DFW Office Insight & Statistics

Dallas-Fort Worth

Q2 2018

Office Insight

Best years of the cycle likely behind us

Fundamentals Forecast • Several small move-outs among Class B product account for YTD net absorption 1,039,829 s.f. ▲ negative absorption Under construction 6,061,857 s.f. ▼ • Flight-to-quality trend still in effect Total vacancy 19.5 % ▶ • Reinvention of Ross Ave, coupled with AT&T Innovation District, Average asking rent (gross) $26.54 p.s.f. ▲ signals future activity in Dallas CBD Concessions Stable ▲

DFW experienced a notable swing of negative absorption during the second Supply and demand (s.f.) Net absorption quarter. But this potential sign of slowdown isn’t cause for concern when Deliveries looking at the total net absorption for the last 12 months. This cumulative 12- 10,000,000 month glance shows DFW is still in high demand. Leading the demand is Class A—predominantly new or recently upgraded space—with upcoming move-ins 5,000,000 on the horizon.

Two notable new deliveries in the Uptown submarket received certificates of 0 occupancy this quarter. Park District PwC Tower and The Union drove sizable 2015 2016 2017 YTD 2018 positive absorption, which shows demand for quality space has endured into this cycle, as well as the last two. Total vacancy In past quarters, the cumulative effect of small Class B move-outs has been 19.5% eclipsed by HQ tenants absorbing entire buildings after long-awaited 18.7% completions. Bucking those recent trends, however, this quarter’s absorption 18.1% 18.2% is driven by large tenants taking full-floors in spec delivery downtown, rather than large suburban build-to-suit projects.

Further highlighting the slowdown, rent growth has slowed to sub-3% year- 2015 2016 2017 Q2 2018 over-year, down from 4.5% - 5% in the second half of last year. Meanwhile, asking rental rates are continuously reaching all-time highs market-wide. Average asking rents ($/s.f.) Class A Class B Outlook Looking at key trends among the tenant base tells us activity is changing— $40.00 slowing in some cases—in a way that we expect will help attract moves to and $30.00 stabilize slow-to-emerge submarkets. Some of those trends are right-sizing $20.00 real estate footprints, relocating nearby new labor pools, and using co- working space for temporary spillover. $10.00 $0.00 For more information, contact: Clay Schleimer | [email protected] 2015 2016 2017 Q2 2018

© 2018 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof. Dallas-Fort Worth

Q2 2018

Office Statistics

Total net YTD total net YTD total net Average YTD Under Inventory Direct vacancy Total Class absorption absorption absorption (% direct asking Completions Development (s.f.) (%) vacancy (%) (s.f.) (s.f.) of stock) rent ($ p.s.f.) (s.f.) (s.f.) Uptown/Oak Lawn Totals 12,513,988 324,068 610,191 4.9% 13.5% 14.7% $41.23 1,042,432 437,582 Dallas CBD Totals 27,515,044 -12,658 59,743 0.2% 23.6% 26.3% $26.26 261,400 233,025 Downtown Dallas Totals 40,029,032 311,410 669,934 1.7% 20.5% 22.7% $30.94 1,303,832 670,607 Fort Worth CBD Totals 10,411,917 75,464 7,802 0.1% 12.9% 13.3% $27.60 280,489 0 Downtown Fort Worth Totals 10,411,917 75,464 7,802 0.1% 12.9% 13.3% $27.60 280,489 0 Far North Dallas Totals 47,658,459 -602,875 72,338 0.2% 15.7% 17.6% $29.29 1,493,199 660,000 Las Colinas Totals 31,340,008 -170,202 350,870 1.1% 15.6% 17.4% $26.43 325,000 1,955,900 LBJ Freeway Totals 19,177,237 -179,225 -153,449 -0.8% 21.6% 22.6% $21.87 0 0 North Central Expressway Totals 10,646,907 -15,681 -146,643 -1.4% 13.0% 14.2% $29.06 0 0 Richardson/Plano Totals 19,749,854 -166,056 121,164 0.6% 22.0% 22.3% $24.10 507,042 0 Preston Center Totals 4,214,692 59,613 147,539 3.5% 10.4% 10.9% $40.26 0 80,500 Stemmons Freeway Totals 8,852,057 -83,281 -162,047 -1.8% 27.7% 28.0% $17.29 0 0 Suburban Dallas Totals 141,639,214 -1,157,707 229,772 0.2% 17.7% 19.1% $26.49 2,325,241 2,696,400 Arlington/East Fort Worth Totals 7,757,868 -126,436 -49,328 -0.6% 11.4% 12.6% $18.84 0 15,000 Centreport/DFW Airport Totals 4,006,571 13,358 22,768 0.6% 11.3% 11.5% $20.35 0 0 HEB/Haltom City Totals 4,125,585 -137,561 -197,083 -4.8% 24.5% 25.5% $17.10 0 1,800,000 North Fort Worth Totals 3,726,680 40,795 151,950 4.1% 41.4% 41.4% $23.00 0 219,000 West/Southwest Fort Worth Totals 6,256,020 63,801 98,327 1.6% 6.3% 7.5% $25.02 0 27,850 Westlake/Southlake Totals 5,817,608 -36,784 105,687 1.8% 26.3% 26.9% $27.37 0 633,000 Suburban Fort Worth Totals 31,690,332 -182,827 132,321 0.4% 18.4% 19.1% $20.87 0 2,694,850 Dallas-Fort Worth Totals 223,770,495 -953,660 1,039,829 0.5% 18.1% 19.5% $26.54 3,909,562 6,061,857

