Houston Metro

HOUSTON SUBMARKET REPORT YEAR-END 2015

Houston Metro

SNAPSHOT VACANCY RATES Despite the overall slowdown in leasing activity across the metro, there were some significant leases in the fourth quarter, largely sourced from Class A Overall Class A Direct Class B Overall Class B Direct renewals. Net absorption for 2015 totaled 3.9 million SF for all classes 16% of space with Class A absorbing 5.5 million SF, and Class B at negative 1.5 million SF absorbed. Positive absorption this year came entirely from 14% Class A space and was driven by preleased deliveries. At year-end, Class A direct vacancy was 11.1% and overall was 13.0%, and Class B vacancy was 12% 13.9% for direct and 14.9% for overall. Both classes of space experienced 10% further rent growth with Class A rising 2.4% year-over-year to $35.31 per SF gross, and Class B increasing by 1.9% to $21.28 per SF gross at 8% fourth quarter. As the office market is now favorable to tenants, rental concessions are becoming more generous. With tepid demand expected 6% 2012 2013 2014 2015 though 2016, vacancy will continue to rise and Houston’s strong net absorption should begin to taper off.

SIGNIFICANT LEASES SIGNED NET ABSORPTION Apache - 524,000 SF lease extension through 12/2019, Post Oak Central, Galleria submarket Houston A Houston B 6,000,000 Bracewell & Giuliani - 189,061 SF renewal, Pennzoil Place, CBD 5,000,000 submarket 4,000,000 St. Luke’s Episcopal Health System - 139,424 SF renewal, 3100 Main, 3,000,000 Midtown submarket 2,000,000 BASF - 106,555 SF new lease, Energy Tower IV, Katy Freeway West 1,000,000 submarket 0 -1,000,000 Kirkland & Ellis - 62,000 SF prelease, 609 Main at Texas, CBD submarket -2,000,000 2012 2013 2014 2015 NOTABLE INVESTMENT SALES Energy Center Three - 549,000 SF, Class A, acquired by ConocoPhillips for approximately $275.0 million, 5.25% cap rate RENTAL RATES (FSG) 2200 Post Oak Blvd - 326,000 SF, purchased by Corporación Masaveu for approximately $172.0 million, 4.8% cap rate Houston A Houston B 16055 Space Center Blvd - 148,687 SF, Class A, acquired by Parsons $36.00 Corporation for approximately $21.5 million, 8.9% cap rate $32.00 LARGEST PROJECTS UNDER CONSTRUCTION Phillips 66 - 1.1 million SF, 14-acre corporate campus, owner occupied, $28.00 Q2 2016 delivery 609 Main at Texas - 47 stories, 1,057,000 SF, 6% preleased to Kirkland $24.00 & Ellis, Q4 2016 delivery $20.00 FMC Technologies - Five stories, 1.0 million SF, owner occupied, Q1 2016 delivery $16.00 2012 2013 2014 2015 BHP Billiton Tower - 30 stories, 600,000 SF, 100% preleased to BHP Billiton, Q2 2016 delivery

Copyright © 2016 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from CoStar and other primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein. HOUSTON SUBMARKET REPORT YEAR-END 2015

Central Business District

SNAPSHOT VACANCY RATES Fourth quarter leasing activity was dominated by law firm transactions

as the energy downturn continues to weigh heavily on the submarket. Class A Overall Class A Direct Class B Overall Class B Direct Sublease inventories remain on the rise with total available sublet space growing 32% in 2015 to 1.5 million SF. The CBD is expected to see 20% further growth of sublease space in 2016 as shadow space and M&A 16% consolidations remain ever-present risks. Class A vacancy increased to 8.1% for direct and 10.4% overall this quarter, and Class B vacancy 12% jumped to 16.3% for direct and 17.8% overall. Net absorption took a hit in 2015 with some major move-outs occurring in the first three quarters 8% of the year. In total, Class A net absorption was negative 670,000 SF, 4% and Class B absorption was negative 1,311,000 SF. Rental rates showed growth on the year but were largely unchanged between third and fourth 0% 2012 2013 2014 2015 quarter. While 609 Main at Texas landed its first deal, the 6% prelease did not put much of a dent in its available space.

