 -12,112 -24,574 North Belt/Greenspoint 11,550,397 47.3 50.5 364,366 20.41 -417,015 -586,995 Class A 3,910,378 54.9 61.5 259,924 26.31 -321,323 -451,011 Class B 5,603,876 47.0 48.7 93,985 18.13 -140,441 -265,726

*Although Class C is not listed separately, totals are inclusive of all classes of data.

Figure 2: Houston Office Market Statistics (continued)

Net Total Total Average Under Q2 2018 2018 YTD Sublease Deliveries Submarket Rentable Vacancy Availability Asking Rate Construction Net Net (SF) (SF) Area (%) (%) ($/PSF) (SF) Absorption Absorption North Loop/Highway 290 7,982,880 19.3 19.8 41,662 19.75 -28,259 -49,817 Class A 2,137,544 25.0 26.6 32,491 24.47 -14,848 1,057 Class B 4,515,189 20.6 20.8 9,171 17.39 23,775 -44,492 South Main/Medical Center 2,584,022 7.8 8.0 3,138 22.48 -6,482 -19,895 Class A 879,722 7.0 7.4 3,138 31.70 -8,577 -9,170 Class B 630,845 5.6 5.6 - 21.00 6,361 6,021 Southwest Freeway 12,829,648 13.8 17.2 435,112 17.49 187,200 34,646 123,213 Class A 3,607,588 6.3 13.8 268,894 30.07 34,646 85,076 Class B 4,577,225 18.7 22.1 158,336 16.78 187,200 - 86,700 Westchase 19,667,654 20.0 27.2 1,404,463 27.38 36,120 107,279 Class A 7,442,779 21.0 33.2 975,122 40.58 -52,383 31,983 Class B 9,198,188 20.4 24.8 403,305 22.56 86,219 58,348 West Belt 6,043,748 17.0 30.6 823,572 27.98 -135,788 -102,170 Class A 3,867,709 18.7 37.2 718,278 30.71 -131,046 -74,484 Class B 2,113,975 14.4 19.4 105,294 22.21 -4,742 -27,686 West Loop/Galleria 33,342,663 18.0 20.6 878,793 33.07 -79,334 -165,933 Class A 17,541,341 17.1 20.6 614,274 38.98 78,509 12,620 Class B 12,355,738 20.1 22.2 258,315 27.32 -151,211 -146,681 Woodlands 8,339,812 10.1 12.1 163,525 31.14 26,453 58,033 Class A 6,333,614 8.6 10.5 120,993 33.45 35,439 44,561 Class B 1,644,397 16.5 19.1 42,532 27.67 -9,196 9,025 Suburban Total 170,480,339 19.3 23.7 7,491,207 26.05 892,000 -802,167 -996,395 Class A 85,631,728 17.2 24.3 6,064,544 34.17 704,800 -353,156 -248,334 Class B 61,003,930 22.7 24.8 1,329,729 21.67 187,200 -375,001 -684,213 Houston Total 212,823,986 18.4 23.0 9,728,007 29.02 1,670,344 -726,722 -1,206,392 Class A 115,758,207 16.4 23.3 7,883,574 37.44 1,483,144 -247,987 -348,079 Class B 72,366,825 21.8 24.2 1,725,601 23.01 187,200 -397,845 -786,085 Source: CBRE Research, Q2 2018.

Figure 3: Recent Significant Transactions

Lease (Tenant) Property Submarket Total SF Sale (Buyer) Property Submarket Total SF

Acclara Solutions Remington Square II West Belt 82,940 TRC Capital Partners 1001 McKinney CBD 375,440 Halliburton Oak Park Kiewit Energy Energy Tower IV Energy Corridor 52,834 Lawrence Wong Westchase 568,458 Campus Three Sugar Creek Southwest Enable Midstream One Shell Plaza CBD 46,974 WEDGE Group 152,734 Center Freeway North GTC Technology Ashford VII Energy Corridor 42,000 Undisclosed Imperial 20 110,255 Belt/Greenspoint Atlantia Resources Energy Crossing II Katy Freeway 41,880 Level Office The Plaza at Audley Greenway Plaza 93,054

Source: CBRE Research, Q2 2018. *Although Class C is not listed separately, totals are inclusive of all classes of data.

CONTACTS

Robert C. Kramp Director, Research & Analysis – Texas-Oklahoma Region [email protected]

E. Michelle Miller Research Operations Manager [email protected]

Kortney Debner Research Coordinator +1 713 8810933 [email protected]

Jackson Hart Research Coordinator +1 713 8810968 [email protected]

CBRE OFFICE LOCATION

CBRE Houston 2800 Post Oak, Suite 500 Houston, TX 77056

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway.

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. MARKETVIEW Houston Office, Q1 2018 Office vacancy pushes to 20-year high; sublease remains stable

17.8% $29.19 PSF -417,824 SF 1.7 MSF

*Arrows indicate trend from previous quarter. Figure 1: Historical Houston Office Direct Vacancy, CBD and Overall Direct Vacancy (%) 30

2004 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Overall Houston CBD Source: CBRE Research, Q1 2018.

ECONOMIC MOMENTUM POSITIVE, BUT OFFICE VACANCY RISES AS TWO SPEC PROJECTS DELIVER; SURPLUS CONTINUES TO DRAIN OFF SUBLEASE AVAILABILITY REMAINS FLAT

Figure 2: Houston Office Market Statistics

Net Total Total Average Under Q1 2018 2018 YTD Sublease Deliveries Submarket Rentable Vacancy Availability Asking Rate Construction Net Net (SF) (SF) Area (%) (%) ($/PSF) (SF) Absorption Absorption CBD 42,343,647 14.9 19.8 2,077,104 40.56 778,344 -285,442 -285,442 Class A 30,126,479 14.4 20.0 1,695,388 45.49 778,344 -204,914 -204,914 Class B 11,362,895 16.8 20.0 359,818 30.80 -79,028 -79,028 Allen Parkway Corridor 3,489,406 6.0 7.0 33,851 30.11 11,147 11,147 Class A 2,239,467 4.4 5.7 29,754 29.42 7,808 7,808 Class B 1,044,530 8.6 9.0 4,097 31.07 -10,387 -10,387 Clear Lake 5,408,326 25.1 25.4 17,340 17.86 -14,010 -14,010 Class A 1,855,697 12.1 13.1 16,857 24.57 -7,484 -7,484 Class B 2,534,777 35.8 35.8 0 17.28 13,998 13,998 East 2,621,420 13.1 13.4 6,513 18.89 8,131 8,131 Class A 356,376 12.2 12.2 0 29.95 6,951 6,951 Class B 1,528,393 13.0 13.4 6,513 20.13 1,180 1,180 Energy Corridor 23,974,486 19.5 29.1 2,304,411 30.27 86,255 -55,242 -55,242 Class A 18,134,479 17.2 29.0 2,150,557 34.57 86,255 35,418 35,418 Class B 4,934,870 27.2 30.0 139,845 23.88 -93,854 -93,854 Far West 1,455,680 20.4 21.6 16,289 25.88 8,264 8,264 Class A 666,230 21.0 23.2 14,092 28.55 1,188 1,188 Class B 671,015 22.9 23.2 2,197 24.83 7,396 7,396 FM 1960/Highway 249 7,065,511 15.7 17.1 97,619 19.03 -18,520 -18,520 Class A 1,613,043 7.0 7.6 10,177 29.87 -5,553 -5,553 Class B 4,130,056 17.4 19.0 66,047 19.68 -8,424 -8,424 Greater Pearland 330,000 3.4 6.9 11,683 32.25 0 0 Class A 250,000 4.5 9.2 11,683 32.25 0 0 Class B 80,000 0 0 0 - 0 0 Greenway Plaza 11,858,290 20.1 21.3 146,910 35.56 188,547 15,620 15,620 Class A 6,219,744 20.1 21.8 107,628 38.30 188,547 84,332 84,332 Class B 3,348,258 14.8 15.5 26,477 31.40 -31,675 -31,675 Katy Freeway 6,073,695 15.1 17.7 158,294 36.18 -25,400 -25,400 Class A 4,278,905 16.3 20.0 158,294 42.71 -52,661 -52,661 Class B 692,659 19.6 19.6 0 20.11 19,000 19,000 Kingwood 947,942 8.8 9.2 3,414 23.01 12,214 12,214 Class A 351,676 15.2 15.6 1,414 26.00 7,575 7,575 Class B 467,516 2.8 3.2 2,000 20.18 3,118 3,118 North 6,914,759 8.3 8.7 20,706 34.42 704,800 -7,960 -7,960 Class A 3,945,436 6.5 6.5 0 36.35 704,800 7,033 7,033 Class B 932,423 16.2 18.4 20,706 28.44 -12,462 -12,462 North Belt/Greenspoint 11,550,397 43.7 49.9 711,965 20.36 -169,980 -169,980 Class A 3,910,378 46.6 58.1 449,117 26.09 -129,688 -129,688 Class B 5,603,876 44.5 49.1 254,691 18.19 -125,285 -125,285

Although Class C is not listed separately, totals are inclusive of all classes of data.

Figure 2: Houston Office Market Statistics (continued)

Net Total Total Average Under Q1 2018 2018 YTD Sublease Deliveries Submarket Rentable Vacancy Availability Asking Rate Construction Net Net (SF) (SF) Area (%) (%) ($/PSF) (SF) Absorption Absorption North Loop/Highway 290 7,982,880 18.9 19.6 50,743 19.57 -21,558 -21,558 Class A 2,137,544 24.3 25.9 32,491 24.71 15,905 15,905 Class B 4,515,189 21.1 21.5 18,252 16.88 -68,267 -68,267 South Main/Medical Center 2,584,022 7.6 8.0 11,684 21.92 -13,413 -13,413 Class A 879,722 6.0 6.2 1,266 31.96 -593 -593 Class B 630,845 6.6 8.2 9,960 21.00 -340 -340 Southwest Freeway 12,829,648 14.1 17.2 401,762 17.81 187,200 88,567 88,567 Class A 3,607,588 7.3 13.8 235,544 30.77 50,430 50,430 Class B 4,577,225 18.7 22.1 158,336 16.78 187,200 86,700 86,700 Westchase 19,667,654 20.1 27.7 1,488,267 27.49 187,011 71,159 71,159 Class A 7,442,779 19.4 32.9 1,006,416 40.99 187,011 84,366 84,366 Class B 9,198,188 21.0 25.9 449,988 21.95 -27,871 -27,871 West Belt 6,043,748 14.7 23.8 547,393 28.12 33,618 33,618 Class A 3,867,709 15.3 26.4 431,812 30.76 56,562 56,562 Class B 2,113,975 14.1 19.6 115,581 22.25 -22,944 -22,944 West Loop/Galleria 33,342,663 16.7 19.6 951,374 34.18 104,579 -86,599 -86,599 Class A 17,541,341 17.5 21.0 610,727 38.73 104,579 -65,889 -65,889 Class B 12,355,738 16.1 18.7 318,059 29.06 4,530 4,530 Woodlands 8,339,812 10.5 12.9 203,060 31.83 31,580 31,580 Class A 6,333,614 9.2 11.4 144,528 33.79 9,122 9,122 Class B 1,644,397 15.9 19.2 53,813 28.57 18,221 18,221 Suburban Total 170,480,339 18.6 22.8 7,183,278 26.42 892,000 566,392 -132,382 -132,382 Class A 85,31,728 16.8 23.1 5,412,357 34.48 704,800 566,392 104,822 104,822 Class B 61,003,930 21.4 24.1 1,646,562 21.44 187,200 -247,366 -247,366 Houston Total 212,823,986 17.8 22.2 9,260,382 29.19 1,670,344 566,392 -417,824 -417,824 Class A 115,758,207 16.1 22.3 7,107,745 37.49 1,483,144 566,392 -100,092 -100,092 Class B 72,366,825 20.7 23.4 2,006,380 22.88 187,200 -326,394 -326,394 Source: CBRE Research, Q1 2018.

Figure 3: Recent Significant Transactions

Lease (Tenant) Property Submarket Total SF Sale (Buyer) Property Submarket Total SF

Apache Post Oak Central WEL 524,342 M-M Properties Marathon Oil Tower WEL 1,189,748 Brookhollow Central I, Jackson Walker 5 Houston Center CBD 77,015 Hertz Investment NOL 806,541 II, III PFS Group 2600 N Loop Fwy W NOL 54,891 Griffin Partners Loop Central I, II, III WEL 575,731 Offices at Pin Oak FairfieldNodal Air Liquide Center South KTY 46,720 Norvin Operating Corp. WEL 504,721 Park Insgroup Sage Plaza WEL 42,300 Mahattan Life One Northwest Center NOL 150,465

Source: CBRE Research, Q1 2018.

CONTACTS

CBRE OFFICE LOCATION

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. MARKETVIEW Houston Office, Q4 2017 Leasing closes year on positive note; 2018 to see momentum

Vacancy Rate Avg. Asking Rate Net Absorption Under Construction 17.3% $29.41 PSF 324,546 SF 2.2 MSF

*Arrows indicate trend from previous quarter. Figure 1: Houston Office Components of Net Absorption MSF Class A Class B 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Source: CBRE Research, Q4 2017.

OVERALL NET ABSORPTION QUIETLY TRENDS YEAR-TO-DATE INDICATORS PAINT A PICTURE OF POSITIVE DURING FINAL QUARTER ENERGY EXPOSURE The final 90-days of 2017 marked the first Overall net office absorption totaled negative 2 quarter of positive net absorption in the million sq. ft. in 2017, with Class B activity Houston office market in 18 months. While contributing the bulk of move-outs which totaled overall leasing velocity remained relatively almost 1.9 million sq. ft. This activity is consistent subdued compared to 2012-2015, trend data with the general market expectations, as a continue to suggest a subtle reversal in 2018. saturation of availability in both direct and Decreasing levels of both direct and sublease sublease space drove competitiveness and lower availability indicate that modest gains in effective rents in the Class A market. occupancy may continue to materialize in the While a migration of occupiers to higher quality near-term versus the consolidation and flight- Class A space has resulted in falling levels of Class to-quality themes prevailing during the past two B occupancy, Class A buildings continue to be years. Given healthy Texas and U.S. economic encumbered by the expiration of available conditions, in concert with equilibrium levels of sublease terms and footprint contractions. energy employment following a broad sector Houston’s primary energy-exposed submarkets restructuring over the past several years, exemplified these trends, as the CBD, Energy Houston’s office market should begin 2018 on Corridor, and Westchase all posted negative year- relative solid footing. However, expectations of end net absorption totals across both Class A and flat energy employment could restrain any B categories. Through 2018, CBD activity will significant office sector leasing activity, remain a bellwether for overall market sentiment, moderating any major occupancy gains through and steady energy employment should provide the first half of the new year. some stability as excess capacities slowly subside.

Figure 2: Houston Office Market Statistics

Net Total Total Average Under Q4 2017 2017 YTD Sublease Deliveries Rentable Vacancy Availability Asking Construction Net Net Submarket (SF) (SF) Area (%) (%) Rate ($/PSF) (SF) Absorption Absorption CBD 42,343,647 14.3 19.4 2,165,070 40.83 778,344 -92,907 -688,227 Class A 30,126,479 13.7 19.4 1,699,599 45.54 778,344 -110,553 -206,079 Class B 11,269,895 16.2 19.5 369,149 29.91 -23,297 -555,277 Allen Parkway Corridor 3,489,406 6.3 7.7 48,685 28.01 26,781 -8,927 Class A 2,239,467 4.7 6.7 44,588 28.96 12,392 43,486 Class B 1,044,530 7.6 8.0 4,097 26.41 9,855 -35,767 Clear Lake 5,408,326 24.8 25.2 19,176 25.19 -121,727 -123,724 Class A 1,855,697 11.7 12.6 16,857 24.56 -48,745 -43,525 Class B 2,534,777 36.4 36.5 923,995 17.37 -48,349 -69,798 East 2,519,420 13.3 13.5 5,544 18.60 -13,981 73,114 Class A 356,376 14.1 14.6 1,699 27.35 574 -11,763 Class B 1,426,393 12.8 13.0 3,845 19.32 -34,546 59,624 Energy Corridor 24,636,590 18.4 26.4 1,967,535 31.38 86,255 96,658 -692,059 Class A 18,796,583 16.3 25.8 1,789,537 36.21 86,255 38,858 -395,304 Class B 4,934,870 25.3 28.7 167,270 25.23 24,624 -351,239 Far West 1,455,680 21.0 22.6 22,587 27.61 29,795 80,642 Class A 666,230 21.2 24.5 21,796 30.31 23,170 98,571 Class B 671,015 24.0 24.1 791 25.27 9,037 -18,146 FM 1960/Highway 249 7,174,317 16.4 18.1 122,545 18.16 68,440 -40,196 Class A 1,613,043 6.6 7.3 11,184 30.29 11,765 -5,931 Class B 4,238,862 18.6 20.8 90,614 18.82 39,091 -12,595 Greater Pearland 330,000 3.4 6.9 11,683 32.42 - 4,654 Class A 250,000 4.5 9.2 11,683 32.42 - -1,187 Class B 80,000 - - - - - 5,841 Greenway Plaza 11,669,743 18.9 20.3 165,544 34.98 188,547 27,711 -236,011 Class A 6,031,197 19.0 20.2 72,409 39.14 188,547 2,819 -199,448 Class B 3,348,258 13.8 16.3 83,619 30.69 6,351 -25,754 Katy Freeway 6,073,695 14.7 18.4 223,854 34.00 30,948 129,740 Class A 4,278,905 15.1 20.1 215,426 43.96 24,149 81,237 Class B 692,659 22.4 22.4 - 20.11 3,884 46,301 Kingwood 947,942 10.1 10.2 1,414 22.18 15,628 94,163 Class A 351,676 17.3 17.7 1,414 22.48 12,275 72,315 Class B 467,516 3.5 3.5 - 20.12 -93 19,026 North 4,914,759 8.2 8.5 16,823 36.61 704,800 -10,742 43,369 Class A 3,945,436 6.6 6.6 - 39.50 704,800 0 46,978 Class B 932,423 14.9 16.7 16,823 26.97 -10,742 -3,109 North Belt/Greenspoint 11,550,397 41.7 51.3 1,112,296 20.50 62,127 -752,187 Class A 3,910,378 43.3 60.0 652,508 27.26 0 -403,569 Class B 5,603,876 42.8 50.9 451,631 18.26 -29,108 -261,411

Although Class C is not listed separately, totals are inclusive of all classes of data.

Figure 2: Houston Office Market Statistics (continued)

Net Total Total Average Under Q3 2017 2017 YTD Sublease Deliveries Submarket Rentable Vacancy Availability Asking Rate Constructio Net Net (SF) (SF) Area (%) (%) ($/PSF) n (SF) Absorption Absorption North Loop/Highway 290 7,982,880 18.7 19.0 25,642 19.74 106,068 1,265 Class A 2,137,544 25.1 25.2 2,029 24.87 74,220 50,177 Class B 4,515,189 19.6 20.1 23,613 16.66 35,055 -92,380 South Main/Medical Center 2,584,022 7.1 7.1 458 22.32 17,765 -14,684 Class A 879,722 6.0 6.0 - 32.09 -1,032 11,236 Class B 630,845 6.6 6.6 - 21.00 0 -43,562 Southwest Freeway 12,829,648 14.8 16.7 255,331 17.64 187,200 46,324 128,126 Class A 3,607,588 8.7 11.9 116,960 29.92 10,401 -18,960 Class B 4,577,225 20.6 23.5 134,224 16.28 187,200 40,381 89,911 Westchase 19,657,631 19.5 27.0 1,471,203 28.05 187,011 -75,034 -376,806 Class A 7,255,779 18.5 32.0 979,826 41.02 187,011 -36,527 -129,968 Class B 9,198,188 20.7 25.8 466,521 23.33 -4,101 -158,490 West Belt 6,043,748 15.3 24.7 570,294 26.95 65,023 35,291 Class A 3,867,709 16.7 27.1 402,742 29.80 67,861 84,125 Class B 2,113,975 13.1 21.0 167,552 19.35 -2,838 -76,210 West Loop/Galleria 33,238,084 16.2 19.1 982,220 34.01 104,579 18,055 70,222 Class A 17,436,762 16.7 20.3 630,133 38.56 104,579 -30,389 412,248 Class B 12,355,738 16.2 18.9 340,850 29.02 52,100 -356,368 Woodlands 8,339,812 10.8 12.6 151,098 31.82 27,614 271,755 Class A 6,333,614 9.3 10.6 81,843 33.88 62,360 301,441 Class B 1,644,397 17.0 20.9 63,221 28.70 -29,455 -46,646 Suburban Total 170,846,100 18.1 22.3 7,173,932 26.59 1,458,392 417,453 -1,312,253 Class A 85,813,706 16.2 22.1 5,052,634 35.03 1,271,192 224,151 -7,901 Class B 61,010,736 21.1 24.4 2,016,255 21.58 187,200 61,146 -1,330,772 Houston Total 213,189,747 17.3 21.7 9,339,002 29.41 2,236,736 324,546 -2,000,480 Class A 115,940,185 15.5 21.4 6,752,233 38.10 2,049,536 113,598 -213,980 Class B 72,280,631 20.4 23.7 2,385,404 22.75 187,200 37,849 -1,886,049 Source: CBRE Research, Q4 2017.