Uptown/Oak Lawn A 10,570,982 329,222 491,561 4.7% 13.5% 14.8% $42.29 1,042,432 437,582 Dallas CBD A 22,583,239 106,364 356,826 1.6% 24.5% 27.3% $27.41 261,400 163,025 Downtown Dallas A 33,154,221 435,586 848,387 2.6% 21.0% 23.3% $32.15 1,303,832 600,607 Fort Worth CBD A 6,236,430 76,842 158,918 2.5% 14.8% 15.2% $30.76 280,489 0 Downtown Fort Worth A 6,236,430 76,842 158,918 2.5% 14.8% 15.2% $30.76 280,489 0 Far North Dallas A 32,722,385 -309,097 370,815 1.1% 14.5% 16.6% $32.33 1,493,199 660,000 Las Colinas A 17,294,259 -182,505 466,128 2.7% 12.4% 14.7% $30.37 325,000 1,841,400 LBJ Freeway A 10,410,777 16,474 293,798 2.8% 18.2% 19.2% $25.41 0 0 North Central Expressway A 7,054,442 25,505 -69,718 -1.0% 13.0% 14.2% $31.21 0 0 Richardson/Plano A 11,025,758 -58,215 170,168 1.5% 26.1% 26.3% $27.68 507,042 0 Preston Center A 3,445,210 67,436 156,591 4.5% 10.2% 10.8% $43.05 0 80,500 Stemmons Freeway A 4,440,429 -53,850 -25,250 -0.6% 19.2% 19.4% $18.57 0 0 Suburban Dallas A 86,393,260 -494,252 1,362,532 1.6% 16.0% 17.5% $30.14 2,325,241 2,581,900 Arlington/East Fort Worth A 2,020,464 -24,970 40,408 2.0% 12.4% 13.3% $21.66 0 0 Centreport/DFW Airport A 1,889,353 0 0 0.0% 0.0% 0.0% N/A 0 0 HEB/Haltom City A 352,780 -6,922 -10,631 -3.0% 42.6% 42.6% $18.77 0 1,800,000 North Fort Worth A 1,090,469 0 13,363 1.2% 28.7% 28.7% $21.70 0 200,000 West/Southwest Fort Worth A 2,028,151 113,339 157,862 7.8% 7.7% 8.6% $28.62 0 0 Westlake/Southlake A 3,515,351 5,378 119,688 3.4% 32.9% 32.9% $28.24 0 550,000 Suburban Fort Worth A 10,896,568 86,825 320,690 2.9% 18.6% 18.9% $21.23 0 2,550,000 Dallas-Fort Worth A 136,680,479 105,001 2,690,527 2.0% 17.3% 18.9% $29.95 3,909,562 5,732,507

Uptown/Oak Lawn B 1,943,006 -5,154 118,630 6.1% 13.6% 14.1% $35.45 0 0 Dallas CBD B 4,931,805 -119,022 -297,083 -6.0% 19.5% 21.9% $20.99 0 70,000 Downtown Dallas B 6,874,811 -124,176 -178,453 -2.6% 17.8% 19.7% $25.08 0 70,000 Fort Worth CBD B 4,175,487 -1,378 -151,116 -3.6% 10.1% 10.5% $22.88 0 0 Downtown Fort Worth B 4,175,487 -1,378 -151,116 -3.6% 10.1% 10.5% $22.88 0 0 Far North Dallas B 14,936,074 -293,778 -298,477 -2.0% 18.3% 19.9% $22.64 0 0 Las Colinas B 14,045,749 12,303 -115,258 -0.8% 19.4% 20.7% $21.57 0 114,500 LBJ Freeway B 8,766,460 -195,699 -447,247 -5.1% 25.7% 26.8% $17.66 0 0 North Central Expressway B 3,592,465 -41,186 -76,925 -2.1% 13.2% 14.2% $24.85 0 0 Richardson/Plano B 8,724,096 -107,841 -49,004 -0.6% 16.9% 17.2% $19.58 0 0 Preston Center B 769,482 -7,823 -9,052 -1.2% 11.3% 11.3% $27.78 0 0 Stemmons Freeway B 4,411,628 -29,431 -136,797 -3.1% 36.1% 36.6% $16.00 0 0 Suburban Dallas B 55,245,954 -663,455 -1,132,760 -2.1% 20.5% 21.6% $20.78 0 114,500 Arlington/East Fort Worth B 5,737,404 -101,466 -89,736 -1.6% 11.0% 12.4% $17.85 0 15,000 Centreport/DFW Airport B 2,117,218 13,358 22,768 1.1% 21.3% 21.7% $20.35 0 0 HEB/Haltom City B 3,772,805 -130,639 -186,452 -4.9% 22.9% 23.9% $16.94 0 0 North Fort Worth B 2,636,211 40,795 138,587 5.3% 46.7% 46.7% $23.54 0 19,000 West/Southwest Fort Worth B 4,227,869 -49,538 -59,535 -1.4% 5.6% 7.0% $23.30 0 27,850 Westlake/Southlake B 2,302,257 -42,162 -14,001 -0.6% 16.2% 17.8% $26.04 0 83,000 Suburban Fort Worth B 20,793,764 -269,652 -188,369 -0.9% 18.2% 19.3% $20.68 0 144,850 Dallas-Fort Worth B 87,090,016 -1,058,661 -1,650,698 -1.9% 19.3% 20.4% $21.20 0 329,350

Q1 2018

Office Insight

Big users continue to drive market-wide demand

Fundamentals Forecast • Liberty Mutual adds 5,000 jobs and 1.1 million s.f. to Far North Dallas with YTD net absorption 1,736,416 s.f. ▲ several more large occupiers following suit Under construction 7,513,916 s.f. ▼ • Rent growth slows as new speculative supply outpaces demand Total vacancy 18.7 % ▶ • As buildings increase in value, rising operating expenses will be a major theme moving forward Average asking rent (gross) $26.64 p.s.f. ▲ Concessions Stable ▲

As we enter the eighth year of this real estate cycle, Dallas-Fort Worth has shot Supply and demand (s.f.) Net absorption to the top of the most in-demand office markets in the country. Despite the Deliveries fact that rental rates are reaching 15% above their prerecession highs and 10,000,000 unemployment is closing in on 3%, the cost to do business in DFW still remains at least 20% cheaper than the top coastal cities. The DFW office 5,000,000 market has accommodated this demand by delivering over 20 million s.f. in the last three years with another 7.5 million underway. Preleasing activity appears healthy with 69% of the space under construction already spoken for. 0 However, when factoring out single-tenant, build-to-suit projects, this figure 2015 2016 2017 Q1 2018 drops to 35%. While this is not a new trend in DFW, its effect is felt as rental rate growth begins to wane. Total vacancy Historically concentrated in Far North Dallas, these large build-to-suit projects 19.1% are beginning to appear elsewhere in the market: Las Colinas saw Pioneer 18.7% Natural Resources break ground on its 1.1 million s.f. campus at Hidden Ridge 18.1% 18.2% and Signet Jewelers moved into its 225k s.f. building in Cypress Waters. Meanwhile, Mercedes Benz Financial (200k s.f.), American Airlines (1.8m s.f.) and Charles Schwab (500k s.f.) recently broke ground on the Fort Worth side of the market. 2015 2016 2017 Q1 2018