SIGNIFICANT LEASES SIGNED NET ABSORPTION Bracewell & Giuliani - 189,061 SF renewal, Pennzoil Place CBD A CBD B Kirkland & Ellis - 62,000 SF prelease, 609 Main at Texas 400,000 Orrick, Herrington & Sutcliffe - 48,000 SF sublease, Fulbright Tower 0 Skadden Arps - 26,091 SF renewal, 1000 Louisiana -400,000 CONSTRUCTION ACTIVITY 609 Main at Texas - 47 stories, 1,057,000 SF, 6% preleased to Kirkland -800,000 & Ellis, Q4 2016 delivery -1,200,000 Hilcorp Energy Tower - 23 stories, 406,600 SF, Q1 2016 delivery, owner occupied -1,600,000 2012 2013 2014 2015

LARGE BLOCKS OF SPACE BEING MARKETED (100,000 SF+) 800 Bell, Floors 1-46, 1,314,350 SF (Exxon) 609 Main at Texas, Floors 12-46, 981,873 SF (new construction) RENTAL RATES (FSG)

2 Houston Center, Floors 4-8, 234,333 SF (Shell) CBD A CBD B 600 Jefferson, Floors 11-19, 192,984 SF (United Airlines) $45.00 811 Louisiana, Floors 10-15, 188,695 SF (Shell) $40.00 811 Louisiana, Floors 18-22, 159,665 SF (Shell) $35.00 Total Plaza, Floors 10-15, 145,352 SF (Hilcorp)

1415 Louisiana, Floors 25-32, 137,611 SF (Eagle Rock, other) $30.00 Heritage Plaza, Floors 14-18, 137,099 SF sublease, term through 08/2023 (Rosetta Resources) $25.00 Total Plaza, Floors 28-32, 124,069 SF (PwC) $20.00 2012 2013 2014 2015 Wells Fargo Plaza, Floors 30-35, 114,066 SF (Gardere Wynne Sewell) 500 Jefferson, Floors 13-17, 97,953 SF sublease, term through 06/2030 (KBR) 1600 Smith, Floors 9-12, 94,345 SF (United Airlines)

Energy Corridor

SNAPSHOT VACANCY RATES The Energy Corridor continues to see both rising vacancy and net absorption as the submarket comes down from the peak of the Class A Overall Class A Direct Class B Overall Class B Direct development cycle. In total, 4.4 million SF delivered in 2015, of which 20% 70% was preleased. A slower economy is likely to limit further leasing 16% activity in this space, and many tenants left behind large vacancies in the submarket when moving to occupy new space. Class A vacancy 12% increased to 9.4% and 12.1% for direct and overall, respectively, and Class B rose to 14.0% for direct and 16.2% for overall at year-end. Class 8% A net absorption was 3.0 million SF, largely due to preleased deliveries, 4% while Class B recorded negative 339,000 SF of absorption in 2015. Rental rates ended the year with positive growth but began trending downward 0% 2012 2013 2014 2015 in the fourth quarter as demand weakened further. Shadow space could have the largest impact in this high-percentage energy tenant submarket, especially when coupled with M&A consolidations. There are currently 18 large blocks of space available over 100,000 SF, including sublet and NET ABSORPTION under construction, and these will likely continue to grow.

Energy Corridor A Energy Corridor B SIGNIFICANT LEASES SIGNED 3,500,000 BASF - 106,555 SF new lease, Energy Tower IV 3,000,000 Ensco - 31,910 SF sublease, Energy Crossing I 2,500,000 2,000,000 G&A Partners - 30,065 SF new lease, Westgate I 1,500,000 INVESTMENT SALES 1,000,000 Energy Center Three - 549,000 SF, Class A, acquired by 500,000 ConocoPhillips for approximately $275.0 million, 5.25% cap rate 0 LARGE BLOCKS OF SPACE BEING MARKETED (175,000 SF+) -500,000 2012 2013 2014 2015 Energy Center Five, Floors 1-18, 524,238 SF (new construction) 13501 Katy Frwy, Floors 1-4, 331,707 SF (Exxon)

RENTAL RATES (FSG) Enclave Place, Floors 1-11, 300,907 SF (new) Energy Corridor A Energy Corridor B Three Westlake, Floors 3-9 & 14-17, 242,052 SF sublease, term through 02/2019 (Conoco) $40.00 Two Westlake, Floors 7-15, 205,304 SF (Conoco) $35.00 West Memorial Place II, Floors 2, 9-14, 199,997 SF (new construction) $30.00 10777 Clay Rd, Floors 1-3, 189,285 SF sublease, term through $25.00 12/2020 (AMEC Paragon) (new) $20.00 9811 Katy Frwy, Floors 2-10, 181,427 SF 17000 Katy Frwy, Floors 1-3, 174,469 SF (Mustang) $15.00 CONSTRUCTION ACTIVITY $10.00 2012 2013 2014 2015 West Memorial Place II - 14 stories, 389,709 SF, 41% preleased to IHI E&C, Q2 2016 delivery Energy Center Five - 18 stories, 524,328 SF, 0% preleased, Q2 2016 delivery