Figure 3: Recent Significant Transactions

Lease (Tenant) Property Submarket Total SF Sale (Buyer) Property Submarket Total SF

Aramco Services Two Allen Center CBD 170,100 Brookfield Houston Center CBD 4,207,605

Stewart Title 1360 Post Oak Blvd WEL 156,161 Exeter Property Group Legacy at Fallbrook WSB 206,808

Empyrean Benefit Two Sugar Creek 3010 Briarpark Dr WCH 106,904 Velocis SWF 143,410 Solutions Center Quantum Energy Capitol Tower CBD 31,750 Nitya Capital Norfolk Tower GWP 207,562 Partners

United States OCC LyondellBasell Tower CBD 27,223 Texas A&M 1020 Holcombe SOU 269,907

Source: CBRE Research, Q4 2017.

CONTACTS

Robert C. Kramp Director, Research & Analysis – Texas-Oklahoma Region [email protected]

E. Michelle Miller Research Operations Manager [email protected]

Brad Smith Sr. Research Analyst +1 713 5771740 [email protected]

Kortney Debner Research Coordinator +1 713 8810933 [email protected]

Jackson Hart Research Coordinator +1 713 8810968 [email protected]

CBRE OFFICES

CBRE Houston 2800 Post Oak, Suite 2300 Houston, TX 77056

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. MARKETVIEW Houston Office, Q3 2017 Leasing picks up, signals stronger tenant confidence

Vacancy Rate Avg. Asking Rate Net Absorption Under Construction 17.6% $29.33 PSF (418,746) SF 2.2 MSF

*Arrows indicate trend from previous quarter. Figure 1: Houston Office Components of Net Absorption MSF Class A Class B 2.0

1.5

1.0

0.5

0.0

-0.5

-1.0

-1.5 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Source: CBRE Research, Q3 2017.

MEASURING THE EFFECT OF HURRICANE HARVEY increased by 20 basis points (bps) compared to a 50- The timing of Harvey’s landfall at the tail-end of Q3 bps increase in the previous quarter. Market-wide 2017 indicates that the full impact of the storm will sublease listings dropped by 560,000 sq. ft. and led become clearer during the early months of 2018. to a 5-bps reduction in availability, primarily due to Despite pockets of acute residential damage, only sublease term expirations. about 50 tracked assets reported being impacted by ENERGY OCCUPIERS DRIVE MAJOR MOVEMENTS the storm, representing .5% of market’s net rentable Several large direct and sublet deals were signed in area. Leasing activity in the quarter suggests that the CBD this quarter, with respective occupancy tenants remain confident about economic gains expected to materialize in early 2018. Major conditions, though a modest dip in job growth is tenant movements include Hercules Offshore, expected ahead of a full recovery to pre-storm StatOil, and Worley Parsons each giving back space payrolls during the final quarter of this year. in the 50,000 to 70,000 sq. ft. range. Despite RISING VACANCY AS SUBLEASE CONVERTS softness in some suburban markets, the Woodlands Robust CBD tenant demand this quarter represented continues to be a bright spot for tenant demand and a large portion of leasing activity. Diverging demand occupancy with four consecutive quarters of is showing a clearer pattern where tenants favor positive net absorption. recently built or renovated Class A product Speculative construction starts are slowing down throughout greater Houston; however, Class B with new projects requiring build-to-suit or lead leasing was well represented in the activity during tenant pre-commitments. To compete head-on with Q3 2017. Despite healthy leasing this year, direct prime CBD construction, renovation activity is on vacant square footage is expected to continue to rise the rise as several area buildings are scheduled to in the near term as sublease terms expire and complete significant renovations, including their convert to direct availability. Suburban vacancy adjoining retail space.

Figure 2: Houston Office Market Statistics

Net Total Total Average Under Q3 2017 2017 YTD Sublease Deliveries Rentable Vacancy Availability Asking Construction Net Net Submarket (SF) (SF) Area (%) (%) Rate ($/PSF) (SF) Absorption Absorption CBD 42,343,647 14.0 19.8 2,422,751 $40.59 778,344 (145,261) (595,320) Class A 30,126,479 13.4 20.2 2,061,393 $45.29 783,344 (96,468) (95,526) Class B 11,269,895 16.0 19.1 351,358 $29.82 (54,483) (531,980) Allen Parkway Corridor 3,489,406 7.7 9.2 49,347 $27.21 (43,478) (35,708) Class A 2,239,467 6.3 8.3 44,588 $27.22 (24,446) 31,094 Class B 1,044,530 8.6 9.0 4,759 $26.15 2,148 (45,622) Clear Lake 5,408,326 22.6 23.7 61,028 $17.65 6,773 (1,997) Class A 1,855,697 9.1 11.6 45,599 $24.49 10,834 5,220 Class B 2,534,777 34.5 35.0 13,286 $17.33 (7,516) (21,449) East 2,519,420 12.7 13.9 29,309 $17.75 (9,015) 87,095 Class A 356,376 14.3 14.8 1,699 $26.62 1,727 (12,337) Class B 1,426,393 10.3 12.3 27,610 $18.25 (4,915) 94,170 Energy Corridor 24,636,590 19.1 26.9 1,930,056 $31.45 86,255 (238,622) (788,717) Class A 18,796,583 16.9 26.1 1,715,125 $36.25 86,255 (120,475) (434,162) Class B 4,934,870 25.8 29.9 203,982 $25.39 (102,976) (375,863) Far West 1,455,680 23.1 24.2 16,514 $27.79 44,749 50,847 Class A 666,230 24.7 26.8 14,092 $29.85 65,297 75,401 Class B 671,015 25.3 25.7 2,422 $25.78 (24,482) (27,183) FM 1960/Highway 249 7,174,317 17.3 20.6 234,274 $18.17 (104,553) (108,636) Class A 1,613,043 7.3 8.2 14,280 $29.20 (3,352) (17,696) Class B 4,238,862 19.5 24.2 199,247 $18.72 (89,670) (51,686) Greater Pearland 330,000 3.4 6.9 11,683 $32.42 2,781 4,654 Class A 250,000 4.5 9.2 11,683 $32.42 2,781 (1,187) Class B 80,000 0.0 0.0 0 0 5,841 Greenway Plaza 11,669,743 19.2 20.6 165,439 $34.89 188,547 (42,324) (263,722) Class A 6,031,197 19.0 20.2 70,002 $39.39 188,547 (31,385) (202,267) Class B 3,348,258 14.0 16.6 88,468 $30.68 1,530 (32,105) Katy Freeway 6,073,695 15.2 18.8 222,571 $36.27 50,000 (18,822) 98,792 Class A 4,278,905 15.6 20.5 209,427 $43.53 50,000 (28,475) 57,088 Class B 692,659 22.9 22.9 0 $20.11 (5,583) 42,417 Kingwood 947,942 11.7 11.7 0 $22.37 85,000 86,968 78,535 Class A 351,676 20.8 20.8 0 $22.54 85,000 67,400 60,040 Class B 467,516 3.4 3.4 0 $20.23 19,729 19,119 North 4,914,759 7.9 8.3 18,490 $35.47 704,800 65,435 54,111 Class A 3,945,436 6.6 6.6 0 $39.50 704,800 42,840 46,978 Class B 932,423 13.7 15.7 18,490 $29.23 22,350 7,633 North Belt/Greenspoint 11,550,397 41.6 51.0 1,093,619 $20.46 (90,009) (814,314) Class A 3,910,378 41.4 58.1 652,508 $27.26 (36,921) (403,569) Class B 5,603,876 42.3 50.1 438,133 $18.47 (65,202) (232,303)

Although Class C is not listed separately, totals are inclusive of all classes of data.

Figure 2: Houston Office Market Statistics (continued)

Net Total Total Average Under Q3 2017 2017 YTD Sublease Deliveries Submarket Rentable Vacancy Availability Asking Rate Construction Net Net (SF) (SF) Area (%) (%) ($/PSF) (SF) Absorption Absorption North Loop/Highway 290 8,446,507 18.9 19.2 27,766 $20.16 (15,888) (104,803) Class A 2,137,544 28.6 28.8 4,460 $25.32 9,865 (24,103) Class B 4,978,816 18.5 19.0 23,306 $16.81 (40,115) (127,435) South Main/Medical Center 2,584,022 18.2 18.3 2,786 $26.81 (2,997) (32,449) Class A 879,722 5.8 5.8 0 $32.12 7,939 12,268 Class B 630,845 49.3 49.3 0 $29.64 (12,246) (43,562) Southwest Freeway 12,829,648 15.3 18.1 349,236 $17.89 187,200 87,148 81,802 Class A 3,607,588 9.0 14.3 192,843 $29.17 (3,574) (29,361) Class B 4,577,225 22.1 25.0 133,275 $16.40 187,200 5,892 49,530 Westchase 19,657,631 19.1 27.3 1,605,966 $28.57 187,011 (70,742) (301,772) Class A 7,255,779 18.0 32.6 1,062,547 $41.14 187,011 (36,739) (93,441) Class B 9,198,188 20.7 26.0 492,176 $22.85 (13,571) (154,389) West Belt 6,043,748 16.4 28.5 736,445 $27.27 11,406 (29,732) Class A 3,867,709 18.5 33.2 567,174 $30.98 15,570 16,264 Class B 2,113,975 12.9 20.9 169,271 $19.25 (4,164) (73,372) West Loop/Galleria 33,238,084 16.2 20.3 1,363,586 $34.14 104,579 (50,329) 52,167 Class A 17,436,762 16.5 22.1 985,747 $39.22 104,579 761 442,637 Class B 12,355,738 16.6 19.5 363,685 $28.89 (38,055) (408,468) Woodlands 8,339,812 11.2 13.4 185,079 $31.42 108,034 244,141 Class A 6,333,614 10.3 12.5 139,677 $39.59 71,711 239,081 Class B 1,644,397 15.2 17.6 39,368 $28.25 28,907 (17,191) Suburban Total 171,309,727 18.5 23.2 8,103,194 $26.69 1,458,392 135,000 (273,485) (1,729,706) Class A 85,813,706 16.5 23.2 5,731,451 $35.33 1,271,192 135,000 11,358 (232,052) Class B 61,474,363 21.5 25.2 2,217,478 $21.89 187,200 (327,939) (1,391,918) Houston Total 213,653,374 17.6 22.5 10,525,945 $29.33 2,236,736 135,000 (418,746) (2,325,026) Class A 115,940,185 15.7 22.4 7,792,844 $38.17 2,049,536 135,000 (85,110) (327,578) Class B 72,744,258 20.7 24.2 2,568,836 $22.95 187,200 (382,422) (1,923,898)

Source: CBRE Research, Q3 2017.

Figure 3: Significant Leases / Sales of the Quarter

Lease (Industry) Address Submarket Total SF Sale (Buyer) Address Submarket Total SF

Energy One Shell Plaza CBD 431,307 Lincoln Property Greenspoint Place 1-6 NOB 2,060,713

Government North Point Plaza NOR 100,020 CalSTRS Noble Energy Center II FM1 470,623

Energy 601 Travis CBD 64,845 Whitestone REIT BLVD Place WEL 213,734

2100 West Loop Legal LyondellBasell Tower CBD 48,233 Elite Street Capital WEL 162,504 South InSite Commercial Real Business Services 2925 Briarpark WCH 39,274 4650 Westway Park WSB 158,518 Estate

Source: CBRE Research, Q3 2017.

CONTACTS

Robert C. Kramp Director, Research & Analysis – Texas-Oklahoma Region [email protected]

E. Michelle Miller Research Operations Manager [email protected]

Kortney Debner Research Coordinator +1 713 8810933 [email protected]

Jackson Hart Research Coordinator +1 713 8810968 [email protected]

CBRE OFFICES

CBRE Houston 2800 Post Oak, Suite 2300 Houston, TX 77056

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. MARKETVIEW Houston Office, Q2 2017 Expired subleases bring negative absorption and higher vacancy

17.4% $29.34 PSF (1,001,463) SF 2.0 MSF

*Arrows indicate trend from previous quarter. Figure 1: Office Vacancy and Availability

MSF Direct SF Sublease SF Vacancy (%) Availability (%) (%) 60 25

50 20 40 15 30 10 20

10 5

2016 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: CBRE Research, Q2 2017. 2017 YTD

New

Figure 2: Houston Office Market Statistics

Net Total Total Average Under Q2 2017 2017 YTD Deliveries Submarket Rentable Vacancy Availability Asking Construction Net Net (SF) Area (%) (%) Rate ($/PSF) (SF) Absorption Absorption CBD 42,343,647 13.7 19.7 40.54 778,344 (333,446) (450,059) Class A 30,126,479 13.1 20.2 45.38 778,344 100,323 942 Class B 11,269,895 15.5 18.9 29.53 (413,923) (477,497) Allen Parkway Corridor 3,489,406 6.5 10.6 32.21 (499) 7,770 Class A 2,239,467 5.2 11.41 34.69 30,853 55,540 Class B 1,044,530 8.8 9.2 25.96 (31,352) (47,770) Clear Lake 5,408,326 22.7 23.9 17.65 17,243 (8,770) Class A 1,855,697 9.7 12.1 24.67 16,056 (5,614) Class B 2,534,777 34.2 34.7 17.23 (13,074) (13,933) East 2,519,420 12.4 13.5 17.97 82,800 72,613 96,110 Class A 356,376 14.8 15.3 26.11 (23,595) (14,064) Class B 1,426,393 10.0 11.9 18.64 82,800 97,995 99,085 Energy Corridor 24,636,590 18.1 26.6 31.17 86,255 (312,178) (550,095) Class A 18,796,583 16.3 26.0 35.15 86,255 (311,869) (313,687) Class B 4,934,870 23.7 28.7 25.53 (18,529) (272,887) Far West 1,455,680 26.1 27.2 27.86 9,231 6,098 Class A 666,230 34.5 34.5 29.67 5,663 10,104 Class B 671,015 21.7 24.0 25.08 786 (2,701) FM 1960/Highway 249 7,174,317 15.8 19.4 18.76 1,150 (4,083) Class A 1,613,043 7.1 7.9 30.32 (8,171) (14,344) Class B 4,238,862 17.4 22.7 19.32 23,834 37,984 Greater Pearland 330,000 4.2 7.8 32.42 (1,572) 1,873 Class A 250,000 5.6 10.3 32.42 (3,968) (3,968) Class B 80,000 0.0 0.0 N/A 2,396 5,841 Greenway Plaza 11,669,743 18.8 20.9 34.88 188,547 (195,690) (221,398) Class A 6,031,197 18.5 20.7 39.37 188,547 (161,453) (170,882) Class B 3,348,258 14.0 17.4 30.80 (25,889) (33,635) Katy Freeway 6,023,695 14.2 18.5 34.50 50,000 22,627 117,614 Class A 4,228,905 14.0 19.9 43.48 50,000 27,455 85,563 Class B 692,659 22.1 22.1 20.35 2,000 48,000 Kingwood 862,942 13.1 14.1 22.46 85,000 (5,321) (8,433) Class A 266,676 20.9 20.9 22.54 85,000 0 (7,360) Class B 467,516 7.7 9.5 21.65 (4,858) (610) North 4,914,759 9.3 9.7 35.27 326,800 8,240 (11,324) Class A 3,945,436 7.7 7.7 39.50 326,800 4,138 4,138 Class B 932,423 16.1 18.3 29.70 4,847 (14,717) North Belt/Greenspoint 11,550,397 40.8 50.5 20.54 (145,605) (724,305) Class A 3,910,378 40.5 57.9 27.30 20,734 (366,648) Class B 5,603,876 41.1 48.8 18.65 (88,948) (167,101)

Although Class C is not listed separately, totals are inclusive of all classes of data.

Figure 2: Houston Office Market Statistics (continued)

Net Total Total Average Under Q2 2017 2017 YTD Submarket Rentable Vacancy Availability Asking Construction Deliveries Net Net Area (%) (%) Rate ($/PSF) (SF) (SF) Absorption Absorption North Loop/Highway 290 8,446,507 18.7 19.1 20.69 (5,029) (88,915) Class A 2,137,544 29.0 29.6 25.16 (13,538) (33,968) Class B 4,978,816 17.7 18.1 17.45 (5,870) (87,320) South Main/Medical Center 2,584,022 18.1 18.3 27.07 (23,977) (29,452) Class A 879,722 6.7 6.7 32.77 9,804 4,329 Class B 630,845 47.4 47.4 29.64 (31,316) (31,316) Southwest Freeway 12,829,648 16.0 18.5 17.39 187,200 (80,212) (5,346) Class A 3,607,588 8.9 13.9 29.18 (25,811) (25,787) Class B 4,577,225 22.2 24.7 16.16 187,200 (42,279) 43,638 Westchase 19,657,631 18.7 26.3 28.27 187,011 (111,812) (231,030) Class A 7,255,779 17.1 31.7 41.10 187,011 520 (56,702) Class B 9,198,188 20.5 25.0 22.90 (93,388) (140,818) West Belt 6,043,748 16.5 29.1 27.71 (126,063) (41,138) Class A 3,867,709 18.9 33.7 31.31 (56,855) 694 Class B 2,113,975 12.7 21.5 19.26 (69,208) (69,208) West Loop/Galleria 33,238,084 16.3 20.4 34.47 104,579 92,577 102,496 Class A 17,436,762 16.8 22.8 39.85 104,579 360,761 441,876 Class B 12,355,738 16.3 18.9 28.76 (299,217) (370,413) Woodlands 8,339,812 12.5 15.9 31.53 116,260 136,107 Class A 6,333,614 11.4 14.8 39.48 149,830 167,370 Class B 1,644,397 17.0 21.3 28.53 (46,098) (46,098) Suburban Total 171,174,727 18.3 23.3 26.71 1,215,392 82,800 (668,017) (1,456,221) Class A 85,678,706 16.4 23.6 35.40 1,028,192 82,800 20,554 (243,410) Class B 61,474,363 21.0 24.6 22.08 187,200 (638,168) (1,063,979) Houston Total 213,518,374 17.4 22.6 29.34 1,993,736 82,800 (1,001,463) (1,906,280) Class A 115,805,185 15.5 22.7 38.25 1,806,536 120,877 (242,468) Class B 72,744,258 20.2 23.7 23.08 187,200 82,800 (1,052,091) (1,541,476) Source: CBRE Research, Q2 2017.

Figure 3: Significant Leases / Sales of the Quarter Figure 4: 2017 Signed Leases by Industry

Lease (Tenant Industry) Address Submarket Total SF 21% Oil & Gas Post Oak Central West Loop/Galleria 524,000

Financial Services 800 Capitol CBD 210,000 2% 48% Business Services 1000 Main CBD 86,000 5%

Sale (Buyer) Address Submarket Total SF 12% Greenway Plaza Portfolio Silverpeak RE Partners Greenway Plaza 4,900,000 (11 properties) 12% BLVD Place Portfolio Whitestone REIT West Loop/Galleria 216,900 (3 properties) Energy Financial Services Business Services Griffin Partners III 520 Post Oak Blvd. West Loop/Galleria 155,146 Engineering Healthcare Other

Source: CBRE Research, Q2 2017. Source: CBRE Research, Q2 2017.

CONTACTS

CBRE OFFICES

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. MARKETVIEW Houston Office, Q1 2017 Dwindling construction pipeline finally below a million sq. ft.