Outlook Expect rising occupancy costs in the coming quarters to be primarily driven by Average asking rents ($/s.f.) Class A higher operating expenses as appraised property values – and therefore taxes – Class B continue to increase. To accommodate for this, base rental rate growth could $40.00 further slow, especially in Uptown. While absorption will continue to be driven $30.00 by large users occupying new campuses, we are currently tracking over 100 requirements in in the 25k – 100k s.f. range, so we are optimistic that the $20.00 abundant new multi-tenant spec space will get chipped away at throughout the $10.00 coming quarters, even in the absence of another mega-deal. $0.00 For more information, contact: Clay Schleimer | [email protected] 2015 2016 2017 Q1 2018

Q1 2018

Office Statistics

Total net YTD total net YTD total net Average YTD Under Inventory Direct vacancy Total Class absorption absorption absorption (% direct asking Completions Development (s.f.) (%) vacancy (%) (s.f.) (s.f.) of stock) rent ($ p.s.f.) (s.f.) (s.f.) Uptown/Oak Lawn Totals 11,592,427 -77,713 -77,713 -0.7% 11.7% 13.9% $41.49 130,000 1,175,014 Dallas CBD Totals 27,515,044 69,015 69,015 0.3% 24.0% 26.3% $26.46 261,400 163,025 Downtown Dallas Totals 39,107,471 -8,698 -8,698 0.0% 20.3% 22.6% $30.92 391,400 1,338,039 Fort Worth CBD Totals 10,233,700 33,384 33,384 0.3% 11.2% 11.5% $26.26 0 280,489 Downtown Fort Worth Totals 10,233,700 33,384 33,384 0.3% 11.2% 11.5% $26.26 0 280,489 Far North Dallas Totals 47,642,910 541,581 541,581 1.1% 14.8% 16.6% $29.22 1,493,199 660,000 Las Colinas Totals 31,240,008 679,411 679,411 2.2% 14.2% 16.1% $26.18 225,000 1,839,500 LBJ Freeway Totals 19,195,397 1,063 1,063 0.0% 20.8% 21.8% $22.69 0 0 North Central Expressway Totals 10,646,907 -132,962 -132,962 -1.2% 11.8% 14.1% $28.60 0 0 Richardson/Plano Totals 19,258,971 281,892 281,892 1.5% 19.0% 20.7% $24.11 0 655,538 Preston Center Totals 4,214,692 87,926 87,926 2.1% 11.8% 12.3% $40.36 0 0 Stemmons Freeway Totals 8,852,057 -78,766 -78,766 -0.9% 26.8% 27.1% $17.25 0 0 Suburban Dallas Totals 141,050,942 1,380,145 1,380,145 1.0% 16.5% 18.1% $26.49 1,718,199 3,155,038 Arlington/East Fort Worth Totals 7,757,868 76,988 76,988 1.0% 10.4% 11.0% $18.81 0 65,500 Centreport/DFW Airport Totals 4,006,571 9,410 9,410 0.2% 11.6% 11.8% $20.25 0 0 HEB/Haltom City Totals 4,125,585 -59,522 -59,522 -1.4% 21.2% 22.2% $17.17 0 1,800,000 North Fort Worth Totals 3,727,701 113,189 113,189 3.0% 42.9% 42.9% $22.57 0 219,000 West/Southwest Fort Worth Totals 6,255,483 31,512 31,512 0.5% 7.4% 8.6% $25.24 0 43,850 Westlake/Southlake Totals 5,871,018 160,008 160,008 2.7% 26.4% 26.6% $26.90 55,000 612,000 Suburban Fort Worth Totals 31,744,226 331,585 331,585 1.0% 18.1% 18.7% $22.17 55,000 2,740,350 Dallas-Fort Worth Totals 222,136,339 1,736,416 1,736,416 0.8% 17.2% 18.7% $26.64 2,164,599 7,513,916

Uptown/Oak Lawn A 9,658,550 -82,964 -82,964 -0.9% 11.4% 12.7% $42.65 130,000 1,175,014 Dallas CBD A 22,583,239 250,462 250,462 1.1% 25.1% 27.7% $27.71 261,400 163,025 Downtown Dallas A 32,241,789 167,498 167,498 0.5% 21.0% 23.2% $32.19 391,400 1,338,039 Fort Worth CBD A 5,955,941 82,076 82,076 1.4% 12.1% 12.5% $29.03 0 280,489 Downtown Fort Worth A 5,955,941 82,076 82,076 1.4% 12.1% 12.5% $29.03 0 280,489 Far North Dallas A 32,708,992 620,428 620,428 1.9% 13.7% 15.7% $32.20 1,493,199 660,000 Las Colinas A 17,194,259 640,483 640,483 3.7% 11.4% 13.2% $30.24 225,000 1,725,000 LBJ Freeway A 10,410,777 252,611 252,611 2.4% 18.4% 19.5% $25.63 0 0 North Central Expressway A 7,054,442 -97,223 -97,223 -1.4% 11.7% 14.6% $30.54 0 0 Richardson/Plano A 10,513,388 223,055 223,055 2.1% 21.9% 24.6% $27.91 0 655,538 Preston Center A 3,445,210 89,155 89,155 2.6% 12.2% 12.8% $42.75 0 0 Stemmons Freeway A 4,440,429 28,600 28,600 0.6% 18.1% 18.2% $18.55 0 0 Suburban Dallas A 85,767,497 1,757,109 1,757,109 2.0% 14.8% 16.7% $30.06 1,718,199 3,040,538 Arlington/East Fort Worth A 2,020,464 65,378 65,378 3.2% 11.2% 12.0% $21.59 0 0 Centreport/DFW Airport A 1,889,353 0 0 0.0% 0.0% 0.0% N/A 0 0 HEB/Haltom City A 352,780 -3,709 -3,709 -1.1% 40.6% 40.6% $21.07 0 1,800,000 North Fort Worth A 1,090,469 13,363 13,363 1.2% 28.7% 28.7% $21.76 0 200,000 West/Southwest Fort Worth A 2,028,151 44,523 44,523 2.2% 13.3% 14.1% $28.49 0 0 Westlake/Southlake A 3,570,351 134,687 134,687 3.8% 33.5% 33.5% $27.66 55,000 550,000 Suburban Fort Worth A 10,951,568 254,242 254,242 2.3% 19.6% 19.9% $25.15 55,000 2,550,000 Dallas-Fort Worth A 134,916,795 2,260,925 2,260,925 1.7% 16.6% 18.3% $30.13 2,164,599 7,209,066