West Loop

SNAPSHOT VACANCY RATES The largest lease in the Houston metro at fourth quarter came from Apache’s 524,000 SF, one-year lease extension in Post Oak Central. This Class A Overall Class A Direct Class B Overall Class B Direct is a prime example of the wait and see approach going on in the market 14% right now as tenants hold off on making long-term leasing decisions. Class A vacancy increased to 10.9% for direct and 12.3% for overall, and 13% Class B vacancy ticked up slightly to 9.1% for direct and 9.5% for overall. 12% Net absorption at year-end for Class A space totaled negative 416,000 11% SF, and Class B recorded 73,000 SF of positive absorption. While rental 10% rates remained up year-over year, growth is tapering off and may turn 9% negative in the period ahead as more large vacancies hit the market. 8% Energy Transfer’s purchase of Williams Cos. will likely change their current 7% Galleria footprint. Additionally, if Apache opts to construct a new tower or 6% 2012 2013 2014 2015 is acquired by another company, their Galleria space will be impacted as well. The West Loop will likely continue to see sublease vacancies rise as large tenants consolidate space over the course of the oil downturn. NET ABSORPTION SIGNIFICANT LEASES SIGNED

Apache - 524,000 SF lease extension through 12/2019, Post Oak West Loop A West Loop B Central 800,000 Regus - Houston - 21,056 SF renewal, 2100 West Loop South 600,000 Jackson, Gilmour & Dobbs - 13,875 SF new lease, 515 Post Oak Blvd 400,000 200,000 INVESTMENT SALES 0 2200 Post Oak - 326,000 SF, purchased by Corporación Masaveu for approximately $172.0 million, 4.8% cap rate -200,000 -400,000 CONSTRUCTION ACTIVITY -600,000 2012 2013 2014 2015 The Post Oak - 36 stories, 140,000 SF, 20% preleased to Landry’s, Q4 2017 delivery Amegy Bank Headquarters - 22 stories, 380,000 SF, 72% owner occupied, Q1 2017 delivery RENTAL RATES (FSG) BHP Billiton Tower - 30 stories, 600,000 SF, 100% preleased to BHP West Loop A West Loop B Billiton, Q2 2016 delivery $38.00 1885 Saint James Place - 15 stories, 165,000 SF, 0% preleased, Q1 2016 delivery $34.00

LARGE BLOCKS OF SPACE BEING MARKETED (100,000 SF+) $30.00 (new construction) 1885 St James Place, Floors 7-15, 158,585 SF $26.00 Galleria Place I, Floors 1-8, 153,603 SF (Telecheck) $22.00 Five Post Oak Park, Floors 2-8, 142,665 SF (Amegy Bank) $18.00 Galleria Tower I, Floors 17-23, 140,618 SF (Air Liquide) Park Towers North, Floors 13-17, 111,250 SF (NetIQ) $14.00 2012 2013 2014 2015 Park Towers South, Floors 7-11, 111,250 SF (GE) Amegy Bank HQ, Floors 12, 14 & 18-19, 97,912 SF (new construction) 5718 Westheimer, Floors 3-7, 94,680 SF (Capital One)

Westchase

SNAPSHOT VACANCY RATES The Westchase submarket continues to see rising vacancy and weak absorption levels as leasing activity slows amid the economic downturn. Class A Overall Class A Direct Class B Overall Class B Direct With oil prices hovering in the low-$30s, sublease inventories remain on 16% the rise as energy companies put planned growth space on the market 14% and consolidate space to realize efficiencies. Total available sublet space climbed a staggering 244% in 2015 to 1.1 million SF, widening the gap 12% between direct and overall vacancy. Class A vacancy increased to 9.8% 10% for direct and 15.9% for overall at year-end, while Class B vacancy fell to 8% 9.0% for direct and 9.2% for overall during the same time frame. In 2015, Class A absorption was negative 16,000 SF and Class B absorbed positive 6% 74,000 SF. Asking rental rates for Class A closed the quarter at $38.98 per 4% 2012 2013 2014 2015 SF gross and Class B recorded $21.23 per SF gross. There are currently 10 large blocks of space over 50,000 SF being marketed in Westchase. Leasing velocity will likely remain down through 2016 as low energy

NET ABSORPTION prices continue to impact market fundamentals.