16.8% $29.58 PSF (788,384) SF 784,192 SF

*Arrows indicate trend from previous quarter. Figure 1: Office Construction and Absorption (MSF) Office Construction Absorption 12 10 8 6 4 2 0 (2)

(4)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: CBRE Research, Q1 2017.

Figure 2: Houston Office Market Statistics

Net Total Total Average Under Q1 2017 2017 YTD Deliveries Submarket Rentable Vacancy Availability Asking Construction Net Net (SF) Area (%) (%) Rate ($/PSF) (SF) Absorption Absorption CBD 42,343,647 12.9 18.4 42.21 1,056,658 (116,613) (116,613) Class A 30,126,479 13.4 19.8 45.59 1,056,658 (99,381) (99,381) Class B 11,269,895 11.9 15.1 31.26 (63,574) (63,754) Allen Parkway Corridor 3,489,406 6.5 11.2 31.58 8,269 8,269 Class A 2,239,467 6.6 13.9 34.73 24,687 24,687 Class B 1,044,530 5.8 5.8 23.86 (16,418) (16,418) Clear Lake 5,408,326 23.0 24.5 17.50 (26,013) (26,013) Class A 1,855,697 10.6 13.2 24.93 (21,670) (21,670) Class B 2,534,777 33.7 34.9 16.98 (859) (859) East 2,436,620 12.4 13.6 18.16 82,800 23,497 23,497 Class A 356,376 8.2 8.6 26.24 9,531 9,531 Class B 1,343,593 11.7 13.8 18.92 82,800 1,090 1,090 Energy Corridor 24,699,119 16.8 25.6 32.33 86,255 (237,917) (237,917) Class A 18,796,583 14.6 24.9 36.68 86,255 (1,818) (1,818) Class B 4,934,870 23.3 28.0 26.04 (254,358) (254,358) Far West 1,455,680 26.8 27.8 27.87 (3,133) (3,133) Class A 666,230 35.3 35.3 29.74 4,441 4,441 Class B 671,015 21.8 24.1 25.19 (3,487) (3,487) FM 1960/Highway 249 7,174,317 15.9 19.3 18.47 (5,233) (5,233) Class A 1,613,043 6.6 7.5 30.69 (6,173) (6,173) Class B 4,238,862 18.0 23.0 18.80 14,150 14,150 Greater Pearland 330,000 3.8 3.8 25.61 3,445 3,445 Class A 250,000 4.0 4.0 26.00 0 0 Class B 80,000 3.0 3.0 24.00 3,445 3,445 Greenway Plaza 11,789,837 16.9 18.6 34.81 188,547 (25,708) (25,708) Class A 6,031,197 15.9 18.1 40.08 188,547 (9,429) (9,429) Class B 3,348,258 13.3 14.9 29.63 (7,746) (7,746) Katy Freeway 6,224,680 14.1 19.3 35.08 50,000 238,173 94,987 94,987 Class A 4,228,905 14.6 21.8 43.70 50,000 238,173 58,108 58,108 Class B 692,659 22.4 22.4 21.07 46,000 46,000 Kingwood 862,942 12.5 13.5 21.21 85,000 (3,112) (3,112) Class A 266,676 20.9 20.9 21.90 85,000 (7,360) (7,360) Class B 467,516 6.6 8.5 22.04 4,248 4,248 North 4,914,759 9.4 9.9 29.67 (19,564) (19,564) Class A 3,945,436 7.8 7.8 0 0 Class B 932,423 16.6 19.0 29.67 (19,564) (19,564) North Belt/Greenspoint 11,550,397 39.5 49.3 20.78 (462,267) (462,267) Class A 3,910,378 41.0 58.5 27.60 (387,382) (387,382) Class B 5,603,876 39.5 47.4 18.71 (78,153) (78,153)

Although Class C is not included, totals are inclusive of all classes of data.

Figure 2: Houston Office Market Statistics (continued)

Net Total Total Average Under Q1 2017 2017 YTD Submarket Rentable Vacancy Availability Asking Construction Deliveries Net Net Area (%) (%) Rate ($/PSF) (SF) (SF) Absorption Absorption North Loop/Highway 290 8,446,507 18.7 19.1 20.52 (83,886) (83,886) Class A 2,137,544 28.4 29.2 25.09 (20,430) (20,430) Class B 4,978,816 17.6 18.0 17.30 (81,450) (81,450) South Main/Medical Center 2,584,022 17.2 17.3 27.11 (5,475) (5,475) Class A 879,722 7.9 7.9 32.39 (5,475) (5,475) Class B 630,845 42.4 42.4 29.86 0 0 Southwest Freeway 12,829,648 15.4 17.4 17.09 74,866 74,866 Class A 3,607,588 8.1 12.8 28.86 24 24 Class B 4,577,225 21.3 23.2 16.05 85,917 85,917 Westchase 19,822,513 17.9 24.7 29.48 187,011 (119,218) (119,218) Class A 7,255,779 17.1 31.3 42.21 187,011 (57,222) (57,222) Class B 9,198,188 19.5 22.7 23.51 (47,430) (47,430) West Belt 6,043,748 14.5 26.3 22.63 84,925 84,925 Class A 3,867,709 17.4 31.9 29.06 57,549 57,549 Class B 2,113,975 9.5 16.9 18.76 0 0 West Loop/Galleria 33,238,084 16.5 21.0 33.67 104,579 380,000 9,919 9,919 Class A 17,436,762 18.9 25.5 38.80 104,579 380,000 81,115 81,115 Class B 12,355,738 13.9 16.3 28.48 (71,196) (71,196) Woodlands 8,584,812 13.5 16.6 32.01 19,847 19,847 Class A 6,578,614 13.3 16.5 39.59 17,540 17,540 Class B 1,644,397 14.2 17.4 27.68 0 0 Suburban Total 171,885,417 17.8 22.7 26.67 784,192 618,173 (671,771) (671,771) Class A 85,923,706 16.4 23.8 35.51 701,392 618,173 (263,964) (263,964) Class B 61,391,563 19.9 23.0 21.95 82,800 (425,811) (425,811) Houston Total 214,229,064 16.8 21.9 29.58 784,192 1,674,831 (788,384) (788,384) Class A 116,050,185 15.6 22.8 38.55 701,392 1,674,831 (363,345) (363,345) Class B 72,661,458 18.6 21.8 22.93 82,800 (489,385) (489,385) Source: CBRE Research, Q1 2017.

Figure 3: Significant Leases / Sales of the Quarter Figure 4: 2017 Signed Leases by Industry

Lease (Tenant) Address Submarket Total SF

ENI Petroleum 1200 Smith CBD 142,000 17% 1% Targa Resources 811 Louisiana CBD 128,000 1% Crestwood Midstream 811 Main CBD 54,000 13% Sale (Buyer) Address Price Total SF 62% 6% Woodbranch 201 Helios Way $400/PSF 390,000

Spear Street Capital 1401 McKinney $295/PSF 581,000

Spear Street Capital 515 Post Oak Blvd. $185/PSF 275,000 Energy Financial Services Business Services Spear Street Capital 585 N. Dairy Ashford $156/PSF 332,000 Engineering Healthcare Other

Source: CBRE Research, Q1 2017. Source: CBRE Research, Q1 2017.

CONTACTS

CBRE OFFICES

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. MARKETVIEW Houston Office, Q4 2016 After cresting in November, sublease begins its decline

Vacancy Rate Avg. Asking Rate Net Absorption Under Construction 15.7% $28.71 PSF (388,556) SF 2.4 MSF *Arrows indicate change from previous quarter. Figure 1: Sublease RSF vs WTI ($/bbl)

MSF Price of Oil Sublease RSF WTI ($/bbl) 13 140

11 120

9 100

7 80

5 60

3 40

1 20 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Source: CBRE Research, Q4 2016. Houston’s office market saw an uptick in sentiment Local experts have recently estimated that Houston as 2016 came to a close; oil briefly over $55/bbl, the has contracted by approximately 70,000 energy- highest since July 2015, and sublease availability related payrolls during this downturn that began began its long-awaited descent. Office space two years ago. Rising rig counts and oil prices could professionals agree sublease seemed to have peaked mean the worst is behind us. in November at 12.5 million sq. ft. before dropping to 11.1 million sq. ft. by the end of the year as sublet Area forecasts call for metro Houston to be in the leasing volume gained steam. black next year when it comes to tallying local job numbers with a recent forecast being near 30,000 This decline in sublease availability is expected to net new jobs in 2017. That along with higher – and continue as energy companies re-evaluate their steadier – commodity prices during the second half space needs as the energy industry begins to show of year, and an office construction cycle finally signs of improvement. For example, nearly 600,000 winding down, next year will be one more sq. ft. of sublease at the recently delivered Energy characterized by a slow but positive rebound for Center Four was removed this quarter. In addition, landlords. several energy companies are marketing all of their space for sublease, with the intent to sublet only a The reason for the longer recovery timing portion and consolidate into the remaining space. expectation lies with the trend that the Houston office market typically lags behind job growth by 12 That said, nearly 400,000 sq. ft. of sublease was to 18 months. A full recovery of the office leasing absorbed during Q4 2016, for a total of 1.5 million sector will take time due to a larger than normal sq. ft. in 2016 as tenants took advantage of bargain surplus of space and a slower than normal job rates on prime sublease space with extended terms. growth rate. We estimate it could require another The CBD was the most active this quarter where three to five years in CBD and possibly longer for sublease represented 40% of the 650,000 sq. ft. of West Houston for vacancy to subside to more lease transactions. historic averages.

Figure 2: Houston Office Market Statistics

Net Total Total Average Q4 2016 2016 YTD Submarket Rentable Vacancy Availability Asking Net Net Area (%) (%) Rate ($) Absorption Absorption CBD 41,286,989 10.4 16.5 40.75 (69,299) (456,252) Class A 28,799,883 8.6 15.6 45.02 (102,876) (439,226) Class B 11,539,833 14.6 18.0 34.59 28,841 (59,552) Allen Parkway Corridor 3,489,406 6.7 11.4 32.21 (32,169) 22,872 Class A 2,239,467 7.7 15.0 34.39 (10,557) 29,667 Class B 1,044,530 4.2 4.2 23.14 (3,820) 6,503 Clear Lake 5,408,326 22.6 23.7 17.49 (185,548) 54,104 Class A 1,855,697 9.4 11.8 24.62 (55,724) (81,764) Class B 2,626,577 33.9 34.5 17.07 (128,150) 124,755 East 2,436,620 13.3 14.6 18.28 39,341 (13,787) Class A 356,376 10.8 10.8 26.24 18,164 10,003 Class B 1,343,593 11.8 14.1 18.88 19,818 (10,438) Energy Corridor 24,699,119 15.9 26.1 33.74 80,470 257,988 Class A 18,796,583 14.6 25.6 38.16 52,817 494,879 Class B 4,852,658 16.9 26.3 26.36 26,942 (200,761) Far West 1,455,680 26.6 28.6 27.94 4,998 126,967 Class A 666,230 36.0 38.1 29.74 2,679 126,837 Class B 671,015 21.3 23.6 24.97 0 1,614 FM 1960/Highway 249 7,174,317 15.8 19.4 18.67 32,304 12,129 Class A 1,753,798 7.9 9.0 26.49 (6,154) (43,508) Class B 4,081,926 18.7 23.4 18.51 27,383 70,242 Greater Pearland 330,000 4.8 8.6 - 0 35,915 Class A 250,000 4.0 4.0 - 0 14,962 Class B 80,000 7.3 23.1 - 0 20,953 Greenway Plaza 11,789,837 16.7 18.8 35.17 74,240 16,073 Class A 6,031,197 15.7 18.8 40.18 56,163 422,222 Class B 3,691,830 12.9 14.4 29.04 6,648 (32,657) Katy Freeway 5,986,507 12.2 17.9 33.93 58,169 193,255 Class A 3,990,732 11.0 18.6 43.65 64,854 154,167 Class B 692,659 29.1 30.1 29.11 (14,925) 52,008 Kingwood 862,942 12.1 13.2 21.18 277 (1,317) Class A 266,676 18.1 18.1 22.06 1,602 15,089 Class B 467,516 7.5 9.4 21.78 (1,325) (15,182) North 4,914,759 9.0 9.7 30.69 43,926 4,436 Class A 3,945,436 7.8 7.8 - 282 (63,541 Class B 932,423 14.5 17.8 30.69 43,644 67,977 North Belt/Greenspoint 11,550,397 34.5 42.4 21.09 (115,833) (263,546) Class A 4,080,956 31.1 41.7 27.14 0 (46,805) Class B 5,717,478 37.7 44.6 19.85 (115,833) (291,516)

Although Class C is not included, totals are inclusive of all classes of data.

Figure 2: Houston Office Market Statistics (continued)

Net Total Total Average Q4 2016 2016 YTD Submarket Rentable Vacancy Availability Asking Net Net Area (%) (%) Rate ($) Absorption Absorption North Loop/Highway 290 8,446,507 17.7 18.3 20.43 82,054 28,887 Class A 2,137,544 27.4 29.3 24.95 (10,832) (73,416) Class B 4,745,442 15.7 16.1 17.39 59,339 57,443 South Main/Medical Center 2,584,022 16.9 17.1 26.97 (216) 49,280 Class A 879,722 7.2 7.2 31.93 (1,761) 3,508 Class B 630,845 42.4 42.4 29.86 0 36,064 Southwest Freeway 12,829,648 15.6 17.2 17.44 20,057 169,503 Class A 3,607,588 6.7 11.1 28.79 (5,102) 19,285 Class B 4,934,413 22.9 23.5 17.22 (9,075) (48,384) Westchase 19,822,513 17.3 23.9 29.66 (188,142) (758,502) Class A 7,255,779 16.3 29.9 42.62 (42,103) (52,013) Class B 9,508,533 19.0 22.2 23.08 (103,724) (705,902) West Belt 6,043,748 15.9 25.5 22.12 (34,329) 195,231 Class A 3,867,709 18.9 30.7 29.06 (31,067) 121,934 Class B 2,113,975 9.5 15.6 18.76 (3,262) 73,297 West Loop/Galleria 32,858,084 15.6 20.3 32.19 (206,693) (480,652) Class A 17,581,762 17.3 24.3 38.06 (111,390) (289,117) Class B 11,830,738 13.5 15.9 27.51 (46,853) (15,384) Woodlands 8,584,812 13.7 16.7 26.64 7,837 (101,749) Class A 6,653,614 13.5 16.5 37.82 8,209 (24,129) Class B 1,706,715 14.0 17.1 27.33 10,802 (57,099) Suburban Total 171,267,244 17.0 22.0 26.38 (319,257) (452,913) Class A 86,216,866 15.4 22.7 35.56 (69,920) 738,260 Class B 61,672,866 19.2 22.4 21.86 (232,391) (866,467) Houston Total 212,554,233 15.7 20.9 28.71 (388,556) (909,165) Class A 115,016,749 13.7 20.9 37.78 (172,796) 299,034 Class B 73,212,699 18.4 21.7 23.63 (203,550) (926,019) Although Class C is not included, totals are inclusive of all classes of data. Source: CBRE Research, Q4 2016.

Figure 3: Significant Leases / Sales of the Quarter Figure 4: 2016 Signed Leases by Industry

Lease (Tenant) Address Total SF 15% Thompson & Knight 811 Main 70,000 8% ABM Industries 14141 Southwest Freeway 65,000 8% Webber Properties 1725 Hughes Landing 47,000 60% 5% Sale (Buyer) Address Total SF 4% KBS Growth & Income REIT 19219 Katy Freeway 203,149

Stone Mountain Properties 12603 Southwest Freeway 141,779 Energy Financial Services Business Services Engineering Healthcare Other Source: CBRE Research, Q4 2016. Source: CBRE Research, Q4 2016.

TENANT CONCESSIONS NOW A GIVEN Figure 5: Lease Rates Overall gross asking rents experienced a slight drop, Asking Rate ($/SF) 40 averaging $28.71 per sq. ft. in Q4 2016. As energy $37.78 tenants downsized in prime Class A space more expensive space was added to the available supply, 34 pushing rates up slightly to $37.78 per sq. ft. Negotiated rates are increasingly aggressive as 28 landlords compete with bargain sublease rates. Most $23.63 landlords are offering generous concessions which 22 have increased throughout the year and include more Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 free rent and additional tenant improvement Class A Class B Source: CBRE Research, Q4 2016. allowances. Occupiers have taken advantage of the Figure 6: Net Absorption prime sublease space offering bargain rates with long SF (000s) terms. Rates will continue to decline until more 2,000 vacant sublease space is leased or removed from the 1,600 market. 1,200 LOWER RATE OF SPACE LOSSES IN Q4 2016 As the energy industry continued to struggle, Q4 2016 800 reported 388,556 sq. ft. of negative net absorption, 400 bringing the 2016 total to nearly 1 million sq. ft. of 0 negative net absorption. Although low demand and (400) downsizing companies are the main contributors, (800) negative net absorption also occurs when tenants Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 lease sublease space so as they occupy previously Source: CBRE Research, Q4 2016. leased space, the vacancy they leave behind pushes Figure 7: Vacancy & Availability down absorption. % 22 20/20: 20.9% AVAILABILITY AT A 20-YEAR HIGH 20.9 Houston’s vacancy increased 10 basis points this 20 quarter, closing Q4 2016 at 15.7%. Total availability 18 remained flat this quarter at 20.9%, a 20-year high. 16 15.7 Available sublease space peaked at 12.5 million sq. ft. 14 in November but dropped to 11.1 million sq. ft. by 12 year-end. Although available sublease is beginning to Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 decline, we expect a slow but steady recovery that Total Vacancy Availability could take three to five years to absorb the surplus in Source: CBRE Research, Q4 2016. supply. On a more positive note, occupiers are more optimistic when it comes to Houston’s local economy Figure 8: Construction Completions MSF and job growth. 12 COMPLETIONS SHARPLY TAPER IN 2016 10 Members Choice Credit Union’s lease of 50,000 sq. ft. prompted one new start in Q4 2016 at 18211 Katy 8

Freeway in the Energy Corridor. Construction slowed 6 to 2.4 million sq. ft. at 46.7% preleased. Although 4 demand decreased, new construction with high-end amenities is still prevalent among occupiers. 2

Construction is not expected to pick up until supply 0 contracts and demand for new office product 2010 2011 2012 2013 2014 2015 2016 increases which will likely be 2020 or beyond. Source: CBRE Research, Q4 2016.

CONTACTS

Robert C. Kramp Director, Research & Analysis – Texas-Oklahoma Region [email protected]

E. Michelle Miller Research Operations Manager [email protected]

Angie Bauer-Hamilton Research Team Lead [email protected]

Cammie Moise Senior Research Analyst +1 713 8810947 [email protected]

Elizabeth Ballentine Research Coordinator +1 713 8810968 [email protected]

Kortney Debner Research Coordinator +1 713 8810933 [email protected] CBRE OFFICES

CBRE Houston 2800 Post Oak, Suite 2300 Houston, TX 77056

Vacancy Rate Avg. Asking Rate Net Absorption Under Construction 15.6% $28.97 PSF (769,553) SF 2.3 MSF *Arrows indicate change from previous quarter. Figure 1: Leasing Activity, Direct vs Sublease SF (000s) Subleases Signed (%) 4,000 50

40 3,000 30 2,000 20 1,000 10

0 0 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Direct Leases (SF) Sublease Leases (SF) Percent of Sublease (SF) Percent of Sublease (# of Leases) Source: CBRE Research, Q3 2016. Flight to quality remains a trend as occupiers take Although sublease space grew to 11.4 million sq. ft., advantage of reduced sublease prices which can nearly 600,000 sq. ft. was absorbed as tenants took include high quality design and build out. In addition, advantage of quality sublease space at bargain rates. landlords with properties under construction or with While leasing activity slowed throughout 2016, large blocks of availability, offer competitive rates to sublease activity was at an all-time high representing retain existing tenants and motivate new tenants to nearly half of the signed leases and 33% of the total sign a lease. sq. ft. leased in Q3 2016 as shown in Figure 1. As tenants occupy sublease space, many are vacating West Houston, which represents over 45% of the competing Class A space, often adding more expensive sublease inventory, completed more than 15 sublease space to available supply, resulting in higher average transactions totaling 325,000 sq. ft. while the CBD asking rates. Increasing rents this quarter are not had more than six sublease transactions totaling reflective of current market conditions, as a matter of 100,000 sq. ft. Even though the energy industry is the fact, most landlords are offering lower effective rates main driver for Houston’s office market, due to generous concessions as they feel pressure from transportation, distribution and logistics dominated increasing supply. leasing activity this quarter, followed by energy, legal and business services. Houston’s office market will need to absorb nearly 10.5 million sq. ft. to return to the 20-year availability Supply continued to increase from delivery of new average of 16%. Look for CBRE’s upcoming Viewpoint construction as well as large vacancies left behind by which forecasts it could take another three to five years energy companies from layoffs, bankruptcies and in CBD—and even longer in West Houston—to absorb mergers. As expected, vacancy continued to rise, the current oversupply. reaching 15.6% and total available, which includes sublease, increased to 20.9%. With nearly 5.5% of the Houstonians often measure their own personal market available for sublease, tenants are able to find resiliency by the number of downturns they have discounted rates on prime Class A space offering six survived. Houston will recover and occupiers outside of year terms on average, compared to the typical two to Houston can take advantage of prime space at bargain three year term for available sublease space. prices.