Uptown/Oak Lawn B 1,933,877 5,251 5,251 0.3% 13.4% 19.6% $35.71 0 0 Dallas CBD B 4,931,805 -181,447 -181,447 -3.7% 18.7% 19.6% $20.74 0 0 Downtown Dallas B 6,865,682 -176,196 -176,196 -2.6% 17.2% 19.6% $24.96 0 0 Fort Worth CBD B 4,277,759 -48,692 -48,692 -1.1% 9.9% 10.2% $22.41 0 0 Downtown Fort Worth B 4,277,759 -48,692 -48,692 -1.1% 9.9% 10.2% $22.41 0 0 Far North Dallas B 14,933,918 -78,847 -78,847 -0.5% 17.3% 18.4% $22.68 0 0 Las Colinas B 14,045,749 38,928 38,928 0.3% 17.5% 19.6% $21.20 0 114,500 LBJ Freeway B 8,784,620 -251,548 -251,548 -2.9% 23.6% 24.5% $19.21 0 0 North Central Expressway B 3,592,465 -35,739 -35,739 -1.0% 12.0% 13.1% $24.80 0 0 Richardson/Plano B 8,745,583 58,837 58,837 0.7% 15.6% 15.9% $19.55 0 0 Preston Center B 769,482 -1,229 -1,229 -0.2% 10.3% 10.3% $29.68 0 0 Stemmons Freeway B 4,411,628 -107,366 -107,366 -2.4% 35.5% 35.9% $15.94 0 0 Suburban Dallas B 55,283,445 -376,964 -376,964 -0.7% 19.1% 20.2% $20.95 0 114,500 Arlington/East Fort Worth B 5,737,404 11,610 11,610 0.2% 10.2% 10.6% $17.83 0 65,500 Centreport/DFW Airport B 2,117,218 9,410 9,410 0.4% 22.0% 22.3% $20.25 0 0 HEB/Haltom City B 3,772,805 -55,813 -55,813 -1.5% 19.4% 20.5% $16.81 0 0 North Fort Worth B 2,637,232 99,826 99,826 3.8% 48.8% 48.8% $22.90 0 19,000 West/Southwest Fort Worth B 4,227,332 -13,011 -13,011 -0.3% 4.5% 5.9% $23.68 0 43,850 Westlake/Southlake B 2,300,667 25,321 25,321 1.1% 15.3% 16.0% $25.73 0 62,000 Suburban Fort Worth B 20,792,658 77,343 77,343 0.4% 17.4% 18.1% $20.60 0 190,350 Dallas-Fort Worth B 87,219,544 -524,509 -524,509 -0.6% 18.1% 19.2% $21.26 0 304,850

Confidential and proprietary to JLL Dallas

Q4 2017

Office Insight

From boil to simmer: office market cools to new norms

Fundamentals Forecast • Sales activity slowing due to limited availability of for-sale product YTD net absorption 5,773,664 s.f. ▲ • Driven by large built-to-suit completions, 2017 finishes with strong multi- tenant absorption Under construction 5,376,097 s.f. ▼ • No new construction starts this quarter points to controlled growth Total vacancy 19.0 % ▶ • CBD still alive with two major relocations from uptown signed this Average asking rent (gross) $27.31 p.s.f. ▲ quarter and several major renovations underway Concessions Stable ▲

From tech to legal to energy, the diverse Dallas job engine continues to drive Supply and demand (s.f.) Net absorption handsome returns for investors in office product. Rental rates have increased Deliveries at a higher rate than were underwritten earlier in the cycle. Now, with healthy 8,000,000 renewals, relocations and expansions across all major industries, investors 6,000,000 are looking to place their money in Dallas to diversify their portfolio – though 4,000,000 deal volume is constrained by limited opportunities, as many key buildings already traded hands in this cycle. 2,000,000 0 Alongside sales, leasing activity calmed toward the end of the year as well. 2013 2014 2015 2016 2017 The first three quarters of 2017 were dominated by large build-to-suit deliveries in Far North Dallas and major relocations in the downtown markets. While there were a few such events that trickled into the statistics this quarter Total vacancy (Fannie Mae moving into Granite Park in Far North Dallas; Goldman Sachs and 19.6% Alston & Bird moving to the CBD from Uptown), the closing months of 2017 19.4% saw more than one million s.f. of net absorption in multi-tenant buildings, 19.0% primarily from moves-ins less than 50,000 s.f. However, pre-leasing in the 18.7% 18.7% newest completions was underwhelming. Technology-related tenants were very active in the quarter, across multiple submarkets, emphasizing Dallas’s strengths in the sector. 2013 2014 2015 2016 2017 Outlook In terms of surface-level fundamentals (i.e. total net absorption), 2018 will Average asking rents ($/s.f.) Class A undoubtedly look different than 2017: major firms in the legal, insurance and Class B accounting industries have mostly made their moves already, and it has been $30.00 some time since a new major corporate relocation into Dallas has been announced. However, demand for smaller spaces still persists, and renewals $20.00 and expansions remain abundant. Expect construction starts to slow, but leasing activity to pick up in multi-tenant projects set to deliver in 2018. $10.00 Lengthening commute times will drive more separation of submarkets. $0.00 For more information, contact: Clay Schleimer | [email protected] 2013 2014 2015 2016 2017