SIGNIFICANT LEASES SIGNED Westchase A Westchase B Loomis - 47,904 SF expansion, 2500 CityWest 500,000 INVESTMENT SALES 400,000 2424 & 2500 Wilcrest - 154,704 SF, two building portfolio sale, 300,000 purchased by Stone Mountain Properties for an undisclosed price 200,000 CONSTRUCTION ACTIVITY 100,000 Millennium Tower II - 24 stories, 445,000 SF, 100% preleased to National 0 Oilwell Varco, Q1 2016 delivery -100,000 2012 2013 2014 2015 Phillips 66 campus - 1.1 million SF, 14-acre corporate campus, Q2 2016 delivery, owner occupied

CLASS A LARGE BLOCKS OF SPACE BEING MARKETED (50,000 SF+) RENTAL RATES (FSG) CityWestPlace 1, Floors 1-6, 314,316 SF (BMC) Westchase A Westchase B Pinnacle Westchase, 160,356 SF sublease, term through 07/2019 $42.00 (Phillips 66) $38.00 CityWestPlace 4, 150,439 SF sublease, 7-15 year term (Statoil) $34.00 Westchase Park II, Floors 1 and 5-6, 150,000 SF (new) $30.00 Two BriarLake, Floors 10-13, 107,088 SF (new) $26.00 CityWestPlace 2, 103,018 SF sublease, 7-15 year term (Statoil) $22.00 2500 CityWest, Floors 19-21, 70,651 SF (National Oilwell Varco, Cal Dive) $18.00 Two BriarLake, 58,916 SF sublease, term through 11/2026 (Samsung Engineering) $14.00 2012 2013 2014 2015 CLASS B LARGE BLOCKS OF SPACE BEING MARKETED (50,000 SF+) Richmond Park Westchase, Floors 1-5, 99,088 SF Silverstone Building, Floors 1-4, 59,566 SF

The Woodlands

SNAPSHOT VACANCY RATES Three buildings delivered in the fourth quarter, totaling more than 970,000 SF, making it the biggest submarket for deliveries this quarter. Class A Overall Class A Direct Class B Overall Class B Direct Once the largest development pipeline in the metro, The Woodlands 12% now has only two building under construction, both of which are 0% 10% preleased. With several major energy companies headquartered here, the submarket is feeling the impact of lower oil prices. Class A vacancy 8% increased substantially to 8.0% for direct and 8.5% for overall at fourth 6% quarter, and Class B vacancy grew to 8.9% and 10.3% for direct and overall, respectively. Absorption for Class A space totaled 2.7 million SF 4% for 2015, largely due to fully-occupied deliveries like the Exxon campus. 2% Class B closed the year with negative 188,000 SF of net absorption. While rental rates remained up year-over year, growth is tapering off and may 0% 2012 2013 2014 2015 turn negative if vacancy continues rising. The Woodlands has a fairly diversified economy, but when a major occupier like Southwestern Energy cuts 300 jobs as it did recently, it resonates within the submarket. NET ABSORPTION

SIGNIFICANT LEASES SIGNED The Woodlands A The Woodlands B Financial Company - 25,000 SF new lease at 128 Vision Park Blvd 3,000,000

BUILDINGS ON THE MARKET 2,500,000 24624 Interstate 45 - 63,374 SF, Class B 2,000,000

CONSTRUCTION ACTIVITY 1,500,000 Havenwood Office Park - Four stories, 240,470 SF, 0% preleased, Q1 1,000,000 2016 delivery 500,000 Wildwood Corporate Centre II - Eight stories, 200,000 SF, 0% 0 preleased, Q3 2016 delivery -500,000 2012 2013 2014 2015

CLASS A LARGE BLOCKS OF SPACE BEING MARKETED (50,000 SF+) Three Hughes Landing, Floors 1-12, 313,343 SF (new) RENTAL RATES (FSG) Havenwood Office Park, Floors 1-4, 240,000 SF (new construction) Wildwood Corporate Centre II, Floors 1-8, 201,651 SF (new construction) The Woodlands A The Woodlands B $42.00 1725 Hughes Landing, Floors 8-14, 162,120 SF (new) Sierra Pines II, Floors 1-6, 153,810 SF (new) $38.00 Research Forest Lakeside 4, 149,988 SF sublease, term through $34.00 08/2025 (Talisman Energy) $30.00 CLASS B LARGE BLOCKS OF SPACE BEING MARKETED (50,000 SF+) $26.00 8800 Technology Forest Dr, Floors 13, 260,000 SF (Lexicon Pharmaceuticals) 2001 Timberloch Place, Floors 3-5, 90,539 SF (Repsol) $22.00