Figure 2: Houston Office Market Statistics

Net Total Total Average Q3 2016 2016 YTD Submarket Rentable Vacancy Availability Asking Net Net Area (%) (%) Rate ($) Absorption Absorption CBD 40,880,389 10.3 16.3 40.63 (65,840) (386,953) Class A 28,393,283 8.3 15.3 44.80 (39,861) (336,350) Class B 11,539,833 14.8 18.2 35.02 (27,340) (88,393) Allen Parkway Corridor 3,489,406 5.8 7.3 33.07 15,209 55,041 Class A 2,239,467 7.2 9.5 34.52 370 40,244 Class B 1,044,530 3.8 4.0 23.53 14,839 10,323 Clear Lake 5,408,326 19.1 20.1 17.42 13,240 239,652 Class A 1,855,697 6.4 8.8 24.56 1,633 (26,040) Class B 2,626,577 29.0 29.2 16.98 19,362 252,905 East 2,436,620 15.0 16.3 19.86 (26,753) (53,128) Class A 356,376 15.9 15.9 30.75 (13,121) (8,161) Class B 1,343,593 13.3 15.7 19.72 4,978 (30,256) Energy Corridor 24,699,119 16.2 28.2 34.22 (113,502) 177,518 Class A 18,796,583 14.9 28.1 38.22 79,295 442,062 Class B 4,852,658 17.5 27.3 26.42 (157,317) (227,703) Far West 1,455,680 26.9 28.9 28.01 44,486 121,969 Class A 666,230 36.4 38.5 29.78 44,486 124,158 Class B 671,015 21.3 23.6 25.00 0 1,614 FM 1960/Highway 249 7,174,317 16.2 20.4 18.48 27,490 (20,175) Class A 1,753,798 7.6 9.5 26.24 (13,022) (37,354) Class B 4,081,926 19.3 24.6 18.12 58,831 42,859 Greater Pearland 330,000 4.8 9.4 N/A 3,503 35,915 Class A 250,000 4.0 4.0 N/A (548) 14,962 Class B 80,000 7.3 26.3 N/A 4,051 20,953 Greenway Plaza 11,789,837 17.3 19.2 35.27 45,879 (58,167) Class A 6,031,197 16.6 19.6 40.13 61,861 366,059 Class B 3,691,830 13.1 14.2 29.29 10,201 (39,305) Katy Freeway 5,986,507 13.2 18.7 34.59 (46,441) 135,086 Class A 3,990,732 12.6 19.6 44.02 (42,490) 89,313 Class B 692,659 26.9 28.0 29.11 5,618 66,933 Kingwood 862,942 12.2 13.2 21.16 (20,702) (1,594) Class A 266,676 18.7 18.7 21.95 (2,658) 13,487 Class B 467,516 7.3 9.1 21.85 (18,044) (13,857) North 4,914,759 9.9 11.0 35.32 (6,258) (39,490) Class A 3,945,436 7.8 7.8 37.85 0 (63,823) Class B 932,423 19.2 24.7 30.97 (6,258) 24,333 North Belt/Greenspoint 11,550,397 33.5 42.0 20.96 88,340 (147,713) Class A 4,080,956 31.1 41.7 27.14 19,719 (46,805) Class B 5,717,478 35.6 43.8 19.55 37,812 (175,683)

Although Class C is not included, totals are inclusive of all classes of data.

Figure 2: Houston Office Market Statistics (continued)

Net Total Total Average Q3 2016 2016 YTD Submarket Rentable Vacancy Availability Asking Net Net Area (%) (%) Rate ($) Absorption Absorption North Loop/Highway 290 8,446,507 18.6 19.3 19.98 30,598 (53,167) Class A 2,137,544 26.9 28.4 24.81 25,575 (62,584) Class B 4,745,442 17.0 17.5 17.18 22,524 (1,896) South Main/Medical Center 2,584,022 16.9 17.0 26.78 4,625 49,496 Class A 879,722 7.0 7.0 31.00 (1,326) 5,269 Class B 630,845 42.4 42.4 29.86 608 36,064 Southwest Freeway 12,829,648 16.1 17.3 17.53 (23,781) 149,446 Class A 3,607,588 8.0 10.6 28.57 (41,027) 24,387 Class B 4,934,413 22.7 23.4 17.18 (45,240) (39,309) Westchase 19,822,513 16.4 23.4 29.98 (697,014) (570,360) Class A 7,255,779 15.8 30.0 43.02 (91,369) (9,910) Class B 9,508,533 17.9 21.5 22.37 (669,384) (602,178) West Belt 6,043,748 15.3 25.5 21.06 85,792 229,560 Class A 3,867,709 18.1 30.5 28.98 36,386 153,001 Class B 2,113,975 9.3 15.7 18.75 49,406 76,559 West Loop/Galleria 32,858,084 15.0 19.1 32.45 (93,086) (273,959) Class A 17,581,762 16.6 23.2 38.27 10,577 (177,727) Class B 11,830,738 13.1 14.7 27.61 (50,521) 31,469 Woodlands 8,584,812 13.8 17.5 28.00 (35,338) (109,586) Class A 6,653,614 13.6 17.4 38.63 (22,394) (32,338) Class B 1,706,715 14.6 18.1 27.97 (6,964) (67,901) Suburban Total 171,267,244 16.8 22.0 26.79 (703,713) (133,656) Class A 86,216,866 15.4 23.0 35.86 51,947 808,180 Class B 61,672,866 18.8 22.2 21.75 (725,498) (634,076) Houston Total 212,147,633 15.6 20.9 28.97 (769,553) (520,609) Class A 114,610,149 13.6 21.1 37.76 12,086 471,830 Class B 73,212,699 18.2 21.6 23.66 (752,838) (722,469) Although Class C is not included, totals are inclusive of all classes of data. Source: CBRE Research, Q3 2016.

Figure 3: Significant Leases / Sales of the Quarter Figure 4: 2016 Signed Leases by Industry

Lease (Tenant) Address Total SF 16% United Airlines 609 Main 238,000

Lloyd’s Register Americas 1330 Enclave Pky 87,000 9%

Orrick, Herrington & Sutcliffe 609 Main 57,000 58% 10%

Sale (Buyer) Property Name Total SF 5% 2% Ridgepoint Jr LLC 6464 Savoy 182,568

National Life Group 1290-1300 Hercules Ave 129,233 Energy Financial Services Business Services Engineering Healthcare Other Source: CBRE Research, Q3 2016. Source: CBRE Research, Q3 2016.

DESPITE MARKET CONDITIONS RATES INCREASE Figure 5: Lease Rates Class A gross asking rents experienced a 2.6% growth Asking Rate ($/SF) 40 rate over the past year, averaging $37.76 per sq. ft. in Q3 2016. As energy tenants downsized in prime Class 35 A space more expensive space was added to the 30 available supply, pushing rates up. Although overall rates increased to $28.97 per sq. ft. it is does not 25 reflect current market conditions, most landlords are 20 offering generous concessions as they feel pressure Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 from increasing supply. Sublease rates are Class A Class B increasingly aggressive, some are quoting operating Source: CBRE Research, Q3 2016. expenses only as sublessors try to recoup costs. Figure 6: Net Absorption Occupiers outside of Houston will find an opportunity SF (000s) to take advantage of these lower rates. 2,000

LAYOFFS RESULT IN NEGATIVE NET ABSORPTION 1,600 Additional bankruptcies, layoffs and consolidations in 1,200 the energy industry resulted in nearly 770,000 sq. ft. of 800 negative net absorption in Q3 2016. Following layoffs, 400 a large oil and gas company vacated one of their 0 properties, listed it for sale and left behind 560,000 sq. (400) ft. of vacant space. Negative net absorption also occurs (800) when tenants lease sublease space, as they occupy Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 already leased space their vacant space is added back Source: CBRE Research, Q3 2016. into the available supply. Figure 7: Vacancy & Availability AVAILABILITY HOVERS AT A 20-YEAR HIGH % Houston’s vacancy increased 60 basis points this 22 quarter, closing Q3 2016 at 15.6%. New deliveries 20 totaling nearly 900,000 sq. ft. contributed another 18 370,000sq. ft. of available vacant space; combine that 16 with more than 11.4 million sq. ft. of available 14 sublease space and total availability hits a 20-year 12 high of 20.9%. Nearly half a million sq. ft. is expected 10 to hit the sublease market in Q4 2016 and more Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Total Vacancy Availability bankruptcies and consolidations throughout 2016 will Source: CBRE Research, Q3 2016. increase available supply.

CONSTRUCTION SLOWS DOWN Figure 8: Construction Completions Nearly 1 million sq. ft. was added to Houston’s office MSF 12 inventory in Q3 2016 as four buildings delivered at 42.1% preleased. Three new starts broke ground this 10 quarter, including two small boutique properties and 8 one office property in Generation Park. Construction 6 has slowed down to 2.3 million sq. ft. at 47.7% preleased. Although demand has slowed, new 4 construction with high-end amenities is still popular 2 among occupiers. Construction is not expected to pick 0 up until supply contracts and demand for new office 2010 2011 2012 2013 2014 2015 2016 product increases. Source: CBRE Research, Q3 2016.

Figure 1: Market Overview By Submarket and Class Net Direct Direct Sublease Total Total Average Building Market Class Rentable Vacant Vacancy Available Available Availability Asking Gross Count (SF) (SF) Rate (%) (SF) (SF) Rate (%) Rate ($/SF/Yr) CBD A 28 28,393,283 2,365,295 8.3 1,970,264 4,335,559 15.3 44.80 B 24 11,539,833 1,709,468 14.8 391,906 2,101,374 18.2 35.02 C 18 947,273 148,363 15.7 90,097 238,460 25.2 22.06 Allen Parkway A 6 2,239,467 162,165 7.2 49,482 211,647 9.5 34.52 B 12 1,044,530 40,006 3.8 1,809 41,815 4.0 23.53 C 4 205,409 0 0.0 0 0 0 - Clear Lake A 13 1,855,697 118,524 6.4 45,313 163,837 8.8 24.56 B 30 2,626,577 761,121 29.0 6,889 768,101 29.2 16.98 C 23 926,052 154,221 16.7 1,250 155,471 16.8 15.01 East A 5 356,376 56,788 15.9 0 56,788 15.9 30.75 B 19 1,343,593 178,598 13.3 32,552 211,150 15.7 19.72 C 16 736,651 129,101 17.5 0 129,101 17.5 16.25 Energy Corridor A 58 18,796,583 2,799,682 14.9 2,473,891 5,273,573 28.1 38.22 B 45 4,852,658 846,568 17.5 479,140 1,325,708 27.3 26.42 C 17 1,049,878 349,300 33.3 13,174 362,474 34.5 21.55 Far West A 7 666,230 242,592 36.4 14,092 256,684 38.5 29.78 B 7 671,015 142,804 21.3 15,445 158,249 23.6 25.00 C 3 118,435 6,088 5.1 0 6,088 5.1 20.00 FM 1960/Highway 249 A 10 1,753,798 132,834 7.6 33,254 166,088 9.5 26.24 B 48 4,081,926 788,756 19.3 216,678 1,005,434 24.6 18.12 C 20 1,338,593 243,308 18.2 47,826 291,134 21.8 15.78 Greater Pearland A 2 250,000 10,033 4.0 0 10,033 4.0 - B 2 80,000 5,841 7.3 15,225 21,066 26.3 - Greenway Plaza A 16 6,031,197 1,002,516 16.6 177,461 1,179,977 19.6 40.13 B 26 3,691,830 484,347 13.1 39,941 524,288 14.2 29.29 C 29 2,066,810 557,917 27.0 5,310 563,227 27.3 23.27 Katy Freeway A 18 3,990,732 502,246 12.6 281,153 783,399 19.6 44.02 B 8 692,659 186,308 26.9 7,332 193,640 28.0 29.11 C 24 1,303,116 101,787 7.8 41,060 142,847 11.0 20.28 Kingwood A 6 266,676 49,865 18.7 0 49,865 18.7 21.95 B 8 467,516 33,883 7.3 8,730 42,613 9.1 21.85 C 4 128,750 21,246 16.5 0 21,246 16.5 17.73 North A 4 3,945,436 308,709 7.8 0 308,709 7.8 37.85 B 11 932,423 179,201 19.2 51,438 230,639 24.7 30.97 C 1 36,900 0 0.0 0 0 0.0 - North Belt/Greenspoint A 18 4,080,956 1,269,412 31.1 433,098 1,702,510 41.7 27.14 B 45 5,717,478 2,037,393 35.6 468,858 2,506,251 43.8 19.55 C 24 1,751,963 564,842 32.2 80,000 644,842 36.8 13.44 North Loop/Highway 290 A 10 2,137,544 575,263 26.9 31,564 606,827 28.4 24.81 B 41 4,745,442 805,300 17.0 26,732 832,032 17.5 17.18 C 25 1,563,521 193,013 12.3 0 193,013 12.3 16.23 South Main/Medical Center A 5 879,722 61,904 7.0 0 61,904 7.0 31.00 B 5 630,845 267,724 42.4 0 267,724 42.4 29.86 C 10 1,073,455 107,826 10.0 2,150 109,976 10.3 17.24 Southwest Freeway A 15 3,607,588 288,493 8.0 92,066 380,559 10.6 28.57 B 41 4,934,413 1,119,954 22.7 36,362 1,156,316 23.4 17.18 C 49 4,287,647 661,815 15.4 20,914 682,729 15.9 14.54 West Belt A 27 3,867,709 699,989 18.1 480,743 1,180,732 30.5 28.98 B 31 2,113,975 196,549 9.3 134,828 331,377 15.7 18.75 C 2 62,064 27,376 44.1 0 27,376 44.1 19.75 Westchase A 24 7,255,779 1,142,923 15.8 1,030,139 2,173,062 30.0 43.02 B 63 9,508,533 1,698,635 17.9 346,778 2,045,413 21.5 22.37 C 41 3,058,201 405,781 13.3 7,919 413,700 13.5 16.39 West Loop/Galleria A 45 17,581,762 2,924,577 16.6 1,155,990 4,080,567 23.2 38.27 B 79 11,830,738 1,553,531 13.1 182,628 1,736,159 14.7 27.61 C 48 3,445,584 443,454 12.9 15,836 459,290 13.3 21.76 Woodlands A 29 6,653,614 904,630 13.6 255,912 1,160,542 17.4 38.63 B 27 1,706,715 249,371 14.6 60,064 309,435 18.1 27.97 C 6 224,483 28,356 12.6 0 28,356 12.6 18.23 Suburban Total A 318 86,216,866 13,253,145 15.4 6,554,158 19,807,303 23.0 35.86 B 548 61,672,866 11,575,890 18.8 2,131,429 13,707,319 22.2 21.75 C 346 23,377,512 3,995,431 17.1 235,439 4,230,870 18.1 17.03 Houston Total A 346 114,610,149 15,618,440 13.6 8,524,422 24,142,862 21.1 37.76 B 572 73,212,699 13,285,358 18.2 2,523,335 15,808,693 21.6 23.66 C 364 24,324,785 4,143,794 17.0 325,536 4,469,330 18.4 17.09 Source: CBRE Research, Q3 2016.

Figure 2: Net Absorption and Construction Qtr 2016 YTD Under Under Delivered Delivered Market Class Direct Net Direct Net Construction Construction Construction Construction Absorption (SF) Absorption (SF) Building Count (SF) Building Count (SF) CBD A (39,861) (336,350) 1 1,056,658 1 115,000 B (27,340) (88,393) - - - - C 1,361 37,790 - - - - Allen Parkway A 370 40,224 - - - - B (14,839) 10,323 - - - - C 0 4,494 - - - - Clear Lake A 1,633 (26,040) - - - - B 19,362 252,905 - - - - C (7,755) 12,787 - - - - East A (13,121) (8,161) - - - - B 4,978 (30,256) - - - - C (18,610) (14,711) - - - - Energy Corridor A 79,295 442,062 1 385,532 B (157,317) (227,703) - - - - C (35,480) (36,841) - - - - Far West A 44,486 124,158 - - B0 1,614 - - - - C 0 (3,803) - - - - FM 1960/Highway 249 A (13,022) (37,354) - - - - B 58,831 42,859 - - - - C (18,319) (25,680) - - - - Greater Pearland A (548) 14,962 ---- B 4,051 20,953 - - - - Greenway Plaza A 61,861 366,059 1 191,805 1 182,000 B 10,201 (39,305) - - - - C (26,183) (384,921) - - - - Katy Freeway A (42,490) 89,313 3 288,173 - - B 5,618 66,933 - - - - C (9,569) (21,160) - - - - Kingwood A (2,658) 13,487 1 83,157 - - B (18,044) (13,857) - - - - C0 (1,224) - - - - North A 0 (63,823) 1 201,933 B (6,258) 24,333 - - - - C00---- North Belt/Greenspoint A 19,719 (46,805) - - B 37,812 (175,683) - - - - C 30,809 74,775 - - - - North Loop/Highway 290 A 25,575 (62,584) - - - - B 22,524 (1,896) - - - - C (17,501) 11,313 - - - - South Main/Medical Center A (1,326) 5,269 - - - - B 608 36,064 - - - - C 5,343 8,163 - - - - Southwest Freeway A (41,027) 24,387 - - - - B (45,240) (39,309) - - - - C 62,486 164,368 - - - - West Belt A 36,386 153,001 - - - - B 49,406 76,559 - - - - C0 0 ---- Westchase A (91,369) (9,910) - - B (669,384) (602,178) 1 186,000 -- C (63,739) 41,728 - - - - West Loop/Galleria A 10,577 (177,727) 2 520,000 B (50,521) 31,469 - - - - C (53,142) (127,701) - - - - Woodlands A (22,394) (32,338) - - B (6,964) (67,901) - - - - C (5,980) (9,347) - - - - Suburban Total A 51,947 808,180 7 1,083,135 3 769,465 B (725,498) (634,076) 1 186,000 -- C (30,162) (307,760) - - - - Houston Total A 12,086 471,830 8 2,139,793 4 884,465 B (752,838) (722,469) 1 186,000 -- C (28,801) (269,970) - - - - Source: CBRE Research, Q3 2016.

Figure 3: Average Asking Rates Figure 4: Net Absorption and Vacancy Asking Rate Sq. Ft. Vacancy (%) ($/SF) (000s) 40 2,000 20 $37.76 1,500 15.6% 35 15 1,000 30 500 10 $23.66 25 0 5 20 (500) $17.09 (770K) 15 (1,000) 0 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Class A Class B Class C Net Absorption Vacancy

Source: CBRE Research, Q3 2016. Source: CBRE Research, Q3 2016.

Figure 5: Significant Lease Transactions of the Quarter

Lessee Address Total SF Class Lease Type Submarket

United Airlines 609 Main 238,000 A New CBD

Lloyd’s Register Americas 1330 Enclave Pky 87,000 A Renewal Energy Corridor

Orrick, Herrington & Sutcliffe 609 Main 57,000 A New CBD

American Midstream 2103 CityWest Blvd 51,000 A Sublease Westchase

Source: CBRE Research, Q3 2016.

Figure 6: Significant Sale Transactions of the Quarter

Buyer Property Address Total SF $/PSF Class Submarket

Ridgepoint Jr LLC 6464 Savoy 182,568 21 B Southwest Freeway

National Life Group 1290-1300 Hercules Ave 129,233 NA B Clear Lake

OrangeStone Capital 555 Gemini St 124,908 NA B Clear Lake

Source: CBRE Research, Q3 2016.