Q4 2017

Office Statistics

Total net YTD total net YTD total net Average YTD Under Inventory Direct Total Class absorption absorption absorption direct asking completions construction (s.f.) vacancy (%) vacancy (%) (s.f.) (s.f.) (% of stock) rent ($ p.s.f.) (s.f.) (s.f.) Dallas CBD Totals 27,359,114 131,868 148,931 0.5% 23.8% 26.1% $26.34 92,237 322,110 Uptown/Oak Lawn Totals 11,462,427 20,708 347,330 3.0% 10.0% 12.2% $41.26 200,000 1,305,014 Downtown Totals 38,821,541 152,576 496,261 1.3% 19.7% 22.0% $30.74 292,237 1,627,124 Far North Dallas Totals 46,354,711 893,882 4,327,932 9.3% 13.4% 15.0% $29.32 5,047,122 2,434,935 Las Colinas Totals 31,021,191 -65,859 162,180 0.5% 16.1% 18.0% $25.77 1,179,761 689,500 LBJ Freeway Totals 19,168,379 186,896 452,726 2.4% 20.5% 21.8% $22.79 0 0 North Central Expressway Totals 10,646,907 5,030 -17,418 -0.2% 12.3% 12.8% $27.78 0 0 Preston Center Totals 4,214,692 34,936 -23,899 -0.6% 13.4% 14.4% $40.25 171,583 119,000 Richardson/Plano Totals 19,258,971 90,009 181,610 0.9% 20.5% 22.1% $23.99 770,003 505,538 Stemmons Freeway Totals 8,826,643 60,986 194,272 2.2% 25.9% 26.2% $17.26 0 0 Suburbs Totals 139,491,494 1,205,880 5,277,403 3.8% 16.7% 18.1% $26.35 7,168,469 3,748,973 Dallas Totals 178,313,035 1,358,456 5,773,664 3.2% 17.3% 19.0% $27.31 7,460,706 5,376,097

Dallas CBD A 22,321,839 69,388 96,815 0.4% 25.3% 28.0% $27.51 92,237 322,110 Uptown/Oak Lawn A 9,528,550 58,472 366,682 3.8% 9.5% 10.7% $42.16 200,000 1,273,530 Downtown A 31,850,389 127,860 463,497 1.5% 20.6% 22.8% $31.89 292,237 1,595,640 Far North Dallas A 31,420,793 894,424 4,370,344 13.9% 11.8% 13.6% $32.45 4,919,122 2,419,335 Las Colinas A 16,969,259 103,853 374,026 2.2% 14.2% 15.8% $30.01 820,402 575,000 LBJ Freeway A 10,410,777 126,972 271,475 2.6% 20.4% 22.0% $25.86 0 0 North Central Expressway A 7,054,442 -42,924 36,549 0.5% 12.8% 13.2% $29.43 0 0 Preston Center A 3,445,210 41,568 -30,576 -0.9% 14.2% 15.4% $42.13 171,583 119,000 Richardson/Plano A 10,454,487 -141,128 -121,028 -1.2% 23.9% 26.6% $27.49 706,936 505,538 Stemmons Freeway A 4,440,429 52,352 30,938 0.7% 18.7% 18.9% $18.70 0 0 Suburbs A 84,195,397 1,035,117 4,931,728 5.9% 15.4% 17.0% $29.95 6,618,043 3,618,873 Dallas A 116,045,786 1,162,977 5,395,225 4.6% 16.8% 18.6% $30.48 6,910,280 5,214,513

Dallas CBD B 5,037,275 62,480 52,116 1.0% 17.0% 17.7% $21.14 0 0 Uptown/Oak Lawn B 1,933,877 -37,764 -19,352 -1.0% 12.6% 19.9% $36.82 0 31,484 Downtown B 6,971,152 24,716 32,764 0.5% 15.8% 18.3% $25.49 0 80,000 Far North Dallas B 14,933,918 -542 -42,412 -0.3% 16.9% 18.0% $22.75 128,000 15,600 Las Colinas B 14,051,932 -169,712 -211,846 -1.5% 18.4% 20.6% $20.65 359,359 114,500 LBJ Freeway B 8,757,602 59,924 181,251 2.1% 20.6% 21.6% $19.13 0 0 North Central Expressway B 3,592,465 47,954 -53,967 -1.5% 11.3% 12.1% $24.54 0 0 Preston Center B 769,482 -6,632 6,677 0.9% 10.2% 10.2% $31.86 0 0 Richardson/Plano B 8,804,484 231,137 302,638 3.4% 16.6% 16.8% $19.84 63,067 0 Stemmons Freeway B 4,386,214 8,634 163,334 3.7% 33.2% 33.7% $15.80 0 0 Suburbs B 55,296,097 170,763 345,675 0.6% 18.7% 19.8% $20.87 550,426 130,100 Dallas B 62,267,249 195,479 378,439 0.6% 18.3% 19.6% $21.39 550,426 210,100

Clay Schleimer | Research Analyst 8343 Douglas Avenue Suite 100 Dallas, TX 75225 | tel +1 214 438 6430 | [email protected]

Q3 2017

Office Insight

Large corporate build-to-suits drive net absorption this year – and into early 2018

Fundamentals Forecast • Toyota and JPMorgan Chase build-to-suits account for 3.5 million square YTD net absorption 4,415,208 s.f. ▲ feet of 2017’s net absorption • Year-on-year office rents continue to increase in most submarkets Under construction 6,448,873 s.f. ▼ • Vacancy remaining stable around 19% Total vacancy 19.2% ▶ • Putting build-to-suit deliveries aside, active lease-up must continue in Average asking rent (gross) $27.20 p.s.f. ▲ new multitenant development to keep vacancy under control Concessions Rising ▲

Dallas’ job engine is the driver for the local office market. Job gains that put Supply and demand (s.f.) Net absorption Dallas toward the top of all U.S. markets continues across a diverse set of Deliveries industries, fueling all sectors including finance, law, technology and 8,000,000 healthcare. 6,000,000