$18.00 2012 2013 2014 2015

Greenway Plaza

SNAPSHOT VACANCY RATES Greenway Plaza experienced its second consecutive quarter of low Class A Overall Class A Direct Class B Overall Class B Direct leasing and investment activity. Class A vacancy trended upward at fourth 14% quarter, recording 12.6% and 12.7% for direct and overall, respectively. Vacancy for Class B space fell slightly to 5.3% for direct and 5.6% for 12% overall at year-end. Asking rents for Class A space were up to $35.92 per SF gross, and Class B rents grew to $25.89 per SF gross. Net absorption 10% for Class A space totaled negative 112,000 SF for all of 2015, while Class 8% B space recorded 17,000 SF of positive absorption through year-end. One building finished construction this quarter, 3737 Buffalo Speedway, 6% at 29% preleased to Solvay, PM Realty Group and FKP. The delivery of One Grove Street was delayed until the first quarter of 2016. A mixed- 4% 2012 2013 2014 2015 use project called The Kirby Collection is expected to break ground in the first quarter, one of the few to do so in the current economic climate. There are eight large blocks over 25,000 SF currently being marketed for NET ABSORPTION tenants seeking space in the submarket.

SIGNIFICANT LEASES SIGNED Greenway Plaza A Greenway Plaza B CBS Radio - 30,000 SF renewal, Weslayan Tower 150,000 100,000 BUILDINGS ON THE MARKET 3120 Buffalo Speedway - 350,000 SF, Class B 50,000 3100 Richmond - 56,000 SF, Class B 0 CONSTRUCTION ACTIVITY -50,000 One Grove Street - 16 stories, 248,275 SF, 63% preleased to Vitol, -100,000 BoyarMiller, Johnson Law Group and others, Q1 2016 delivery -150,000 2012 2013 2014 2015 Regions Financial Center - 11 stories, 210,000 SF, 37% preleased to Regions Bank, Q2 2016 delivery

LARGE BLOCKS OF SPACE BEING MARKETED (50,000 SF+) RENTAL RATES (FSG) Three Greenway Plaza, Floors 4-10, 161,343 SF (ExxonMobil) Greenway Plaza A Greenway Plaza B 3737 Buffalo Speedway, Floors 14-19, 142,570 SF (new) $36.00 Regions Financial Center, Floors 2-8, 101,148 SF (new construction)

$32.00 3737 Buffalo Speedway, Floors 2-6, 84,200 SF (new) Phoenix Tower, 77,977 SF sublease, term through 02/2018 (NALCO $28.00 Champion) $24.00 Phoenix Tower, Floors 16-17, 50,568 SF (WorleyParsons) One Grove Street, Floors 15-16, 49,018 SF (new construction) $20.00 Twelve Greenway Plaza, Floors 9-10, 36,266 SF (CPL Retail Energy)

$16.00 2012 2013 2014 2015

Greenspoint/North Belt

SNAPSHOT VACANCY RATES Greenspoint/North Belt finally experienced an uptick in leasing activity at fourth quarter but still recorded a seventh consecutive quarter of negative Class A Overall Class A Direct Class B Overall Class B Direct absorption. For all of 2015, net absorption for Class A space was negative 44% 752,000 SF, and Class B was negative 501,000 SF. Vacancy for both classes of space increased significantly from year-end 2014 due to major 36% move-outs from several companies, including more than 850,000 SF vacated by Exxon. Class A vacancy jumped to 33.7% for direct and 38.4% 28% for overall, and Class B vacancy rose to 23.5% and 25.9% for direct and 20% overall, respectively. Rental rates continue to be impacted by increasing vacancy and fell further at year-end. Class A rents were $27.22 per SF 12% gross, and Class B rents were $15.03 per SF gross. There are currently 13 blocks of space over 100,000 SF and 23 blocks over 50,000 SF being 4% 2012 2013 2014 2015 marketed for lease.

SIGNIFICANT LEASES SIGNED

Aggreko, LLC - 52,818 SF new lease, Intercontinental Center NET ABSORPTION Kraton Performance Polymers - 26,842 SF renewal, 15710 John F Kennedy Blvd Greenspoint/North Belt A Greenspoint/North Belt B 200,000 Champions Pipe & Supply - 19,457 SF new lease, Four Greenspoint Place 0