CONTACTS

Robert C. Kramp Director, Research & Analysis – Texas-Oklahoma Region [email protected]

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Elizabeth Ballentine Research Coordinator +1 713 8810968 [email protected]

Kortney Debner Research Coordinator +1 713 8810933 [email protected] CBRE OFFICES

CBRE Houston 2800 Post Oak, Suite 2300 Houston, TX 77056

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. MARKETVIEW Houston Office, Q2 2016 Record subleases bring availability to a 20-year high

Vacancy Rate Avg. Asking Rate Net Absorption Under Construction 15.0% $28.47 PSF (66,985) SF 4.2 MSF

*Arrows indicate change from previous quarter. Figure 1: Availability Reaches 20-Year High at 19.8% 26%

22% 20.3% 19.8% 18%

14% 15.0% 10% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Vacancy Availability Source: CBRE Research, Q2 2016.

Sublease space in Houston surpassed 10.2 Construction is down to 4.2 million sq. ft., at million sq. ft. pushing availability (direct and 51.4% preleased and new starts are virtually non- sublease) to a 20-year high of 19.8%. In order to existent. While demand has slowed, new return to the 20-year average availability of construction with high-end amenities is still 15.8%, the Houston office market will need to popular among occupiers. When leasing activity absorb 8.4 million sq. ft., which could take three picks up, these properties will likely be in high to five years. Close to one million sq. ft. of demand. additional sublease is expected to hit the market next quarter; combine that with vacancy from Downtown and West Houston continue to bear new construction and availability could exceed the brunt of the downturn, representing more 21% in 2017. than 62% of the total sublease availability, while other submarkets, such as Greenway Plaza and How did Houston’s strong growth and robust West Loop/Galleria, are not as disproportionately office market end up in its current predicament? impacted. A closer look at sublease inventory It’s all about timing. Five years of strong job reveals an increase in sublease demand. Year-to- growth, especially in the energy sector, sparked a date, more than 600,000 sq. ft. of sublease space new construction cycle. This resulted in the has been absorbed, double the amount absorbed creation of more than 26 million sq. ft. of office over the same time period last year. space, which is the equivalent of ten Empire State Buildings. While it might appear this cycle With these market dynamics at play, every has overbuilt, Houston is not in dire straits like it transaction is on a case by case basis. Some was in the 80s when there was a 61% increase in landlords are increasingly aggressive, offering inventory, yet today’s market only grew by 15%. discounted rates with additional concessions, When a healthy, growing, energy-driven market while other landlords are holding firmly to their is hit with a sudden drop in oil prices, demand current rate. will slow. Delivery of new construction combined with a record-breaking amount of sublease listings has further exacerbated supply.

Figure 2: Houston Office Market Statistics

Net Total Total Average Q2 YTD Submarket Rentable Vacancy Availability Asking Net Net Area (%) (%) Rate ($) Absorption Absorption CBD 41,118,060 10.3 15.4 39.88 (352,876) (422,326) Class A 28,278,283 7.8 13.9 44.49 (289,685) (296,489) Class B 11,539,833 14.6 17.7 34.98 31,426 (61,053) Allen Parkway Corridor 3,489,406 6.2 7.4 32.76 32,036 39,832 Class A 2,239,467 7.3 9.0 34.53 37,657 39,854 Class B 1,044,530 5.3 5.3 24.12 (5,621) (4,516) Clear Lake 5,408,326 19.4 20.1 17.41 64,576 226,412 Class A 1,855,697 6.5 8.4 24.61 (19,998) (27,673) Class B 2,626,577 29.7 29.9 16.95 56,705 233,543 East 2,436,620 13.9 15.1 20.28 (19,569) (26,375) Class A 356,376 12.3 12.3 30.35 0 4,960 Class B 1,343,593 13.7 15.9 19.56 (7,798) (35,234) Energy Corridor 24,313,587 14.4 24.1 33.79 351,912 291,020 Class A 18,411,051 13.5 23.0 37.37 385,046 362,767 Class B 4,852,658 14.2 26.9 26.20 (32,522) (70,386) Far West 1,455,680 30.0 32.0 27.81 45,485 77,483 Class A 666,230 43.1 45.2 29.21 48,459 79,672 Class B 671,015 21.3 23.6 25.00 1,614 1,614 FM 1960/Highway 249 7,174,317 16.6 20.7 18.67 (14,665) (47,665) Class A 1,753,798 6.8 8.6 26.98 (10,399) (24,332) Class B 4,081,926 20.8 26.1 18.41 8,399 (15,972) Greater Pearland 330,000 5.9 10.2 N/A 2,773 32,412 Class A 250,000 3.8 8.5 N/A 11,740 15,510 Class B 80,000 12.4 15.6 N/A (8,967) 16,902 Greenway Plaza 11,607,837 17.1 18.9 34.61 73,785 (104,046) Class A 5,849,197 16.3 19.2 39.44 137,189 304,198 Class B 3,691,830 13.4 14.3 29.35 (25,189) (49,506) Katy Freeway 5,986,507 12.4 15.8 34.41 57,660 181,527 Class A 3,990,732 11.5 15.9 43.83 8,367 131,803 Class B 692,659 27.7 27.7 29.40 61,488 61,315 Kingwood 862,942 9.8 10.8 20.81 8,989 19,108 Class A 266,676 17.7 17.7 22.08 6,944 16,145 Class B 467,516 3.4 5.3 20.47 1,671 4,187 North 4,712,826 5.9 7.4 32.51 (37,844) (33,232) Class A 3,743,503 2.9 2.9 34.75 (63,823) (63,823) Class B 932,423 18.6 25.8 31.11 25,979 30,591 North Belt/Greenspoint 11,550,397 34.3 43.1 21.44 (195,760) (236,053) Class A 4,080,956 31.6 42.7 28.48 (34,394) (66,524) Class B 5,717,478 36.3 44.7 19.81 (197,433) (213,495)

Although Class C is not included, Totals are inclusive of all classes of data.

Figure 2: Houston Office Market Statistics (continued)

Net Total Total Average Q2 YTD Submarket Rentable Vacancy Availability Asking Net Net Area (%) (%) Rate ($) Absorption Absorption North Loop/Highway 290 8,446,507 19.0 19.7 19.73 (15,732) (83,765) Class A 2,137,544 28.1 29.6 24.79 (22,100) (88,159) Class B 4,745,442 17.4 18.0 17.07 (7,123) (24,420) South Main/Medical Center 2,584,022 17.1 17.2 26.57 28,532 44,871 Class A 879,722 6.9 6.9 30.75 6,595 6,595 Class B 630,845 42.5 42.5 29.84 11,383 35,456 Southwest Freeway 12,829,648 16.0 17.8 17.32 125,850 173,227 Class A 3,607,588 6.9 12.3 28.16 (6,904) 65,414 Class B 4,934,413 21.8 22.2 17.08 44,826 5,931 Westchase 19,822,513 12.9 19.1 29.71 (54,496) 126,654 Class A 7,255,779 14.5 27.4 43.40 (83,188) 81,459 Class B 9,508,533 10.8 13.9 22.27 91,071 67,206 West Belt 6,043,748 16.7 24.2 21.27 107,540 143,768 Class A 3,867,709 19.0 27.0 28.91 111,568 116,615 Class B 2,113,975 11.6 18.3 20.05 (4,028) 27,153 West Loop/Galleria 32,965,865 14.8 19.1 32.68 (231,476) (180,873) Class A 17,581,762 16.7 24.0 38.20 (80,802) (188,304) Class B 11,830,738 12.7 13.9 27.50 (75,083) 81,990 Woodlands 8,584,812 13.4 17.6 29.21 (43,705) (74,248) Class A 6,653,614 13.3 17.8 38.38 (11,754) (9,944) Class B 1,706,715 14.2 17.9 28.02 (24,025) (60,937) Suburban Total 170,605,560 16.1 20.8 26.32 285,891 570,057 Class A 85,447,401 14.8 21.4 35.44 420,203 756,233 Class B 61,672,866 17.6 21.1 21.64 (84,653) 91,422 Houston Total 211,723,620 15.0 19.8 28.47 (66,985) 147,731 Class A 113,725,684 13.0 19.6 37.37 130,518 459,744 Class B 73,212,699 17.1 20.6 23.57 (53,227) 30,369 Although Class C is not included, Totals are inclusive of all classes of data. Source: CBRE Research, Q2 2016. Figure 3: Top Leases / Sales of the Quarter Figure 4: 2016 Signed Leases by Industry

Lease (Tenant) Address Total SF

American Bureau of Shipping (ABS) Springwoods Village Pky 326,000 19%

Tudor, Pickering, Holt & Co. 1111 Bagby 89,000 45% G&A Outsourcing 17220 Katy Fwy 40,000 13%

Sale (Buyer) Property Name Total SF 8% 2% Confidential River Oaks District 92,000 13% First Service Credit Union 16430 Park Ten 110,000 Energy Financial Services Business Services Williamsburg Enterprises/Fidelis Realty 4300 Dacoma 547,000 Engineering Healthcare Other

Source: CBRE Research, Q2 2016. Source: CBRE Research, Q2 2016.

CLASS A RATES DROP, CONCESSIONS INCREASE Figure 5: Lease Rates New construction and increasing property taxes Asking Rate ($/SF) kept Houston's overall rates from dropping in Q2 40 $37.37 2016, closing the quarter at $28.47 per sq. ft. As 35 supply increased, some Class A landlords reduced 30 rates by more than $4.00 per sq. ft. pushing overall $23.57 Class A rates down. Sublease rates are increasingly 25 aggressive including some instances of marketing 20 a $0.00 net rate (operating expenses only), as Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Class A Class B sublessors try to recoup any costs. Houston Source: CBRE Research, Q2 2016. occupiers have the advantage as some prime properties will offer concessions including 6 to 18 Figure 6: Net Absorption months of free rent and $50.00 to $75.00 per sq. ft. SF (000’s) of tenant improvements. 1,800

21 QUARTERS OF POSITIVE ABSORPTION ENDS 1,300 It comes as no surprise that energy tenants are downsizing and consolidating, bringing Houston’s 800 21 quarters of positive absorption to an end. In addition, we are beginning to see some sublease 300 (67KSF) availability burn off as the lease term expires and returns to the market as direct available space. This -200 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 trend will continue throughout 2016. Hilcorp Energy vacated over 160,000 sq. ft. at Total Plaza in Source: CBRE Research, Q2 2016. the CBD and occupied the recently completed Figure 7: Vacancy & Availability Hilcorp Energy Tower. % 19.8% AVAILABILITY AT A 20-YEAR HIGH 20 Houston’s vacancy increased 70 basis points this 18 quarter, closing Q2 2016 at 15.0%. New deliveries 16 15.0% totaling 1.7 million sq. ft. contributed another one 14 million sq. ft. of available vacant space; combine 12 that with more than 10.2 million sq. ft. of available 10 sublease space and total availability hits a 20-year Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 high of 19.8%. Nearly one million sq. ft. is expected Total Vacancy Availability to hit the sublease market in Q3 2016 and it is likely Source: CBRE Research, Q2 2016. Houston will see even more bankruptcies and consolidations throughout 2016. Figure 8: Construction Completions CONSTRUCTION SLOWS DOWN MSF 12 More than 1.6 million sq. ft. was added to Houston’s office inventory in Q2 2016 as five 10 buildings delivered at 39.1% preleased. New starts 8 are virtually non-existent and construction has 6 slowed down to 4.2 million sq. ft. at 51.4% 4 preleased. Although demand has slowed, new construction with high-end amenities is still 2 popular among occupiers. Construction is not 0 2010 2011 2012 2013 2014 2015 2016 expected to pick up until supply contracts and demand for new office product increases. Source: CBRE Research, Q2 2016.

Q2 2016 CBRE Research © 2016 CBRE, Inc. | 4 MARKETVIEW INSERT Houston Office, Q2 2016 Figure 1: Market Overview By Submarket and Class Net Direct Direct Sublease Total Total Average Building Market Class Rentable Vacant Vacancy Available Available Availability Asking Gross Count (SF) (SF) Rate (%) (SF) (SF) Rate (%) Rate ($/SF/Yr) CBD A 27 28,278,283 2,210,434 7.8 1,707,697 3,918,131 13.9 44.49 B 24 11,539,833 1,682,128 14.6 362,679 2,044,807 17.7 34.98 C 20 1,299,944 358,829 27.6 11,857 370,686 28.5 17.40 Allen Parkway A 6 2,239,467 162,535 7.3 37,807 200,342 9.0 34.53 B 12 1,044,530 54,845 5.3 758 55,603 5.3 24.12 C 4 205,409 0 0.0 674 674 0.3 - Clear Lake A 13 1,855,697 120,157 6.5 34,737 154,894 8.4 24.61 B 30 2,626,577 780,483 29.7 4,867 785,350 29.9 16.95 C 23 926,052 146,466 15.8 0 146,466 15.8 14.94 East A 5 356,376 43,667 12.3 0 43,667 12.3 30.35 B 19 1,343,593 183,576 13.7 29,884 213,460 15.9 19.56 C 16 736,651 110,491 15.0 0 110,491 15.0 16.88 Energy Corridor A 57 18,411,051 2,493,445 13.5 1,735,660 4,229,105 23.0 37.37 B 45 4,852,658 689,251 14.2 613,692 1,302,943 26.9 26.20 C 17 1,049,878 313,820 29.9 16,287 330,107 31.4 22.14 Far West A 7 666,230 287,078 43.1 14,092 301,170 45.2 29.21 B 7 671,015 142,804 21.3 15,445 158,249 23.6 25.00 C 3 118,435 6,088 5.1 0 6,088 5.1 20.00 FM 1960/Highway 249 A 10 1,753,798 119,812 6.8 30,520 150,332 8.6 26.98 B 48 4,081,926 847,587 20.8 215,670 1,063,257 26.1 18.41 C 20 1,338,593 224,989 16.8 47,826 272,815 20.4 16.17 Greater Pearland A 2 250,000 9,485 3.8 11,683 21,168 8.5 - B 2 80,000 9,892 12.4 2,618 12,510 15.6 - Greenway Plaza A 15 5,849,197 954,715 16.3 170,923 1,125,638 19.2 39.44 B 26 3,691,830 494,548 13.4 33,744 528,292 14.3 29.35 C 29 2,066,810 531,734 25.7 5,310 537,044 26.0 23.29 Katy Freeway A 18 3,990,732 459,756 11.5 174,177 633,933 15.9 43.83 B 8 692,659 191,926 27.7 0 191,926 27.7 29.40 C 24 1,303,116 92,218 7.1 26,028 118,246 9.1 20.55 Kingwood A 6 266,676 47,207 17.7 0 47,207 17.7 22.08 B 8 467,516 15,839 3.4 8,730 24,569 5.3 20.47 C 4 128,750 21,246 16.5 0 21,246 16.5 17.73 North A 3 3,743,503 106,776 2.9 0 106,776 2.9 34.75 B 11 932,423 172,943 18.6 67,863 240,806 25.8 31.11 C 1 36,900 0 0.0 0 0 0.0 - North Belt/Greenspoint A 18 4,080,956 1,289,131 31.6 452,929 1,742,060 42.7 28.48 B 45 5,717,478 2,075,205 36.3 481,349 2,556,554 44.7 19.81 C 24 1,751,963 595,651 34.0 80,000 675,651 38.6 13.41 North Loop/Highway A 10 2,137,544 600,838 28.1 31,564 632,402 29.6 24.79 290 B 41 4,745,442 827,824 17.4 28,129 855,953 18.0 17.07 C 25 1,563,521 175,512 11.2 0 175,512 11.2 13.49 South Main/Medical A 5 879,722 60,578 6.9 0 60,578 6.9 30.75 Center B 5 630,845 268,332 42.5 0 268,332 42.5 29.84 C 10 1,073,455 113,169 10.5 2,950 116,119 10.8 17.11 Southwest Freeway A 15 3,607,588 247,466 6.9 197,515 444,981 12.3 28.16 B 41 4,934,413 1,074,714 21.8 19,657 1,094,371 22.2 17.08 C 49 4,287,647 724,301 16.9 17,700 742,001 17.3 14.52 West Belt A 27 3,867,709 736,375 19.0 308,505 1,044,880 27.0 28.91 B 31 2,113,975 245,955 11.6 141,383 387,338 18.3 20.05 C 2 62,064 27,376 44.1 0 27,376 44.1 19.75 Westchase A 24 7,255,779 1,051,554 14.5 938,080 1,989,634 27.4 43.40 B 63 9,508,533 1,029,251 10.8 289,897 1,319,148 13.9 22.27 C 41 3,058,201 469,520 15.4 15,304 484,824 15.9 15.90 West Loop/Galleria A 45 17,581,762 2,935,154 16.7 1,275,011 4,210,165 24.0 38.20 B 79 11,830,738 1,503,010 12.7 136,596 1,639,606 13.9 27.50 C 50 3,553,365 426,778 12.0 18,797 445,575 12.5 21.74 Woodlands A 29 6,653,614 882,236 13.3 301,138 1,183,374 17.8 38.38 B 27 1,706,715 242,407 14.2 62,886 305,293 17.9 28.02 C 6 224,483 22,376 10.0 0 22,376 10.0 18.14 Suburban Total A 315 85,447,401 12,607,965 14.8 5,714,341 18,322,306 21.4 35.44 B 548 61,672,866 10,850,392 17.6 2,153,168 13,003,560 21.1 21.64 C 348 23,485,293 4,001,735 17.0 230,876 4,232,611 18.0 16.66 Houston Total A 342 113,725,684 14,818,399 13.0 7,422,038 22,240,437 19.6 37.37 B 572 73,212,699 12,532,520 17.1 2,515,847 15,048,367 20.6 23.57 C 368 24,785,237 4,360,564 17.6 242,733 4,603,297 18.6 16.69 Source: CBRE Research, Q2 2016.

Figure 2: Absorption and Construction

Qtr 2016 YTD Under Under Delivered Delivered Market Class Direct Net Direct Net Construction Construction Construction Construction Absorption (SF) Absorption (SF) Building Count (SF) Building Count (SF) CBD A (289,685) (296,489) 2 1,171,658 - - B 31,426 (61,053) - - - - C (94,617) (64,784) - - - - Allen Parkway A 37,657 39,854 - - - - B (5,621) (4,516) - - - - C 0 4,494 - - - - Clear Lake A (19,998) (27,673) - - - - B 56,705 233,543 - - - - C 27,869 20,542 - - - - East A 0 4,960 - - - - B (7,798) (35,234) - - - - C (11,771) 3,899 - - - - Energy Corridor A 385,046 362,767 1 428,565 1 524,744 B (32,522) (70,386) - - - - C (612) (1,361) - - - - Far West A 48,459 79,672 - - 1 124,295 B 1,614 1,614 - - - - C (4,588) (3,803) - - - - FM 1960/Highway 249 A (10,399) (24,332) - - - - B 8,399 (15,972) - - - - C (12,665) (7,361) - - - - Greater Pearland A 11,740 15,510 ---- B (8,967) 16,902 - - - - Greenway Plaza A 137,189 304,198 2 398,696 -- B (25,189) (49,506) - - - - C (38,215) (358,738) - - - - Katy Freeway A 8,367 131,803 1 226,511 - - B 61,488 61,315 - - - - C (12,195) (11,591) - - - - Kingwood A 6,944 16,145 - - B 1,671 4,187 - - - - C 374 (1,224) - - - - North A (63,823) (63,823) 1 201,933 - - B 25,979 30,591 - - - - C00---- North Belt/Greenspoint A (34,394) (66,524) - - B (197,433) (213,495) - - - - C 36,067 43,966 - - - - North Loop/Highway 290 A (22,100) (88,159) - - - - B (7,123) (24,420) - - - - C 13,491 28,814 - - - - South Main/Medical Center A 6,595 6,595 - - - - B 11,383 35,456 - - - - C 10,554 2,820 - - - - Southwest Freeway A (6,904) 65,414 - - - - B 44,826 5,931 - - - - C 87,928 101,882 - - - - West Belt A 111,568 116,615 - - - - B (4,028) 27,153 - - - - C0 0 ---- Westchase A (83,188) 81,459 1 1,100,000 - - B 91,071 67,206 1 186,000 -- C (62,379) (22,011) - - - - West Loop/Galleria A (80,802) (188,304) 2 520,000 2 765,000 B (75,083) 81,990 - - - - C (75,591) (74,559) - - - - Woodlands A (11,754) (9,944) - - 1 240,470 B (24,025) (60,937) - - - - C (7,926) (3,367) - - - - Suburban Total A 420,203 756,233 8 2,875,705 5 1,654,509 B (84,653) 91,422 1 186,000 -- C (49,659) (277,598) - - - - Houston Total A 130,518 459,744 10 4,047,363 5 1,654,509 B (53,227) 30,369 1 186,000 -- C (144,276) (342,382) - - - - Source: CBRE Research, Q2 2016.