4,000,000 More than 4.4 million square feet of office space has been absorbed this year. This is 3x Dallas’ long-term average. As of third quarter, 3.5 million square feet 2,000,000 of this number is accounted for in two corporate build-to-suits. This is clearly 0 illustrated in the fact that 81% of year-to-date deliveries were leased at 2013 2014 2015 2016 YTD completion. By year-end, Liberty Mutual’s 1.1-million-square foot campus will 2017 be added to this list. Importantly, with these large-scale projects hitting the market, Dallas’ construction pipeline has shifted toward much lower pre- Total vacancy leasing levels. We have noted this in the past, so it is not a surprise. Currently, 19.6% 22% of the space in projects under construction is now pre-leased, versus 19.4% +65% a few quarters ago. 19.2% 18.7% 18.7% Over the last several quarters, almost all of Dallas’ positive net absorption has been driven by new deliveries – which include the major projects, as well as smaller single tenant and new multi-tenant buildings in Las Colinas and Uptown. 2013 2014 2015 2016 2017

Outlook Average asking rents ($/s.f.) Class A 2017 will remain a strong year for the Dallas office market as large corporate Class B build-to-suits drive absorption. Continued job gains across industries should $30.00 also allow new product to lease-up. This will push average rental rates higher over the next several quarters, despite the newest offerings seeing top-end $20.00 rents plateau. Overall, we do not expect market dynamics to change appreciably during the next 1½ to 2 years, although we continue to watch $10.00 leasing activity in the newest offerings for signs of slowing. $0.00 For more information, contact: Clay Schleimer | [email protected] 2013 2014 2015 2016 2017

Q3 2017

Office Statistics

Total net YTD total net YTD total net Average YTD Under Inventory Direct Total Class absorption absorption absorption direct asking completions construction (s.f.) vacancy (%) vacancy (%) (s.f.) (s.f.) (% of stock) rent ($ p.s.f.) (s.f.) (s.f.) CBD Totals 27,359,114 -201,017 17,063 0.1% 24.9% 26.6% $26.22 92,237 322,110 Uptown/Oak Lawn Totals 11,462,427 17,676 326,622 2.8% 10.5% 12.4% $40.70 200,000 1,305,014 Downtown Totals 38,821,541 -183,341 343,685 0.9% 20.7% 22.4% $30.50 292,237 1,627,124 Far North Dallas Totals 45,745,854 1,424,147 3,434,050 7.5% 14.5% 15.8% $29.33 4,438,265 3,028,192 Las Colinas Totals 31,001,191 195,278 228,039 0.7% 16.1% 17.7% $25.91 1,159,761 709,500 LBJ Freeway Totals 19,168,379 206,090 265,830 1.4% 21.6% 23.1% $22.55 0 0 North Central Expressway Totals 10,646,907 8,343 -22,448 -0.2% 12.7% 12.9% $28.41 0 0 Preston Center Totals 4,043,109 -21,141 -58,835 -1.5% 10.8% 11.7% $37.95 0 171,583 Richardson/Plano Totals 18,852,035 174,705 91,601 0.5% 20.5% 20.9% $23.74 363,067 912,474 Stemmons Freeway Totals 8,826,643 6,315 133,286 1.5% 26.1% 26.9% $17.30 0 0 Suburbs Totals 138,284,118 1,993,737 4,071,523 2.9% 17.2% 18.3% $26.28 5,961,093 4,821,749 Dallas Totals 177,105,659 1,810,396 4,415,208 2.5% 17.9% 19.2% $27.20 6,253,330 6,448,873

CBD A 22,321,839 -265,841 27,427 0.1% 26.5% 28.3% $27.40 92,237 322,110 Uptown/Oak Lawn A 9,528,550 4,294 308,210 3.2% 10.4% 11.3% $42.19 200,000 1,273,530 Downtown A 31,850,389 -261,547 335,637 1.1% 21.7% 23.2% $31.82 292,237 1,595,640 Far North Dallas A 30,891,936 1,384,591 3,475,920 11.3% 13.5% 15.0% $32.78 4,390,265 2,948,192 Las Colinas A 16,969,259 278,068 270,173 1.6% 14.6% 16.4% $30.11 820,402 575,000 LBJ Freeway A 10,410,777 96,863 144,503 1.4% 21.4% 23.2% $25.73 0 0 North Central Expressway A 7,054,442 17,997 79,473 1.1% 12.5% 12.6% $30.29 0 0 Preston Center A 3,273,627 -34,702 -72,144 -2.2% 11.2% 12.2% $39.73 0 171,583 Richardson/Plano A 10,047,551 132,816 20,100 0.2% 21.8% 22.2% $27.55 300,000 912,474 Stemmons Freeway A 4,440,429 -19,925 -21,414 -0.5% 19.8% 20.1% $18.76 0 0 Suburbs A 83,088,021 1,855,708 3,896,611 4.7% 15.9% 17.2% $30.03 5,510,667 4,607,249 Dallas A 114,938,410 1,594,161 4,232,248 3.7% 17.5% 18.8% $30.53 5,802,904 6,202,889

CBD B 5,037,275 64,824 -10,364 -0.2% 18.2% 18.9% $21.01 0 0 Uptown/Oak Lawn B 1,933,877 13,382 18,412 1.0% 11.0% 17.9% $33.37 0 31,484 Downtown B 6,971,152 78,206 8,048 0.1% 16.2% 18.6% $24.44 0 80,000 Far North Dallas B 14,853,918 39,556 -41,870 -0.3% 16.8% 17.5% $22.17 48,000 80,000 Las Colinas B 14,031,932 -82,790 -42,134 -0.3% 17.9% 19.2% $20.83 339,359 134,500 LBJ Freeway B 8,757,602 109,227 121,327 1.4% 21.9% 23.0% $18.78 0 0 North Central Expressway B 3,592,465 -9,654 -101,921 -2.8% 12.9% 13.4% $24.71 0 0 Preston Center B 769,482 13,561 13,309 1.7% 9.3% 9.3% $30.36 0 0 Richardson/Plano B 8,804,484 41,889 71,501 0.8% 19.0% 19.4% $19.39 63,067 0 Stemmons Freeway B 4,386,214 26,240 154,700 3.5% 32.5% 33.9% $15.83 0 0 Suburbs B 55,196,097 138,029 174,912 0.3% 19.1% 20.1% $20.62 450,426 214,500 Dallas B 62,167,249 216,235 182,960 0.3% 18.8% 19.9% $21.05 450,426 294,500

Clay Schleimer | Research Analyst 8343 Douglas Avenue Suite 100 Dallas, TX 75225 | tel +1 214 438 6430 | [email protected]

Q1 2017

Office Insight

Dallas fundamentals point to continued solid performance through 2017

Fundamentals Forecast • DFW’s economic engine is adding a diversity of jobs consistently faster YTD net absorption 1,759,904 s.f. ▼ than other US markets, which is driving office demand.