INVESTMENT SALES -200,000 North Belt Office Center II - 124,000 SF, Class B, purchased by TriGate Capital for approximately $5.7 million -400,000 681 Greens Pkwy - 68,950 SF, Class B, acquired by Cole Office & -600,000 Industrial REIT for approximately $18.4 million -800,000 2012 2013 2014 2015 CLASS A BLOCKS OF SPACE BEING MARKETED (100,000 SF+) Six Greenspoint Place, 356,468 SF, available 11/2016 (ExxonMobil) Five Greenspoint Place, 336,443 SF, vacant (ExxonMobil) RENTAL RATES (FSG) Two Greenspoint Place, 276,617 SF, vacant (ExxonMobil) Three Greenspoint Place, 253,562 SF, available 07/2018 (ExxonMobil) Greenspoint/North Belt A Greenspoint/North Belt B $30.00 Northborough Tower, 204,198 SF, vacant (Noble Energy) $28.00 Eight Greenspoint Plaza, 198,256 SF sublease, term through 04/2018 $26.00 (ExxonMobil) $24.00 Four Greenspoint Place, 195,833 SF, vacant (ExxonMobil) $22.00 13401 North Fwy, 143,410 SF, vacant (ExxonMobil) $20.00 $18.00 2350 N Sam Houston Pkwy E, 116,746 SF, vacant (Southwestern Energy) $16.00 10700 North Frwy, 109,217 SF, vacant $14.00 16676 Northchase Dr, 101,111 SF, vacant $12.00 2012 2013 2014 2015

CLASS B BLOCKS OF SPACE BEING MARKETED (100,000 SF+) 396 W Greens Rd, 181,646 SF, vacant (ExxonMobil) Three Northborough, 156,000 SF, available 04/2018 (Noble Energy/FMC)

FM 1960

SNAPSHOT VACANCY RATES FM 1960 Class A vacancy is up from third quarter, but down year-over- Class A Overall Class A Direct Class B Overall Class B Direct year, recording 11.8% for direct and 12.6% for overall. Class B vacancy 22% rose to 18.8% for direct and 20.5% for overall as Canrig Drilling’s 62,001 SF sublease space became vacant and available. Class A rents increased 20% slightly to $26.73 per SF gross, from $26.56 per SF gross at fourth quarter 18% 2014, and Class B rents rose to $15.99 per SF gross, compared to $15.74 per SF gross over the same period. At year end, net absorption for 16% Class A space totaled 506,000 SF, largely due to Noble Energy Center 14% II delivering in the third quarter. Class B was fairly quiet on the year, 12% absorbing negative 17,000 SF. There are two proposed developments in the submarket, Five Chasewood and Offices at Vintage Marketplace, 10% 2012 2013 2014 2015 which likely won’t break ground until the next development cycle. There are currently six Class B blocks of space over 25,000 SF available for tenants looking to enter the market. NET ABSORPTION INVESTMENT SALES FM 1960 A FM 1960 B Cypresswood Professional Park - 33,600 SF, Class B, purchased by 800,000 Pelican, LLC for an undisclosed price 700,000 600,000 BUILDINGS ON THE MARKET 500,000 Northwoods Park - 104,786 SF, Class B 400,000 300,000 9720 Cypresswood Dr - 85,290 SF, Class A 200,000 Willowchase Office Bldg - 62,001 SF, Class B 100,000 0 3648 W FM 1960 - 61,000 SF, Class B

-100,000 2012 2013 2014 2015 CLASS B LARGE BLOCKS OF SPACE BEING MARKETED (25,000 SF+) Willowchase Office Bldg, Floors 1-2, 62,001 SF sublease, term through 09/2017 (Canrig Drilling) RENTAL RATES (FSG) Mill Creek Building, Floors 1-2, 39,956 SF FM 1960 A FM 1960 B Centre at Cypress Creek, Floors 2-3, 39,663 SF $28.00 Torrey Chase 2, Floors 1-4, 37,711 SF $24.00 Cypress Court, Floor 2, 37,378 SF

$20.00 Two Kuykendahl Place, Floors 1-3, 33,796 SF

PROPOSED DEVELOPMENTS $16.00 Five Chasewood - 236,880 SF, GenCap Partners development

$12.00 Offices at Vintage Marketplace - 125,000 SF, Read King development

$8.00 2012 2013 2014 2015

Northwest

SNAPSHOT VACANCY RATES The Northwest submarket had a quiet fourth quarter with no significant investment sales or leasing activity. Class A vacancy dropped to 19.2% Class A Overall Class A Direct Class B Overall Class B Direct for direct, from 20.8% at year-end 2014, and overall vacancy dropped to 24% 20.9%, from 23.2% over the same period. Conversely, Class B vacancy 22% jumped to 16.3% for direct, from 15.1% in 2014, and 16.6% for overall, from 15.3% during the same period. Rental rates showed growth on the 20% year but dipped slightly between third and fourth quarter. Rental rates 18% for Class A space increased to $22.44 per SF gross, while Class B rental 16% rates decreased slightly to $18.32 per SF gross in 2015. Net absorption 14% for Class A was positive 42,000 SF, and Class B had negative 71,000 SF 12% absorbed for the year. With seven buildings listed for sale, six of which are Class B, there are opportunities for investment in the submarket. 10% 2012 2013 2014 2015