Figure 3: Average Asking Rates Figure 4: Net Absorption and Vacancy Asking Rate SF (000’s) Vacancy (%) ($/SF) 20 40 1,800 $37.37 15.0% 15 35 1,300

30 10 800 25 $23.57 300 5 20 $16.69 (67KSF) 15 (200) 0 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Class A Class B Class C Net Absorption Vacancy

Source: CBRE Research, Q2 2016. Source: CBRE Research, Q2 2016.

Figure 5: Significant Lease Transactions of the Quarter

Lessee Address Total SF Class Lease Type Submarket

American Bureau of Shipping Springwoods Village Pky 326,000 A New North

Tudor, Pickering, Holt & Co. 1111 Bagby 89,000 A Renewal CBD

G&A Outsourcing 17220 Katy Fwy 40,000 A New Energy Corridor

Patterson-UTI Drilling 10713 W Sam Houston Pky N 36,000 A New West Belt

Source: CBRE Research, Q2 2016.

Figure 6: Significant Sale Transactions of the Quarter

Buyer Property Address Total SF $/PSF Class Submarket

Confidential 4444 Westheimer 92,000 806* A West Loop/Galleria

First Service Credit Union 16430 Park Ten 110,000 105 B Energy Corridor

Williamsburg Enterprise/Fidelis Realty 4300 Dacoma 547,000 20 B North Belt

*Part of a 682,481 sq. ft. mixed-use complex.

Source: CBRE Research, Q2 2016.

CONTACTS

Robert C. Kramp Director, Research & Analysis – Texas-Oklahoma Region [email protected]

E. Michelle Miller Research Operations Manager [email protected]

Angie Bauer-Hamilton Research Team Lead [email protected]

Cammie Moise Senior Research Analyst +1 713 8810947 [email protected]

Elizabeth Ballentine Research Coordinator +1 713 8810968 [email protected]

Kortney Debner Research Coordinator +1 713 8810933 [email protected] CBRE OFFICES

CBRE Houston 2800 Post Oak, Suite 2300 Houston, TX 77056

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. MARKETVIEW Houston Office, Q1 2016 Compounding sublease space as new construction delivers

14.3% $28.24 PSF 214,716 SF 5.8 MSF

Figure 1: Sublease Pushed Past 8.4 Million sq. ft. in Q1 2016 *Arrows indicate change from previous quarter. Sublease (MSF) 9 8 7 6 5

3 > 15-year Average Sublease 2 3.8 MSF

Q1 2007 Q1 Q12000 Q12001 Q12002 Q12003 Q12004 Q12005 Q12006 Q12008 Q12009 Q12010 Q12011 Q12012 Q12013 Q12014 Q12015 Q12016 Source: CBRE Research, Q1 2016.

Figure 2: Houston Office Market Statistics

Submarket Net Total Total Average Q1 YTD Rentable Vacancy Availability Asking Net Net Area (%) (%) Rate ($) Absorption Absorption CBD 41,118,0600 9.5 14.1 39.77 (69,450) (69,450) Class A 28,278,283 6.8 12.2 45.61 (6,804) (6,804) Class B 11,539,833 14.9 17.8 34.96 (92,479) (92,479) Allen Parkway Corridor 3,489,406 7.2 7.5 33.21 7,796 7,796 Class A 2,239,467 8.9 9.5 34.73 2,197 2,197 Class B 1,044,530 4.7 4.8 22.98 1,105 1,105 Clear Lake 5,408,326 20.6 21.2 17.52 161,836 161,836 Class A 1,855,697 5.4 7.3 23.67 (7,675) (7,675) Class B 2,626,577 31.9 31.9 17.04 176,838 176,838 East 2,436,620 13.1 14.3 21.39 (6,806) (6,806) Class A 356,376 12.3 12.3 30.35 4,960 4,960 Class B 1,343,593 13.1 15.3 21.50 (27,436) (27,436) Energy Corridor 23,788,843 14.0 21.4 31.93 (60,892) (60,892) Class A 17,886,307 13.2 19.7 35.91 (22,279) (22,279) Class B 4,852,658 13.5 25.8 26.54 (37,864) (37,864) Far West 1,331,385 26.8 28.0 28.16 31,998 31,998 Class A 541,935 39.0 39.0 30.45 31,213 31,213 Class B 671,015 21.5 23.8 24.83 0 0 FM 1960/Highway 249 7,174,317 16.4 20.0 18.74 (33,000) (33,000) Class A 1,753,798 6.2 7.2 26.61 (13,933) (13,933) Class B 4,081,926 21.0 25.6 18.50 (24,371) (24,371) Greater Pearland 330,000 6.7 11.0 N/A 29,639 29,639 Class A 250,000 8.5 13.2 N/A 3,770 3,770 Class B 80,000 1.2 4.3 N/A 25,869 25,869 Greenway Plaza 11,607,837 17.7 19.5 35.57 (177,831) (177,831) Class A 5,849,197 18.7 21.6 39.63 167,009 167,009 Class B 3,691,830 12.7 13.5 30.53 (24,317) (24,317) Katy Freeway 5,986,507 13.4 17.1 36.08 123,867 123,867 Class A 3,990,732 11.7 16.4 41.71 123,436 123,436 Class B 692,659 36.6 36.6 30.37 (173) (173) Kingwood 862,942 10.8 11.8 20.65 10,119 10,119 Class A 266,676 20.3 20.3 21.76 9,201 9,201 Class B 467,516 3.8 5.6 20.21 2,516 2,516 North 4,712,826 5.1 7.0 31.00 4,612 4,612 Class A 3,743,503 1.2 1.2 N/A 0 0 Class B 932,423 21.3 30.7 31.00 4,612 4,612 North Belt/Greenspoint 11,550,397 32.6 38.7 21.43 (40,293) (40,293) Class A 4,080,956 30.8 41.1 30.10 (32,130) (32,130) Class B 5,717,478 32.8 36.4 18.80 (16,062) (16,062)

Although Class C is not included, Totals are inclusive of all classes of data.

Figure 2: Houston Office Market Statistics (continued)

Submarket Net Total Total Average Q1 YTD Rentable Vacancy Availability Asking Net Net Area (%) (%) Rate ($) Absorption Absorption North Loop/Highway 290 8,446,507 18.8 19.4 19.66 (68,033) (68,033) Class A 2,137,544 27.1 28.6 24.71 (66,059) (66,059) Class B 4,745,442 17.3 17.7 17.20 (17,297) (17,297) South Main/Medical Center 2,584,022 18.2 18.5 26.15 16,339 16,339 Class A 879,722 7.6 7.9 30.18 0 0 Class B 630,845 44.3 44.3 29.30 24,037 24,037 Southwest Freeway 12,829,648 17.0 18.2 16.88 47,377 47,377 Class A 3,607,588 6.7 10.5 27.66 72,318 72,318 Class B 4,934,413 22.7 23.2 17.02 (38,895) (38,895) Westchase 19,896,025 12.9 18.8 29.65 181,150 181,150 Class A 7,255,779 13.4 27.3 44.04 164,647 164,647 Class B 9,508,533 11.8 13.2 21.76 (23,865) (23,865) West Belt 6,043,748 18.5 23.8 25.50 36,228 36,228 Class A 3,867,709 21.9 29.6 29.51 5,047 5,047 Class B 2,113,975 11.4 12.5 19.60 31,181 31,181 West Loop/Galleria 32,200,865 12.0 15.5 32.98 50,603 50,603 Class A 16,816,762 12.4 18.1 38.64 (107,502) (107,502) Class B 11,830,738 12.1 13.4 28.03 157,073 157,073 Woodlands 8,344,342 10.3 14.5 28.98 (30,543) (30,543) Class A 6,413,144 9.8 14.4 38.38 1,810 1,810 Class B 1,706,715 12.8 16.1 27.52 (36,912) (36,912) Suburban Total 169,024,563 15.5 19.4 26.12 284,166 284,166 Class A 83,792,892 13.6 19.3 35.46 336,030 336,030 Class B 61,672,866 17.5 20.0 21.74 176,075 176,075 Houston Total 210,142,623 14.3 18.3 28.24 214,716 214,716 Class A 112,071,175 11.9 17.5 37.49 329,226 329,226 Class B 73,212,699 17.1 19.7 23.74 83,596 83,596 Although Class C is not included, Totals are inclusive of all classes of data. Source: CBRE Research, Q1 2016. Figure 3: Top Leases / Sales of the Quarter Figure 4: 2015 Signed Leases by Industry Lease (Tenant) Address Total SF

Wyle Laboratories 2400 Nasa Parkway 78,000 20%

BNY Mellon 601 Travis 62,000 43% Bureau Veritas 16800 Greenspoint 44,000 15%

Sale (Buyer) Property Name Total SF 12% Equus Capital Partners 5300 Memorial 153,626 5% 5%

Equus Capital Partners Town & Country Central I 148,936 Energy Financial Services Business Services Quasar Galleria Avi Ron 5433 Westheimer 134,187 Engineering Healthcare Other Source: CBRE Research, Q1 2016. Source: CBRE Research, Q1 2016.

RENTS BEGIN THEIR ANTICIPATED DESCENT Figure 5: Lease Rates Asking Rate ($/SF) 40 $37.49 35 Class A 30 Class B $23.74 25

20 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Source: CBRE Research, Q1 2016.

NET ABSORPTION IN THE BLACK, BUT NOT REALLY Figure 6: Net Absorption Sq. Ft. (000’s) 1,750 1,500 1,250 1,000 750 500 215K 250 0 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Source: CBRE Research, Q1 2016. VACANCY & AVAILABILITY TO CREST IN 2016 Figure 7: Vacancy & Availability % 20 Total Availability Rate vs. 18.3% 18 Total Vacancy Rate

16 14.3% 14

10 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Source: CBRE Research, Q1 2016.

Figure 8: Construction Completions

COMPLETIONS WILL TIGHTEN. FINALLY. Sq. Ft. (Millions) 12 11 10 9 8 7 6 5 4 3 2 1 0 2009 2010 2011 2012 2013 2014 2015 Source: CBRE Research, Q1 2016.

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Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. MARKETVIEW Houston Office, Q4 2015 Year closes in the wake of short oil and tall construction Vacancy Rate Avg. Asking Rate Net Absorption Under Construction 14.2% $28.67 $/SF 1.2 MSF 7.4 MSF

Figure 1: Deliveries vs. Vacancy *Arrows indicate change from previous quarter. Sq. Ft. (Millions) % 12 16

10 14 8

6 12

4 10 2

0 8 2011 2012 2013 2014 2015 Source: CBRE Research, Q4 2015. Deliveries Vacancy Rate As oil prices greased their downward spiral Meanwhile, these new Class A deliveries came throughout 2015, slipping past $35/bbl in online with asking rents above market averages December, Houston’s office market comes into causing overall rents to trend upwards. Still, several view at year-end as the most vulnerable of the submarkets finally saw Class A rents reflect the region’s commercial real estate sectors. While the pullback in tenant demand and these include the headlines debate themselves about how low prices CBD, West Loop/Galleria, Westchase and North Belt. will go and for how long, the actual office data Eyeing the year ahead, Houston will watch its office itself requires time to catch up with a rapidly supply increase by another 6.7 million sq. f. of new moving situation. construction with approximately 3.3 million sq. f. Take for example this past quarter. Houston’s directly available. This space, combined with 29.9 office market reported an additional 1.2 million sq. million sq. f. of existing direct vacant space, means f. of direct positive absorption but this seven- projected direct vacancy will eclipse 15.2%, a five figure measure was driven exclusively by new year-high dating back to when Houston was first deliveries in Q4 2015 where single-tenant emerging from the Great Recession. occupiers claimed the lion’s share of this demand at nearly a million sq. f. In fact, Houston’s However the Houston office market tango includes construction pipeline is the story of the entire year some upside with the largest energy office occupiers where space deliveries in the Class A sector totaled publicly stating their long-term strategies to weather 11.6 million sq. f. (38.1% pre-leased) and help the steep slump in crude and natural gas explain why the total annual absorption clocked up commodity prices. Shuffling to office leasing, to nearly 4.8 million sq. f. across all categories of Houston will likely be waiting longer for these prices owned, single- and multi-tenant space. to climb back to a sustainable, break-even mark Examining beyond the total calculations, though, before the overall vacancy numbers begin to gain an when the 4.2 million sq. f. of owner occupied equal footing where the CBD, Energy Corridor, space deliveries are excluded, Houston’s Westchase and The Woodlands will require more competitive leasing market actually absorbed less time before being in the clear. than 600,000 sq. f. during 2015.

Figure 2: Houston Office Market Statistics

Submarket Net Total Total Average Q4 YTD Rentable Vacancy Availability Asking Net Net Area (%) (%) Rate ($) Absorption Absorption CBD 42,225,960 9.1 12.8 39.70 (53,042) (588,727) Class A 28,278,283 6.8 10.9 45.95 (38,609) (97,196) Class B 12,647,733 12.8 15.8 34.91 69 (460,616) Allen Parkway Corridor 3,489,406 7.4 7.9 31.93 4,991 25,572 Class A 2,239,467 9.0 9.8 33.67 (459) 18,376 Class B 1,044,530 4.8 5.0 25.44 5,450 (13,361) Clear Lake 5,408,326 23.6 24.2 17.94 27,191 (61,652) Class A 1,855,697 5.0 6.9 24.98 20,798 40,216 Class B 2,626,577 38.6 38.6 17.53 (5,152) (107,621) East 2,436,620 12.8 12.9 19.89 4,251 93,972 Class A 356,376 13.6 13.6 29.16 (3,580) (6,583) Class B 1,343,593 11.0 11.2 20.75 6,697 52,941 Energy Corridor 23,788,843 13.7 21.2 32.46 20,347 795,762 Class A 17,886,307 13.0 19.9 36.83 17,023 1,026,082 Class B 4,852,658 12.8 23.9 26.12 7,466 (176,543) Far West 1,180,198 20.2 20.5 26.00 29,169 360,283 Class A 390,748 23.4 23.4 27.69 23,489 153,910 Class B 671,015 21.5 22.1 24.99 5,680 194,261 FM 1960/Highway 249 7,174,317 16.0 18.5 18.68 168,438 707,325 Class A 1,753,798 5.4 6.5 26.24 17,028 508,577 Class B 4,081,926 20.4 23.7 18.56 150,352 155,583 Greater Pearland 330,000 15.7 19.2 - (854) (8,324) Class A 250,000 10.0 14.7 - (854) (20,795) Class B 80,000 33.5 33.5 - 0 12,471 Greenway Plaza 11,955,873 17.3 19.0 35.77 134,672 (212,240) Class A 5,849,197 21.5 24.6 41.58 165,557 (115,377) Class B 3,798,530 12.4 12.9 30.50 (11,849) (91,825) Katy Freeway 5,891,048 14.1 16.6 36.32 527,366 673,363 Class A 3,895,273 12.7 16.1 41.50 535,073 664,586 Class B 692,659 36.6 36.6 30.91 (10,279) (11,463) Kingwood 862,942 12.2 13.4 19.24 (1,594) 11,217 Class A 266,676 23.8 24.1 19.84 1,526 3,444 Class B 467,516 4.3 6.2 18.92 (535) 610 North 4,712,826 5.2 6.7 31.71 5,695 3,117,172 Class A 3,743,503 1.2 1.2 35.00 0 3,124,851 Class B 932,423 21.8 29.1 31.00 5,695 (7,679) North Belt/Greenspoint 11,550,397 32.2 39.1 21.19 (194,627) (1,153,120) Class A 4,080,956 30.0 42.0 28.40 55,239 (495,229) Class B 5,717,478 32.6 36.5 19.44 (232,207) (640,461) Although Class C is not included, Totals are inclusive of all classes of data

Figure 2: Houston Office Market Statistics (continued) Submarket Net Total Total Average Q4 YTD Rentable Vacancy Availability Asking Net Net Area (%) (%) Rate ($) Absorption Absorption North Loop/Highway 290 8,446,507 18 18.8 19.71 142,688 183,897 Class A 2,137,544 24 25.8 25.08 135,412 199,570 Class B 4,745,442 16.9 17.5 17.63 (15,704) (16,736) South Main/Medical Center 2,584,022 18.8 19.2 26.26 28,332 (155,052) Class A 879,722 7.6 7.9 30.18 3,846 44,807 Class B 630,845 48.2 48.2 29.36 (2,066) (214,980) Southwest Freeway 12,829,648 17.3 18.6 17.78 64,621 222,315 Class A 3,607,588 8.7 12.8 29.48 10,282 113,552 Class B 4,934,413 21.9 22 17.2 (4,775) 1,350 Westchase 19,451,025 12.4 16.9 26.97 (103,581) 206,321 Class A 6,810,779 11.6 23.6 39.19 1,354 (40,974) Class B 9,508,533 11.5 12.2 22.63 (111,529) 156,094 West Belt 6,043,748 19.1 23.4 27.11 9,333 332,309 Class A 3,867,709 22.1 28.3 30.86 (7,786) 393,162 Class B 2,113,975 12.9 13.7 21.62 17,119 (60,853) West Loop/Galleria 32,200,865 12.2 14.4 33.71 (123,061) (584,863) Class A 16,816,762 11.8 14.8 39.86 (217,327) (566,343) Class B 11,830,738 13.4 15.1 27.81 99,696 (11,524) Woodlands 8,344,342 10 14.3 38.78 538,604 822,158 Class A 6,413,144 9.9 14.6 41.02 503,968 912,196 Class B 1,706,715 10.6 13.7 28.07 37,692 (94,789 Suburban Total 168,680,953 15.4 18.8 26.83 1,281,981 5,376,415 Class A 83,101,246 13.4 18.4 35.99 1,260,589 5,958,028 Class B 61,779,566 17.8 20 22.17 (58,249) (874,525) Houston Total 210,906,913 14.2 17.6 28.67 1,228,939 4,787,688 Class A 111,379,529 11.7 16.5 37.73 1,221,980 5,860,832 Class B 74,427,299 16.9 19.3 23.98 (58,180) (1,335,141) Although Class C is not included, Totals are inclusive of all classes of data Source: CBRE Research, Q4 2015. Figure 3: Top Leases / Sales of the Quarter Figure 4: 2015 Signed Leases by Industry

Lease (Tenant) Address Total SF

Apache Corporation Post Oak Central 524,000 26% 34% Enervest 1001 Fannin 253,833

Bracewell & Guiliani 711 Louisiana 189,061 8% Sale (Buyer) Property Name Total SF 8% 13% Masaveu Inmobliaria S.A. BBVA Compass Plaza 326,200 11%

Prime Asset Management Houston Chronicle Building 550,000 Energy Financial Services Business Services Space Center Acquisition LLC 16055 Space Center Blvd. 149,144 Engineering Healthcare Other Source: CBRE Research, Q4 2015. Source: CBRE Research, Q4 2015.

LEASE RATES Figure 5: Lease Rates Rent concessions, including free rent and tenant Asking Rate ($/ SF) improvements, escalated throughout the year but 40 $37.73 negotiated face rates on prime space for long-term 35 credit leases remained somewhat stable. Houston is Class A Class B not out of the woods yet, though, as concessions 30 designed to induce occupier demand are being $23.98 25 included and these now range from 6 to 18 months of free rent and upwards of $50.00 to $75.00 per sq. 20 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 f. of tenant improvements. Source: CBRE Research, Q4 2015.

NET ABSORPTION Figure 6: Net Absorption Houston experienced 1.2 million sq. f. of positive Sq. Ft. (000’s) absorption this quarter, bringing the year-to-date 2,000 total to 4.8 million sq. f. This quarter’s positive absorption was driven by two oil and gas ﬁrms 1,500 1,228K occupying almost 1 million sq. f. of oﬃce space in 1,000 single tenant deliveries. Excluding build-to-suit and single tenant deliveries in 2015, which total 5.7 500 million sq. f., Houston’s competitive leasing market 0 resulted in approximately 1 million sq. f. of Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 negative growth for the year. Source: CBRE Research, Q3 2015.