Under construction 9,621,723 s.f. ▼ • High level of Q1 office absorption driven by lease-up in new deliveries ▼ and large-scale build-to-suits. Total vacancy 17.7% • 2017 will be exceptionally strong in absorption and rent growth, Average asking rent (gross) $26.64 p.s.f. ▲ although potential slowing is on the horizon for late 2018 into 2019. Concessions Rising ▲

Dallas continues on its growth trajectory. The main driver is the region’s Supply and demand (s.f.) Net absorption Deliveries consistent job gains of more than 100,000 annually in the last few years. Since 6,200,000 2010, almost 700,000 jobs have been added to the region, an increase of close to 25 percent in the job base. Importantly, these new jobs are occurring 4,200,000 across all major industries. This is driving office demand broadly in the region. In fact, since 2010, Dallas has absorbed 19 million square feet of Class A & B 2,200,000 space. While construction has ramped up to meet demand, Dallas’ consistently high vacancy rate has dropped precipitously in the last few years. 200,000 2013 2014 2015 2016 YTD From a high of 25 percent in 2009, it now stands at 17.7 percent – close to an 2017 all-time low. This tightness has pushed rental rates throughout the region, with almost all submarkets seeing above average increases. These increases are partly being driven by the higher rates in the new construction, which is Total vacancy 19.6% helping drive rents in existing assets. This shift is important in Dallas because 19.4% the market has historically had fairly flat rent growth. In this last cycle, rents 18.7% 18.7% are consistently increasing and are up 28 percent in the last 4 years. 17.7%

Outlook Our near-term outlook for Dallas is to continue on its same trajectory. As we see it, 2017 will be a solid year. Office absorption will continue to outpace its 2013 2014 2015 2016 2017 historic average, by a wide margin and probably come in around the 5-million square foot mark. The reason is due to the delivery of the large build-to-suits and other new construction projects that have been underway the last couple Average asking rents ($/s.f.) Class A Class B of years. The beginning of these deliveries is what influenced the spike in our $30.00 first quarter absorption. We also see rents continuing to rise in the coming year. We believe that annual rent growth will slow slightly this year, maybe $20.00 into the 5 to 6 percent range from the current 7.5-percent rate. We are already seeing some resistance at the top-end to advance rents, and this will likely $10.00 moderate some of the rate growth in select locations. $0.00 2013 2014 2015 2016 2017 For more information, contact: Holly Golvach | [email protected] © 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof. Dallas

Q1 2017

Office Statistics

Total net YTD total net YTD total net Average YTD Under Inventory Direct Total Class absorption absorption absorption direct asking completions construction (s.f.) vacancy (%) vacancy (%) (s.f.) (s.f.) (% of stock) rent ($ p.s.f.) (s.f.) (s.f.) CBD Totals 26,890,364 -24,176 -24,176 -0.1% 25.0% 25.9% $25.24 0 261,400 Uptown/Oak Lawn Totals 11,405,070 586,698 586,698 5.1% 8.7% 8.7% $40.55 200,000 1,295,323 Downtown Totals 38,295,434 562,522 562,522 1.5% 20.1% 20.8% $29.80 200,000 1,556,723 Far North Dallas Totals 40,572,739 344,032 344,032 0.8% 14.0% 14.7% $28.15 448,218 6,797,598 Las Colinas Totals 30,446,988 458,814 458,814 1.5% 13.5% 14.2% $24.99 544,183 756,219 LBJ Freeway Totals 18,989,630 208,229 208,229 1.1% 22.4% 23.6% $22.47 0 0 North Central Expressway Totals 10,234,201 46,297 46,297 0.5% 11.8% 12.0% $27.28 0 0 Preston Center Totals 4,043,109 29,419 29,419 0.7% 9.0% 9.5% $35.45 0 171,583 Richardson/Plano Totals 18,113,526 38,825 38,825 0.2% 18.1% 18.6% $26.36 41,067 339,600 Stemmons Freeway Totals 8,368,272 71,766 71,766 0.9% 25.8% 26.6% $15.81 0 0 Suburbs Totals 130,768,465 1,197,382 1,197,382 0.9% 16.1% 16.8% $25.71 1,033,468 8,065,000 Dallas Totals 169,063,899 1,759,904 1,759,904 1.0% 17.0% 17.7% $26.64 1,233,468 9,621,723

CBD A 21,921,328 41,896 41,896 0.2% 26.3% 27.4% $26.41 0 261,400 Uptown/Oak Lawn A 9,519,243 511,930 511,930 5.4% 8.7% 8.7% $42.20 200,000 1,295,323 Downtown A 31,440,571 553,826 553,826 1.8% 21.0% 21.8% $31.19 200,000 1,556,723 Far North Dallas A 25,755,602 -8,226 -8,226 0.0% 14.0% 14.7% $31.53 377,441 6,782,564 Las Colinas A 16,699,715 179,778 179,778 1.1% 13.0% 14.2% $28.32 544,183 756,219 LBJ Freeway A 10,408,036 5,324 5,324 0.1% 22.9% 24.5% $25.68 0 0 North Central Expressway A 6,665,575 41,896 41,896 0.6% 12.8% 12.8% $28.72 0 0 Preston Center A 3,273,627 16,817 16,817 0.5% 9.0% 9.5% $36.80 0 171,583 Richardson/Plano A 9,565,185 -8,515 -8,515 -0.1% 17.9% 18.7% $26.33 0 300,000 Stemmons Freeway A 3,982,058 9,287 9,287 0.2% 16.0% 16.1% $16.21 0 0 Suburbs A 76,349,798 236,361 236,361 0.3% 15.3% 16.1% $28.56 921,624 8,010,366 Dallas A 107,790,369 790,187 790,187 0.7% 16.9% 17.8% $29.33 1,121,624 9,567,089