BUILDINGS ON THE MARKET 2707 North Loop W - 181,586 SF, Class A NET ABSORPTION 2600 North Loop W - 135,407 SF, Class B Northwest A Northwest B 400,000 2727 North Loop W - 123,103 SF, Class B 5252 Hollister - 106,409 SF, Class B 300,000

7000 Hollister Rd - 105,900 SF, Class B 200,000 Northwest Central Plaza - 73,401 SF, Class B 100,000 2855 Mangum - 72,059 SF, Class B 0 CLASS A BLOCKS OF SPACE BEING MARKETED (25,000 SF+) Brookhollow Central I, Floors 1-8 & 10, 134,246 SF -100,000 2012 2013 2014 2015 Brookhollow Central III, Floors 2-4, 56,084 SF Northwest Crossing, Floors 2-3, 38,358 SF RENTAL RATES (FSG) 2707 North Loop W, Floors 1-2, 29,267 SF (Christus Health) Northwest A Northwest B $24.00 Northwest Crossing III, Floor 4, 27,889 SF (Solar Turbines) Northwest Crossing III, Floor 10, 26,594 SF (Solar Turbines) $22.00

CLASS B BLOCKS OF SPACE BEING MARKETED (25,000 SF+) $20.00 2727 North Loop W, Floors 1-7, 123,103 SF

7000 Hollister, Floors 1-3, 105,900 SF (Baker Hughes) $18.00 Northwest Central Plaza, Floors 1-4, 54,602 SF $16.00

$14.00 2012 2013 2014 2015

E Ft Bend Co/Sugar Land

SNAPSHOT VACANCY RATES Sugar Land continues to be a sought after suburban market, Class A Overall Class A Direct Class B Overall Class B Direct recording another year of low vacancy and strong net absorption. In 25% October, Schlumberger announced plans to move it’s North American headquarters to the submarket. The company is already Sugar Land’s second largest employer and expects to complete construction on its 20% expanded campus in late 2017. At year-end, Class A vacancy fell to 7.4% for direct and 7.8% for overall, and Class B vacancy dropped to 15% 6.6% for direct and 7.6% overall. Net absorption for Class A space was 132,000 SF in 2015, and Class B space totaled 264,000 SF for the year. 10% Class A rental rates increased to $28.02 per SF gross, while Class B rents declined marginally to $21.49 per SF gross. Applus RTD signed the only 5% 2012 2013 2014 2015 notable lease of the quarter for 20,000 SF in Three Sugar Creek Center. Looking ahead, Sugar Land should remain an attractive option for new tenants and investors in this growing submarket. NET ABSORPTION SIGNIFICANT LEASES SIGNED

E Ft Bend Co/Sugar Land A E Ft Bend Co/Sugar Land B Applus RTD - 20,000 SF new lease, Three Sugar Creek Center

400,000 BUILDINGS ON THE MARKET

300,000 12603 Southwest Fwy - 141,779 SF, Class B Park Plaza Business Park - 102,641 SF, Class B 200,000 13927 Gessner - 87,720 SF, Class B 100,000 2440 Texas Pkwy - 64,768 SF, Class B 0 LARGE BLOCKS OF SPACE BEING MARKETED (25,000 SF+)

-100,000 2012 2013 2014 2015 Sugar Creek on the Lake, Floor 4, 62,457 SF Sugar Creek on the Lake, 61,052 SF sublease, term through 07/2021 Sugar Creek II, 51,781 SF sublease, term through 01/2017 RENTAL RATES (FSG) Three Sugar Creek Center, Floor 2-3, 52,000 SF E Ft Bend Co/Sugar Land A E Ft Bend Co/Sugar Land B Sugar Creek Place I, Floors 3-4, 41,093 SF $30.00 $28.00 $26.00 $24.00 $22.00 $20.00 $18.00