VACANCY & AVAILABILITY Figure 7: Vacancy & Availability Market wide vacancy increased 100 basis points this % 17.6% quarter, closing 2015 at 14.2%. Additional deliveries 18 Total Availability Rate vs. in Q4 2015, totaling 3.7 million sq. f. came online Total Vacancy Rate 50% leased, contributing to rising physical vacancy. 16 14.2% Houston’s office market was further burdened during 14 2015 when sublease inventory increased 75.7%, closing Q4 2015 with 7.3 million sq. f. of space. 12 Shadow space is a wildcard as oil & gas merger and 10 acquisition activity will further fuel flames of space Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 availability as these newly formed companies surely Source: CBRE Research, Q4 2015. downsize their real estate footprints afer closing. Making the outlook even more opaque is the Figure 8: Construction Completions likelihood of bankruptcies filed by energy occupiers Sq. Ft. and their impact on office space in the year ahead. (Millions) 12 11 UNDER CONSTRUCTION & COMPLETIONS 10 Houston has 22 office projects under construction 9 8 totaling 7.4 million sq. f. with 52.4% of it pre- 7 6 leased. The majority of the new construction activity 5 is concentrated in the CBD, West Loop/Galleria and 4 3 the West Houston submarkets. Meanwhile, the 2 1 mixed-use developments of Kirby Collection in 0 Greenway Plaza and The Post Oak in the West Loop/ 2009 2010 2011 2012 2013 2014 2015 Galleria submarket both broke ground this quarter. Source: CBRE Research, Q4 2015.

CONTACTS

Robert C. Kramp Director, Research & Analysis – South Central U.S. [email protected]

E. Michelle Miller Research Operations Manager [email protected]

Angie Bauer-Hamilton Research Team Lead [email protected]

Cammie Moise Senior Research Analyst +1 713 8810947 [email protected]

Elizabeth Ballentine Research Coordinator +1 713 8810968 [email protected]

Kortney Debner Research Coordinator +1 713 8810933 [email protected] CBRE OFFICES

CBRE Houston 2800 Post Oak, Suite 2300 Houston, TX 77056

CBRE Downtown 700 Louisiana, Suite 2700 Houston, TX 77002 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway . DEFINITIONS Average Asking Rate - Direct Annual Lease Rates, Full Service Gross, Weighted Average dependent on available space. Availability - All existing space being marketed for lease – Direct Vacancy + Sublease Vacancy. Vacancy - Direct Vacancy.

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. MARKETVIEW Houston Office, Q3 2015 Current Crude Oil Prices Slow to Bubble Up in Office Market

13.2% $27.74 $/SF 1.5 MSF 10.7 MSF

*Arrows indicate change from previous quarter. Figure 1: Total Sublease vs. Price of Oil

Sq. Ft. $/bbl (Millions) Sublease RSF Price of Oil 7.5 $140 6.5 $115 5.5 4.5 $90 3.5 $65 2.5 $40 1.5

0.5 $15

Q1 Q1 2000 Q3 2000 Q1 2001 Q3 2001 Q1 2002 Q3 2002 Q1 2003 Q3 2003 Q1 2004 Q3 2004 Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Source: CBRE Research, Q3 2015.

Figure 2: Houston Office Market Statistics

Submarket Net Total Total Average Q3 YTD Rentable Vacancy Availability Asking Net Net Area (%) (%) Rate ($) Absorption Absorption CBD 42,225,960 8.9 12.3 39.87 (177,957) (535,685) Class A 28,278,283 6.6 10.3 46.27 (86,776) (58,587) Class B 12,647,733 12.8 15.9 35.16 (60,806) (460,685) Allen Parkway Corridor 3,489,406 7.5 8.0 32.13 14,686 20,581 Class A 2,239,467 9.0 9.7 34.13 (8,692) 18,835 Class B 1,044,530 5.3 5.5 25.39 1,732 (18,811) Clear Lake 5,408,326 24.1 24.8 18.34 (38,107) (88,843) Class A 1,855,697 6.1 8.1 24.87 13 19,418 Class B 2,626,577 38.4 38.7 17.97 (54,062) (102,469) East 2,498,142 12.6 13.7 19.23 63,608 89,721 Class A 417,898 10.8 10.8 28.82 3,742 (3,003) Class B 1,343,593 11.5 13.5 19.25 37,083 46,244 Energy Corridor 22,887,958 10.4 18.5 31.25 488,267 775,415 Class A 16,985,422 8.5 16.1 35.89 625,754 1,009,059 Class B 4,852,658 12.9 24.1 26.74 (122,052) (184,009) Far West 1,180,198 22.6 22.9 26.58 43,184 331,114 Class A 390,748 29.4 29.4 27.49 47,250 130,421 Class B 671,015 22.4 22.9 26.07 (4,392) 188,581 FM 1960/Highway 249 7,174,317 18.3 20.0 19.32 554,041 538,887 Class A 1,753,798 6.4 7.5 26.99 471,208 491,549 Class B 4,081,926 24.1 25.9 19.24 43,275 5,231 Greater Pearland 330,000 15.4 19.0 - 11,014 (7,470) Class A 250,000 9.7 14.3 - 0 (19,941) Class B 80,000 33.5 33.5 - 11,014 12,471 Greenway Plaza 11,140,036 12.4 14.2 31.63 (20,556) (346,912) Class A 5,033,360 12.1 15.6 38.46 (24,993) (280,934) Class B 3,798,530 12.1 12.7 30.27 (20,988) (79,976) Katy Freeway 5,161,615 12.2 16.3 33.17 4,370 145,997 Class A 3,165,840 9.5 15.8 41.21 5,716 129,513 Class B 692,659 35.1 35.1 28.75 13 (1,184) Kingwood 862,942 12.0 12.2 19.29 15,857 12,811 Class A 266,676 24.3 24.7 19.94 1,976 1,918 Class B 467,516 4.2 4.2 18.45 1,007 1,145 North 4,712,826 5.4 6.3 31.43 543,654 3,111,477 Class A 3,743,503 1.2 1.2 35.00 553,506 3,124,851 Class B 932,423 22.4 27.4 30.68 (9,852) (13,374) North Belt/Greenspoint 11,481,447 30.1 36.6 22.19 (200,505) (958,493) Class A 4,080,956 31.3 43.0 31.14 (61,417) (550,468) Class B 5,648,528 27.6 30.9 19.24 (95,915) (408,254)

Figure 2: Houston Office Market Statistics (continued)

Submarket Net Total Total Average Q3 YTD Rentable Vacancy Availability Asking Net Net Area (%) (%) Rate ($) Absorption Absorption North Loop/Highway 290 8,474,514 19.9 21.0 19.76 47,214 41,209 Class A 2,137,544 30.3 33.2 24.34 89,123 64,158 Class B 4,773,449 17.0 17.5 17.61 (21,502) (1,032) South Main/Medical Center 2,584,022 19.9 20.2 25.76 9,135 (183,384) Class A 879,722 8.1 8.1 30.06 20,903 40,961 Class B 630,845 47.8 47.8 29.42 2,339 (212,914) Southwest Freeway 12,829,648 17.8 19.3 17.83 (36,327) 157,694 Class A 3,607,588 9.0 13.2 28.79 30,453 103,270 Class B 4,934,413 21.8 22.6 17.30 (60,244) 6,125 Westchase 19,451,025 11.8 16.1 27.63 136,548 309,902 Class A 6,810,779 11.6 22.5 40.79 (15,797) (42,328) Class B 9,508,533 10.4 11.2 22.09 97,215 267,623 West Loop/Galleria 32,108,844 11.5 14.1 33.11 120,882 (461,802) Class A 16,724,741 10.0 13.1 40.27 62,811 (349,016) Class B 11,830,738 14.2 16.6 27.94 36,210 (111,220) Woodlands 7,373,603 5.4 7.6 32.79 25,774 283,554 Class A 5,442,405 3.0 5.5 40.45 55,314 408,228 Class B 1,706,715 12.8 14.2 30.27 (27,812) (132,481) Suburban Total 164,992,617 14.3 17.7 25.59 1,435,471 3,809,317 Class A 79,453,853 10.9 16.0 34.73 1,870,691 4,697,439 Class B 61,738,623 17.6 19.8 22.23 (548,020) (1,101,393) Houston Total 207,218,577 13.2 16.6 27.74 1,257,514 3,273,632 Class A 107,732,136 9.8 14.5 37.07 1,783,915 4,638,852 Class B 74,386,356 16.8 19.1 24.05 (608,826) (1,562,078

Source: CBRE Research, Q3 2015.

Figure 3: Top Leases / Top Sales of the Quarter Figure 4: 2015 Signed Leases by Industry Lease (Tenant) Address Total SF

Texas Children’s Health Plan 6330 West Loop South 139,244 25% 26% W.D. Von Gonten 10496 Old Katy Road 73,000

Ignite Restaurant Group 10555 Richmond 49,042 9% Sale (Buyer) Property Name Total SF 17% 10% Lincoln Property Galleria Place I & II 395,953 13% Equus Capital Partners Comerica Bank Building 193,998 Energy Financial Services Business Services Todd Interests Great Southwest Building 188,240 Engineering Healthcare Other Source: CBRE Research, Q3 2015. Source: CBRE Research, Q3 2015.

LEASE RATES Figure 5: Lease Rates Asking Rate ($/SF) 40 $37.07

35 Class A 30 Class B $24.05 25

20 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Source: CBRE Research, Q3 2015.

NET ABSORPTION Figure 6: Net Absorption Sq. Ft. (000’s) 2,000 1,542K 1,500

1,000

500

0 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Source: CBRE Research, Q3 2015.

VACANCY & AVAILABILITY Figure 7: Vacancy & Availability % 18 Total Availability Rate 16.6% 16 Total Vacancy Rate

14 13.2%

10 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Source: CBRE Research, Q3 2015.

UNDER CONSTRUCTION & COMPLETIONS Figure 8: Construction Completions Sq. Ft. (Millions) 6

0 2009 2010 2011 2012 2013 2014 2015 YTD Source: CBRE Research, Q3 2015.

CONTACTS

CBRE OFFICES

DEFINITIONS Average Asking Rate - Direct Annual Lease Rates, Full Service Gross, Weighted Average dependent on available space. Availability - All existing space being marketed for lease. Total Vacancy Rate - Direct Vacancy + Sublease Vacancy. SURVEY CRITERIA CBRE’s market report analyzes existing single- and multi-tenant office buildings that total 20,000+ sq. ft. in the Houston market, some owner-occupied buildings and campuses are included. CBRE assembles all information through telephone canvassing, third-party vendors, and listings received from owners, tenants and members of the commercial real estate brokerage community.

ABSORPTION

OFFICE ACTIVITY

Figure 2: Vacancy Rate % 21 19 17 15 13 11 9 7

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Class A Class B Total Vacancy Rate

Source: CBRE Research, Q2 2015.

Figure 3: Net Absorption

MSF 6 5 4 3 2 1 LEASE RATES 0 (1) (2)

(3)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Class A Class B Total Net Absorption YTD 2015

Source: CBRE Research, Q2 2015.

Figure 4: Asking Rates, Gross Avg. Annual $/SF 40

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Class A Class B Overall Avg. Annual Asking Rates

Source: CBRE Research, Q2 2015.

LEASING ACTIVITY

CONSTRUCTION

Figure 5: Construction MSF 18 16 14 12 10 8 6 4 2

2004 2002 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Under Construction Delivered Construction YTD2015 Source: CBRE Research, Q2 2015.

CONTACTS

Houston Office, Q1 2015 Houston watching and waiting as oil prices drop

12.6% 578 KSF 15.9 MSF 2.1 MSF 27.17 $/SF

*Arrows indicate change from previous quarter. Figure 1: Net Absorption and Vacancy History

Net Absorption (MSF) Vacancy Rate (%) 6 17 5 16 4 15 3 2 14

1 13 0 12 (1) 11 (2) (3) 10 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Q1 Q2 Q3 Q4 Total Annual Net Absorption Vacancy Rate

Source: CBRE Research, Q1 2015.

The Houston office market closed the quarter with While this slowdown will be hard on the market, it is 577,700 sq. ft. of positive absorption. While market expected to recover in about 18 to 24 months, occupancy is expected to slow this year due to the according to Bill Gilmer, director at the Institute for drop in oil prices, healthy absorption this quarter is no Regional Forecasting at the University of Houston. surprise thanks to strong leasing activity in recent quarters. It is important to remember that Houston’s economy is entering this period from a position of strength, While fear of a repeat of the 1980’s has been having gained four new jobs since 2009 for each one swirling, experts do not predict a downturn nearly as lost during the recession while experiencing income severe. The market will see slower job growth growth above the national average. numbers compared to records in years past, losses in energy jobs (for white-collar jobs, the loss is expected to hit the upstream-heavy Energy Corridor the hardest), increases in sublease space and possible decreases in rental rates.

IMPACT OF LOW OIL PRICES ON THE OFFICE MARKET

OFFICE ACTIVITY Figure 2: Vacancy Rate % 21 19 17 15 13 11 9 7

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Class A Class B Total Vacancy Rate

Source: CBRE Research, Q1 2015.

Figure 3: Net Absorption

MSF 6 5 4 3 2 1 0 (1) (2)

(3)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

LEASE RATES YTD 2015 Class A Class B Total Net Absorption

Source: CBRE Research, Q1 2015.

Figure 4: Asking Rates, Gross Avg. Annual $/SF 40

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Class A Class B Overall Avg. Annual Asking Rates

Source: CBRE Research, Q1 2015.

CONSTRUCTION

The Houston MSA has seen a 19.4% increase in total employment since 2010, according to the Greater Houston Partnership (GHP).

Figure 5: Construction

MSF 18

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Under Construction Delivered Construction Source: CBRE Research, Q1 2015.

ABSORPTION SUBLEASE SPACE INCREASES

LEASING ACTIVITY

Houston topped the list of America’s Fastest Growing Cities 2015. Other Texas cities on the list include Austin (No. 2), Dallas (No. 3), Fort Worth (No. 8) and San Antonio (No. 8). Oil and exports are the top contributors to Houston’s growth, according to the GHP.

CONTACTS

Houston Office, Q4 2014 Houston ends 2014 with near record-breaking absorption

11.6% 1.7 MSF 17.6 MSF 1.2 MSF 25.79 $/SF

*Arrows indicate change from previous quarter. Figure 1: Net Absorption and Vacancy History

Net Absorption (MSF) Vacancy Rate (%) 6 17 5 16 4 15 3 2 14

1 13 0 12 (1) 11 (2) (3) 10 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Q1 Q2 Q3 Q4 Total Annual Net Absorption Vacancy Rate

Source: CBRE Research, Q4 2014.

The Houston office market closed the quarter with 1.7 million sq. ft. of positive absorption and ended 2014 with a near record-breaking yearly absorption total: a staggering 5.5 million sq. ft. The Energy Corridor and The Woodlands submarkets combined for 50% of this with 1.8 million sq. ft. and 967,000 sq. ft. respectively. North, CBD and Westchase round out the top five with 29% of the year’s total absorption. While rates have leveled off this quarter, increases from the beginning of the year have been seen across the overall market. Quoted rental rates in the Energy Corridor, The Woodlands and West Belt have increased over $6.00 per sq. ft. since Q1 2014.

OIL PRICES

ABSORPTION INCREASES TO LARGEST QUARTER TOTAL FOR THE YEAR

Growth in the market will continue but at a more normalized pace than we have experienced in recent years.

If Houston were a state, it would have the 9th largest economy in the country, just ahead of North Carolina and if it were an independent nation, it would be the 25th largest economy in the world, according to the GHP.

OFFICE ACTIVITY Figure 2: Vacancy Rate

% 21 19 17 15 13 11 9 7

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Class A Class B Total Vacancy Rate

Source: CBRE Research, Q4 2014.

Figure 3: Net Absorption

MSF 6 5 4 3 LEASE RATES 2 1 0 (1) (2)

(3)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Class A Class B Total Net Absorption

Source: CBRE Research, Q4 2014.

Figure 4: Asking Rates, Gross Avg. Annual

$/SF 40

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Class A Class B Overall Avg. Annual Asking Rates Source: CBRE Research, Q4 2014.

CONSTRUCTION Houston has added 745,300 jobs since the turn of the new century, more than any other U.S. metro in the same time frame and more than Boston, Chicago, Minneapolis, Philadelphia, Pittsburgh, Portland and San Francisco combined, according to the Greater Houston Partnership (GHP).

Figure 5: Construction

MSF 18

2005 2002 2003 2004 2006 2007 2008 2009 2010 2011 2012 2013 2014

Under Construction Delivered Construction Source: CBRE Research, Q4 2014.

CONTACTS

Q3 2014 CBRE Global Research and Consulting

VACANCY RATE CONSTRUCTION DELIVERIES TRADE VOLUME UNEMPLOYMENT JOB GROWTH 11.9% 17,290,238 Sq. Ft. 968,496 Sq. Ft. 17 Trades 5.0% 106,700 Y-o-Y

*Directional arrows based on change from the previous quarter. Data reflects market totals. OLDER DEVELOPMENTS FEELING THE PRESSURE AS CONSTRUCTION CONTINUES.

Figure 1: Quick Stats Figure 2: Absorption and Vacancy History Net Absorption Sq. Ft. Vacancy Rate Q3 2014 QoQ YoY 6,000 17%

Asking Lease Rates $26.10 per SF h h 000's 5,000 Net Absorption 1.0 million SF i i 16% 4,000 Source: CBRE Research, Q3 2014. 15% 3,000 Hot Topics 2,000 14% • Houston holds the fourth position for

cities with the highest percentage of 1,000 13% green commercial space, according to 0 the CBRE/Maastricht University 2014 12% Green Building Adoption Index. (1,000) 11% • Houston ranks number 15 on Forbes (2,000) “Best Places for Business and Careers (3,000) 10% 2014” list. We are the second highest 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 ranked Texas city on the list, behind Q1 Q2 Q3 Q4 Annual Net Absorption Vacancy Rate Dallas. Houston moved up 10 spots Source: CBRE Research, Q3 2014. from last year’s ranking.

• According to CBRE’s Global Prime The Houston office market continues to show The Houston market has added over 400,000 Office Occupancy Costs June 2014 signs of leveling off even though rates continue jobs since the lowest point of the recession report, the Houston suburbs ranked their upward push and development activity in January 2010, according to The Greater ninth on a list of cities with the highest shows signs of stabilization. The market saw Houston Partnership (GHP). Additionally, office rate increases over the last year, seven buildings break ground this quarter, only most of the jobs were created in the building while the CBD submarket ranked tenth. one of which was spec, down from three spec construction, engineering services and oil starts last quarter. While activity is expected to field services subsectors. Overall, the market • The healthcare industry in Houston increase near the ExxonMobil campus in the added 106,700 jobs over the 12 months posted more jobs than any other coming years, overall activity is anticipated to ending July 2014. This represents a 3.8% industry in August 2014, according to remain constant. increase in employment, while unemployment Simply Hired Inc. fell to 5.0%. The outlook for Houston is bright, This quarter, the volume of leases signed is according to the GHP; the market is expected • The U.S. Census Bureau reports that down and the size of the deals has decreased to add almost 1.2 million residents and over Houston added just over 35,000 from the previous quarter. Market leaders 700,000 jobs by 2023. The GHP predicts residents from July 2012-July 2013, anticipated this transition in activity. Most that the metro area’s population will reach 9.9 ranking the city as the second fastest larger tenants signed their big deals in recent million by 2040. growing in the country. years, and we are now seeing these numbers in the absorption totals.