$16.00 2012 2013 2014 2015

West Belt

SNAPSHOT VACANCY RATES The West Belt had one delivery, one significant lease signed and no investment transactions in the fourth quarter. Livingston International Class A Overall Class A Direct Class B Overall Class B Direct signed for 13,017 SF in Beltway Lakes III, the first tenant for the building 20% which delivered in the first quarter of 2015. Remington Square II finished construction this quarter, ending the development boom for 16% this submarket. As the project delivered 0% preleased, Class A vacancy increased to 17.3% for direct and 17.8% for overall, while Class B 12% vacancy rose to 15.6% for direct and 18.1% overall at year-end. Through 8% fourth quarter, Class A net absorption totaled 759,000 SF, while Class B recorded negative 53,000 SF of absorption. Class A rents were $32.02 per 4% SF gross, up 1.9% year-over-year, and Class B asking rents were $23.89 per SF gross, up 0.3% over the same period. There are 13 blocks of space 0% 2012 2013 2014 2015 over 25,000 SF being marketed, many of which are first generation space in recently delivered Class A projects. NET ABSORPTION SIGNIFICANT LEASES SIGNED Livingston International - 13,017 SF new lease, Beltway Lakes III West Belt A West Belt B 800,000 BUILDINGS ON THE MARKET Westway Plaza - 313,420 SF, Class A 600,000

CLASS A BLOCKS OF SPACE BEING MARKETED (25,000 SF+) 400,000 Beltway Lakes III, Floors 1-9, 244,226 SF (new) 200,000 Remington Square II, Floors 1-8, 200,000 SF (new) Legacy at Fallbrook, Floors 3-5, 129,767 SF (new) 0

Legacy at Fallbrook, Floor 1, 35,459 SF (new) -200,000 2012 2013 2014 2015 Sam Houston Crossing I, 35,454 SF sublease, term through 02/2019 4920 Westway Park Blvd, Floor 1, 31,922 SF RENTAL RATES (FSG) Sam Houston Crossing I, 27,011 SF sublease, term through 05/2018 West Belt A West Belt B CLASS B BLOCKS OF SPACE BEING MARKETED (25,000 SF+) $34.00 6677 N Gessner Dr, Floors 1-2, 96,000 SF (FMC Technologies) $30.00 10900 Corporate Centre, Floor 2, 64,188 SF 11302 Tanner, Floors 1-2, 57,798 SF $26.00 4700 W Sam Houston Pkwy N, Floor 1, 42,551 SF (Stewart Title) $22.00

10900 Corporate Centre, 32,589 sublease, term through 11/2016 $18.00 10235 W Little York, Floor 3, 30,767 SF $14.00

$10.00 2012 2013 2014 2015

Katy

SNAPSHOT VACANCY RATES Class A vacancy more than doubled year-over-year to 28.4% for direct Class A Overall Class A Direct Class B Overall Class B Direct and 28.6% for overall, from 13.1% for direct and overall at the close of 2014. The large jump was due to low levels of preleasing in deliveries, the 30% impact of which is magnified in smaller submarkets such as Katy. Class B 25% vacancy remains low at 1.5% and 1.8% for direct and overall, respectively, 20% up from 0.8% for direct and overall in 2014. Net absorption for Class A space was 235,000 SF through year-end 2015, and absorption for Class B 15% space totaled 239,000 SF. Rental rates for both classes continued to trend 10% upwards with Class A hitting $32.94 per SF gross, and Class B at $24.01 per SF gross. There were three deliveries this quarter totaling 303,289 5% SF, of which 77% was preleased. This leaves just one office project 0% 2012 2013 2014 2015 under construction in the submarket, Grandway West II. Katy has several proposed developments on the drawing board, but they are not likely to break ground in the current economic conditions.

NET ABSORPTION SIGNIFICANT LEASES SIGNED Nike USA, Inc - 12,988 SF renewal and expansion, LaCenterra at Cinco Katy A Katy B Ranch III 250,000 CONSTRUCTION ACTIVITY 200,000 Grandway West II - Three stories, 124,017 SF, 17% preleased to 150,000 Severn Trent, 04/2016 delivery

BUILDINGS ON THE MARKET 100,000 Mason Creek Office Center II - 127,955 SF, Class A 50,000 Park Plaza Centre - 59,656 SF, Class A

0 2012 2013 2014 2015 LARGE BLOCKS OF SPACE BEING MARKETED (15,000 SF+) Mason Creek Center II, Floors 1-3, 127,953 SF (new) Katy Ranch Crossing I, Floors 2-6, 108,019 SF (new) RENTAL RATES (FSG) Grandway West II, Floors 1-3, 102,190 SF (new construction) Katy A Katy B PROPOSED DEVELOPMENTS $34.00 Grandway West III, IV, V - 460,200 SF total, Insite Realty & Urban Cos $32.00 development $30.00 Grand Crossing I & II - 344,000 SF total, Trammell Crow development $28.00 Katy Ranch Crossing II - 156,330 SF, Freeway Properties development $26.00 LaCenterra at Cinco Ranch IV - 150,000 SF, Vista Cos & Amstar $24.00 development $22.00 West Ten Grand Center - 139,000 SF, NewQuest Properties development $20.00 2012 2013 2014 2015