© 2014, CBRE, Inc. © 2014, CBRE, Inc. change the way rate increases are handled in the suburban developments are submarkets. now quoting 3% Most rate bumps annual over the traditional $0.50/sq. new ft. annual rate increases quoted previously. to remain attractive to prospective Many tenants. in the market opportunity believe for some of that the older the properties best is full redevelopment, especially considering the market’s lack of development. vacant land for new shortage in the CBD Parking Parking in the challenge, CBD but has lately always tenants substantially been have a had more a parking close to difficulttheir buildings. The CBD is timeexperiencing a shortage finding in parking options in contract garages. With the of development 609 Main along and with the proposed Hilcorp 6 Houston Energy Center the parking and shortage Capitol and Tower, Tower increase in rates is expected to continue. Changes in Rate Increases Annual rate increases are the nothing office new market. in Traditionally, percentage bumps were only seen in Class A the space in CBD and West Loop quarter, new developments submarkets. are beginning This to SEEN THE PAST YEAR. SEEN THE PAST OVERALL, MOST OVERALL, MOST RATE SUBMARKETS SAW INCREASES THIS QUARTER, BUT THESE INCREASES ARE SMALLER THAN WE HAVE With With 4 million sq. ft. delivered year, to-date this of which 20% vacant, came and an to additional 17.3 the million ft. sq. delivering market over the next three years, older properties are anticipating struggle when an competing product older this of increased Landlords developments. with these new are considering costly capital improvements happen to the Class B- and Class C space that space C Class and B- Class the to happen is being vacated for the new developments. The flight to quality has many concerned that the large blocks of vacant space remaining in the market will be difficult to backfill when and construction new efficient with competing newly renovated Class A buildings. New deliveries putting pressure on older developments With construction activity question on continuing, everyone’s the mind is what will

bsorption Remains Strong bsorption Remains Corporate totaling 154,000 sq. ft. and URS vacating 99,000 sq. ft. at 10800 Richmond. net absorption. The largest contributors to this to contributors largest The absorption. net total were General Dynamics who Verizon’s vacated now expired sublease at 5959 positive absorption due mostly occupying new to construction. The submarket tenants with the largest negative net absorption total of ft. sq. 243,000 negative with Westchase, is The Energy Corridor submarket closed quarter the with just over 200,000 sq. ft. of sq. ft. of positive ft. sq. 22,000 under just by expanding Energy absorption with Genesis at 919 Milam and Oasis occupying 28,000 sq. ft. at 1001 Fannin. sq. ft. of positive net absorption due in part to Texas Instruments occupying their developed newly campus. The CBD saw 217,000 as last year, though down by ft. 500,000 from sq. last quarter. One of the submarkets with the largest absorption Southwest totals Freeway with includes just over 400,000 the year-to-date total to 3.8 million sq. ft. of positive net absorption. This total keeps the market on par with the same time period A The market experienced 1.0 million sq. ft. of positive net absorption this quarter, bringing

OFFICE THIRD QUARTER THIRD OFFICE MARKETVIEW

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Q3 2014 Houston Office | MarketView 3

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$40 $35 $30 $25 $20 $15 $10 000's 000's 9% 7% 5% 000's Figure 5: Figure 6: Figure 3: Figure Figure 4: 11% 11% 21% 19% 17% 15% 13% Sq. Ft. Source: CBRE Research, Q3 2014. Source: CBRE Research, Q3 2014. Source: CBRE Research, Q3 2014. Source: CBRE Research, Q3 2014. © 2014, CBRE, Inc. in that area are expected to continue to increase in the coming years. coming the in increase to continue to expected are area that in Plaza. Proposed developments market-wide are slowing, with most proposed expected, as but begin, to pre-leasing significant requiring of completion the as up is campus ExxonMobil the near construction the Highway 99 expansion nears. Under construction developments buildings added 527,000 sq. ft. of multi-tenant space to the market, the to space multi-tenant of ft. sq. 527,000 added buildings I, Center 10 Park include Deliveries pre-leaseddelivery. 46% at with Wildwood Corporate Westgate III, Center, Vision Park, and Jacobs this quarter, just one was speculative; this is down from the spec starts last Seven three quarter. buildings delivered totaling 968,000 sq. ft., with two single tenant buildings and building, one owner occupied the Texas Instruments Campus. The remaining four leased or owner occupied. quarter last starts nine from down ft., sq. million 1.9 totaling quarter Seven buildings broke ground totaling 2.4 million sq. ft. Of the seven buildings that broke ground this CONSTRUCTION The Houston market currently construction in 47 has buildings. Of these developments, 17.3 67% is pre- million sq. ft. under early estimates and actual amounts is due to over the beginning of estimations the year at when the 2014 valuation increases were expected to be extremely large. conservatively at the beginning of the year; later in the most year, adjust and expenses overall and bills tax actual their know buildings accordingly. This year it seems as though the difference between this quarter, this but quarter, these increases are smaller than we have seen the tax estimated trend, upward their continue rates net While year. past rates and overall operating expenses in many buildings decreased or at least leveled off this quarter. Buildings typically estimate ft. last quarter. In the West Loop, rates increased to $31.62 per sq. ft. sq. per $31.62 to increased rates Loop, West the In quarter. last ft. per $2.28 of increase an is This quarter. last ft. sq. per $30.55 from sq. ft. since Q3 2013. Overall, most submarkets saw rate increases sq. ft. last quarter and $24.40 per sq. ft. in Q3 2013. Katy Freeway Freeway Katy 2013. Q3 in ft. sq. per $24.40 and quarter last ft. sq. foot; square per $39.55 to ft. sq. per $1.60 increased rates A Class an increase of $3.92 per sq. per sq. $19.21 from ft. sq. ft. per $20.38 to since ft. sq. per Q3 $1.17 increased 2013. West Belt rates LEASE RATES per $25.91 from ft. sq. per $26.10 to increased rates asking Overall Enclave Parkway and TEMA Oil & Gas occupied 25,000 sq. ft. at the at ft. sq. 25,000 occupied Gas & Oil TEMA and Parkway Enclave occupied Dish Go Loop, North In Row. Park 16200 developed newly 75,000 sq. ft. at 5500 Northwest Central. occupied 135,000 sq. ft. at The Offices at Greenhouse, Mustang Engineering occupying over 225,000 sq. ft. at the newly completed the at ft. 81,000 sq. occupied Engineering Jacobs III, and Westgate newly delivered Jacobs Plaza, IHS occupied 46,000 sq. ft. at 1401 Class A vacancy is at 8.1% up from 7.6% last quarter. 8.1% up from 7.6% last quarter. Class A vacancy is at Notable occupancies this quarter include: In Energy URS Corridor, available overall, the market is still favorable toward landlords. still favorable toward the market is available overall, A few submarkets saw an Loop West increase up from 4.8% last quarter. Corridor at 6.4% this quarter, in vacancy including Energy Woodlands vacancy decreased to 9.0% from 9.4% last quarter while while quarter last 9.4% from 9.0% to decreased vacancy Woodlands West Loop vacancy slipped to 10.4% from space of 10.5%. lack The the With submarket 2012. Q1 since low this vacancy seen not has Q3 2014 ended with vacancy dropping to 11.9% from 12% quarter. The last CBD vacancy dropped to its lowest 2009; point it since went Q1 from 9.2% last quarter to 8.7% this quarter. The OFFICE ACTIVITY OFFICE

[email protected] [email protected] [email protected] [email protected] +1 713 881 0947 +1 713 881 0961 +1 713 881 0968 +1 713 881 0960 [email protected] www.cbre.us/research Houston, TX 77002 t: e: Mark Reilly OFC TR Coordinator, Research CBRE Houston Research Suite 2700 700 Louisiana, Houston, TX 77002 t: e: Elizabeth Ballentine OFC TR Coordinator, Research CBRE Houston Research Suite 2700 700 Louisiana, Houston, TX 77002 t: e: CONTACTS this information about For more Office MarketView, Houston please contact: Cirillo Lynn Operations Manager Research CBRE Americas Research Oak, Suite 2300 2800 Post Houston, TX 77056 e: Angie Bauer-Hamilton Analyst Research CBRE Houston Research Suite 2700 700 Louisiana, Houston, TX 77002 t: e: Cammie Moise Analyst, OFC TR Senior Research CBRE Houston Research Suite 2700 700 Louisiana,

completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be completeness. This information is presented exclusively for use by CBRE clients and professionals reproduced without prior written permission of CBRE. DISCLAIMER to be reliable. While we do not doubt its accuracy Information contained herein, including projections, has been obtained from sources believed to confirm independently its accuracy and have not verified it and make no guarantee, warranty or representation about it. It is your responsibility and Consulting can be found at research produced by Global Research Additional U.S. This report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting – a which forms part of CBRE Global Research Team Research This report was prepared by the CBRE U.S. real estate market research, econometric network of preeminent researchers and consultants who collaborate to provide the globe. forecasting and consulting solutions to real estate investors and occupiers around GLOBAL RESEARCH AND CONSULTING RESEARCH GLOBAL FOLLOW CBRE FOLLOW

Q3 2014 Houston Office | MarketView 4 Houston Office MarketView

Q2 2014 CBRE Global Research and Consulting

VACANCY CONSTRUCTION DELIVERIES TRADE VOLUME UNEMPLOYMENT JOB GROWTH 12.0% 16,322,252 Sq. Ft. 1,915,080 Sq. Ft. 16 Trades 5.1% 82,300 Y-o-Y

*Directional arrows based on change from the previous quarter. Data reflects market totals. OFFICE LEASE RATES AND CONSTRUCTION CONTINUE TO CLIMB. Figure 2: Absorption and Vacancy History Figure 1: Quick Stats Absorption Sq. Ft. Vacancy Rate Q2 2014 QoQ YoY 6,000 17% 000's Asking Lease Rates $25.92 per sq. ft. h h 5,000 16% Net Absorption 1.6 million sq. ft. h h 4,000 Source: CBRE Research, Q2 2014. 15% 3,000

Hot Topics 2,000 14% • Houston is the second fastest growing city in the U.S., according to the Census 1,000 13% Bureau. 0 12% • In Q3 2011, office construction in (1,000) Houston reached a low of 1 million sq. ft. 11% (2,000) It has increased each quarter since, and this quarter, the market has 16.3 million (3,000) 10% sq. ft. of product under construction. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 Q2 Q3 Q4 Annual Net Absorption Vacancy Rate • Houston retained its third place ranking Source: CBRE Research, Q2 2014. for cities with the most Fortune 500 company headquarters. The market boasts 26 Fortune 500 headquarters, behind New York and Chicago, while The Houston office market continues to break performance since 2005. The lag between beating out Los Angeles, Washington DC, records in construction and lease rates. Leasing a signed lease and tenant occupancy and and Dallas. activity slowed this quar ter and, while a reduction absorption is expected as these large tenants in leasing is a warning sign to some, it does not take the time to build out their new spaces. • For the second year in a row, Houston has necessarily indicate the market is weakening. maintained it’s fifth place spot on Forbes’ The pace at which activity was happening in The Federal Reserve Bank of Dallas expects Best Cities for Jobs 2014 list. recent quarters was not sustainable, and many job growth to remain strong through 2014. This large tenants have already signed leases. The is evident in the fact that the market is adding • Houston’s westward movement continues market is now settling into a more manageable, energy jobs at a faster rate this year than during with the first building breaking ground healthy pace. the same time-frame last year. Overall, the along Interstate 10 west of Highway 99. market added 82,300 jobs over the 12 months The 151,000 sq. ft. multi-tenant building Due to the leasing rush in recent years, Houston ending April 2014. This represents a 3.3% is scheduled for mid-2015 delivery and has again surpassed the one million square increase in employment while unemployment has no pre-leasing to-date. foot net absorption mark, closing the quarter fell to 5.1%. with 1.6 million sq. ft. of positive net absorption. • Unemployment in Houston fell to 5.1% This was Houston’s strongest second quarter while the market added 82,300 payroll jobs year-over-year through April 2014.

© 2014, CBRE, Inc. © 2014, CBRE, Inc. sets to this large loss in the submarket include submarket the in loss large this to sets BusinesSuites occupying 35,000 sq. 2800 ft. North at Loop and Northwest 10777 at ft. sq. 20,000 occupying HARCO Insurance Freeway. Absorption Remains Strong, Especially Strong, Remains Absorption Houston in West With 1.6 million absorption, sq. the least ft. at absorbing trend: powerful a continued of Houston positive the of eleven over quarter per ft. sq. 900,000 office net market last twelve quarters. Most of the absorption this quarter occurred in the Energy Corridor where Shell occupied occupied Technip and ft. sq. 750,000 totaling two new III. over 400,000 sq. ft. in Energy Tower buildings Other submarkets include with the Loop West and In Westchase. the large West Loop, the absorption largest contributor to positive net absorption was Frost Bank who occupied 42,000 sq. ft. at 1 BLVD Place, while Texas Capital Bank occupied just under 20,000 sq. absorption net Westchase, In Riverway. 1 at ft. Contributors ft. sq. 147,000 under just totaled included Noble, who occupied 88,000 sq. ft. at 3151 Briarpark and National Varco, who occupied 47,000 Oilwell sq. ft. at 2500 CityWest. The largest took negative place absorption in the North quarter with Loop, over 68,000 ending sq. ft. the of negative net absorption. This was caused by Christus Health vacating 176,000 sq. ft. to relocate their headquarters to Irving, TX. Positive off- million sq. ft. corporate campus. HOUSTON HAS SEEN HAS SEEN HOUSTON AN INCREASE IN UNDER CONSTRUCTION TOTALS SINCE QUARTER EACH Q3 2011, WHEN THE MARKET HAD A MERE 1 UNDER FT. MILLION SQ. CONSTRUCTION. Houston where ExxonMobil is building its 3.0 Of the ten buildings that delivered, three are owner occupied or single tenant including buildings, two Shell buildings pre-lease and of 2455 Repsol’s Technology Forest. In the seven multi-tenant buildings that delivered, 43% of the space is multi-tenant pre-leased. deliveries, Of these only 100% pre-leased. one delivered The westward movement continues with the first building breaking ground along I-10 just outside the market’s eventual third loop, the connect will highway new The Parkway. Grand West Houston’s Energy Corridor to North in Q1 2014 and three buildings delivered in Q4 2013. Under Construction Totals Increase Under Construction Totals quarter this up are projects construction Active currently space office of ft. sq. million 16.3 with under construction, including the ExxonMobil corporate campus. This is a jump from 15.8 million sq. ft. last Deliveries quarter. are also in completed buildings ten with quarter this up This ft. sq. million 1.9 totaling submarkets, six is an increase from four buildings delivered

alternative. Tenants can typically alternative. save Tenants around $10.00 per sq. space ft. over direct, even in Class by A buildings. choosing sublease per sq. ft. Even with the rate increases, sublease increases, rate the with Even ft. sq. per tenants for option attractive an remains space affordable more a or term shorter a want who Sublease rates have followed the direct market direct the followed have rates Sublease trend and have increased by just dollar to over $26.37 one per sq. ft. overall. Class A $29.91 to ft. sq. per $1.17 by increased rates Sublease availability quarter has by almost decreased 412,000 sq. million sq. ft. available market-wide. ft., this to 3.8 Sublease Availability Decreases Rates Climb as Sugar Land-Baytown metro added jobs year-over-year 82,300 through April 2014. This represents a 3.0% increase in employment, while the unemployment rate fell to 5.1%. This is because most of the tenants have completed their leases. markets larger Houston- the activity, leasing slowing with Even Q3 2011, when the market had a million mere 1 sq. ft. under leasing construction. activity has Overall, decelerated this quarter. tenants, Shell occupying and space. Technip, Construction remains robust in as the well, with market Houston seeing an increase in under construction totals each quarter since rates continuing to set records. While the absorption number is impressive, 1 million sq. ft. Energy of Corridor this and took was place the result in of the two The second quarter mark has with made positive its 1.6 net million absorption and sq. rental ft. of

OFFICE SECOND QUARTER SECOND OFFICE MARKETVIEW

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Q2 2014 Houston Office | MarketView 3

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000's 000's $40 $35 $30 $25 $20 $15 $10 000's Figure 5: Figure 6: Figure 3: Figure Figure 4: 9% 7% 5% Sq. Ft. 21% 19% 17% 15% 13% 11% Source: CBRE Research, Q2 2014. Source: CBRE Research, Q2 2014. Source: CBRE Research, Q2 2014. Source: CBRE Research, Q2 2014. © 2014, CBRE, Inc. Tower and Plaza. Westway The Tower three speculative developments that broke ground this quarter are Enclave Place, Mason Creek Office Phase I. Ranch Center II and Katy and one in The Woodlands. The market added 965,000 sq. ft. of multi-tenant space from deliveries in the remaining seven buildings, of which just 43% is pre-leased. New starts include Hilcorp Energy leased or owner occupied. Nine buildings broke ground this quarter, quarter, this ground broke buildings Nine occupied. owner or leased totaling 2.4 million sq. ft. while quarter ten deliveries, buildings three delivered. buildings Of are Corridor Energy in are which of two ft., the sq. 950,000 totaling tenant, owner occupied or single CONSTRUCTION The Houston market currently construction in 47 buildings. has Of these developments, 16.3 65% is pre- million sq. ft. under once those cases are settled, we will where operating have expenses a will land. clearer Regardless, expect idea an about overall increase in property taxes. It is just a matter of degree. increases of $2.40 per sq. ft. to $41.20 per sq. ft. The continued rate increase is no surprise. Not only have net rates increased, the market-wide tax increases imposed on buildings continues. Many building owners are currently in litigation over the tax hikes, and throughout the city. Katy Freeway Class A rates increased $2.23 per Freeway Katy throughout the city. sq. ft. to $37.95 per sq. ft., The rates Woodlands increased $8.48 per sq. ft. to $37.14 per sq. ft. due Hughes to delivering Two 92% vacant with market competitive rates. Westchase Class A saw rate LEASE RATES per $25.03 from ft. sq. per $25.91 to increased rates asking Overall Freeway, Katy 2013. Q2 in ft. sq. per $23.41 and quarter last ft. sq. The Woodlands and Westchase saw the largest rate increases occupied 25,000 sq. ft. at 1001 occupied 22,000 sq. ft. at 600 Travis. Louisiana, while Paul Hastings occupying 428,000 sq. ft. at Energy III Tower and ABS occupying 28,000 sq. ft. at Energy Crossing II. Noble In occupied Westchase, 88,000 sq. ft. at occupied 49,000 3151 sq. ft. at Briarpark 2500 CityWest. In and the CBD, Capstreet National Oilwell Varco increased to 10.1% this quarter from 2.3% last quarter. This was due was This quarter. last 2.3% from quarter this 10.1% to increased delivering 92% vacant. Hughes Landing mostly to Two Notable Energy Corridor occupancies this quarter include Technip Loop Loop vacancy also dropped, seeing Q2 2014 vacancy at from 10.5% 10.8% last In quarter. The Woodlands, vacancy increased to vacancy A Class Woodlands The while quarter, last 4.5% from 9.4% Q2 2013. The Energy submarket same Corridor the in saw vacancy A a Class while drop in quarter, last vacancy 5.6% from to 4.8%, dropped to 3.8% in Q2 2014 from 4.9% in Q1 2014. The saw CBD a decrease in vacancy to 9.2%, from 9.3% last West quarter. the next few years. Q2 2014 ended with a slight during seen vacancy 12% the with par on is This increase quarter. last 11.9% in vacancy to 12% from years. Of this considerable construction total, 9.3 million sq. ft. is in 36 multi-tenant buildings, with just 38% pre-leased to-date. This leaves 5.7 million sq. ft. of vacant space coming to the market in experiencing experiencing strong demand. While it is yet to be seen if this trend will continue, landlords are anticipating activity category in to continue this to strengthen. This A- comes as 16.3 to million sq. B+ ft. is under construction, and planned for delivery in the next 2-to-3 market low points five or ten years ago areexperiencing rentalrate sticker shock as they now re-engage a dramatically stronger office market. Many of these tenants are looking to priced more buildings for competitively cost savings. Recently renovated buildings are Demand remains steady throughout the city, but the focus of demand demand of focus the but city, the throughout steady remains Demand may be changing. Activity in Class A- and increasing Class B+ buildings for is some landlords. Tenants who signed leases at OFFICE DEMAND OFFICE

[email protected] [email protected] [email protected] +1 713 881 0947 +1 713 881 0961 +1 713 881 0960 [email protected] www.cbre.us/research CBRE Houston Research Suite 2700 700 Louisiana, Houston, TX 77002 t: e: Mark Reilly OFC TR Coordinator, Research CBRE Houston Research Suite 2700 700 Louisiana, Houston, TX 77002 t: e: CONTACTS this information about For more Office MarketView, Houston please contact: Cirillo Lynn Manager Operations Research CBRE Americas Research Oak, Suite 2300 2800 Post Houston, TX 77056 e: Angie Bauer-Hamilton Analyst Research CBRE Houston Research Suite 2700 700 Louisiana, Houston, TX 77002 t: e: Cammie Moise Analyst, OFC TR Senior Research

Q2 2014 Houston Office | MarketView 4