CBD B 4,969,036 -66,072 -66,072 -1.3% 19.1% 19.1% $20.10 0 0 Uptown/Oak Lawn B 1,885,827 74,768 74,768 4.0% 8.5% 8.5% $32.24 0 0 Downtown B 6,854,863 8,696 8,696 0.1% 16.2% 16.2% $23.44 0 0 Far North Dallas B 14,817,137 352,258 352,258 2.4% 14.1% 14.7% $22.27 70,777 15,034 Las Colinas B 13,747,273 279,036 279,036 2.0% 14.1% 14.2% $20.95 0 0 LBJ Freeway B 8,581,594 202,905 202,905 2.4% 21.8% 22.6% $18.58 0 0 North Central Expressway B 3,568,626 4,401 4,401 0.1% 9.9% 10.5% $24.60 0 0 Preston Center B 769,482 12,602 12,602 1.6% 9.0% 9.4% $29.71 0 0 Richardson/Plano B 8,548,341 47,340 47,340 0.6% 18.2% 18.5% $26.40 41,067 39,600 Stemmons Freeway B 4,386,214 62,479 62,479 1.4% 34.6% 36.1% $15.45 0 0 Suburbs B 54,418,667 961,021 961,021 1.8% 17.3% 17.8% $21.71 111,844 54,634 Dallas B 61,273,530 969,717 969,717 1.6% 17.1% 17.6% $21.91 111,844 54,634

Steve Triolet | Research Manager 8343 Douglas Avenue Suite 100 Dallas, TX 75225 | tel +1 214 438 6430 | [email protected]

Dallas | Q4 2016

New product attracting tenants, activity still high

Market fundamentals stabilize as tenants opt for new space Construction concentrated in low vacancy submarkets Like most of the year, the vast majority of positive net absorption in the fourth 30.0% 26.3% 27.4% quarter was attributed to new construction recently delivered to the market. 24.6% 14.8% 18.6% Spec projects like McKinney & Olive have shown pent up demand for high 20.0% 13.7% 15.9% 11.9% quality space, with the property essentially leased up with 93 percent of the 10.2% space leased just one quarter after completion. Still, even with the pent up 10.0% demand, the market is largely balanced due to the high construction pipeline. Overall vacancy fluctuated the past couple of quarters but is on par with the end of last year with total vacancy rate of 18.7 percent. Source: JLL Research

Rental rates increase, but growth slowing in recent quarters Strong rate pressure remains a factor for almost all submarkets, though the New construction moving rents to new high (A&B p.s.f.) increase over the past few quarters point to lesser increases than the previous $40 few years. Rates on a quarterly basis are up less than 1 percent. New $35 $30 construction deliveries have set the high watermark for the market (in the low $25 $50s) and other high-quality properties have been raising rates, in some cases at $20 equal levels to the newest construction. $15

Construction pipeline dips, but points to higher vacancy ahead Source: JLL Research While the construction pipeline is not at record highs, it is above the long term average and above recent net absorption rates. Dallas traditionally has a large spec construction pipeline with about 20 percent being made up of build-to-suit Spec construction set for delivery in 2017 projects. Currently 60 percent of the construction pipeline is made up of large build-to-suits (most of which will deliver in 2017 and early 2018). Still, for most of the current build-to-suits underway, older existing space will need to be backfilled to keep the market in balance. In 2016, just over 4 million square feet of new construction was completed. In 2017, a surge of new construction is scheduled 2.5 million s.f. for delivery. Of the 10.6 million square feet underway, 7.5 million is expected for (vacant spec2,257 set for 2017) 2017.

Source: JLL Research

166,718,209 673,646 $25.94 10,596,272 Total inventory (s.f.) Q4 2016 net absorption (s.f.) Direct average asking rent Total under construction (s.f.) 18.7% 2,214,846 6.4% 68% Total vacancy YTD net absorption (s.f.) 12-month rent growth Total preleased Current conditions – submarket Historical leasing activity (s.f.)

Far North Dallas, Las Colinas, 25,000,000 Richardson/Plano, Uptown Tenant leverage 20,296,585 Preston Center 20,000,000 17,366,201 Dallas, Central 13,885,546 Peaking Falling 15,000,000 12,657,498 12,426,841 CBD market market LBJ Freeway 10,000,000

Rising Bottoming 5,000,000 Stemmons Freeway market market Landlord leverage 0 2012 2013 2014 2015 2016

Source: JLL Research Source: JLL Research

Total net absorption (s.f.)

6,000,000 4,794,274 5,000,000 4,000,000 2,925,053 2,991,066 3,000,000 2,314,698 2,293,652 2,214,846 1,644,584 2,000,000 1,332,182 1,000,000 479,116 0 -1,000,000 -462,185 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: JLL Research

Total vacancy rate (%)

25.0% 25.2% 24.1% 23.6% 22.2% 22.5% 20.0% 21.2% 19.6% 19.4% 18.7% 18.7% 15.0%

10.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: JLL Research

Direct average asking rent ($ p.s.f.)

$27.00 $25.94 $25.00 $24.38 $22.73 $23.00 $21.29 $20.89 $21.17 $20.80 $20.88 $21.00 $20.34 $20.38 $19.00 $17.00 $15.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: JLL Research

Dallas | Q4 2016

YTD total net Average direct YTD Under Total net YTD total net Direct vacancy Total vacancy Class Inventory (s.f.) absorption (% asking rent ($ completions construction absorption (s.f.) absorption (s.f.) (%) (%) of stock) p.s.f.) (s.f.) (s.f.) CBD Totals 26,904,192 -334,356 -1,047,669 -3.9% 25.3% 26.3% $25.06 0 261,400 Uptown/Oak Lawn Totals 11,166,022 41,073 457,286 4.1% 12.0% 13.7% $38.64 671,330 1,500,471 Downtown Totals 38,070,214 -293,283 -590,383 -1.6% 21.4% 22.6% $29.04 671,330 1,761,871 Far North Dallas Totals 38,653,745 182,095 969,652 2.5% 14.9% 15.9% $27.47 1,878,206 7,247,816 Las Colinas Totals 29,907,674 200,647 384,175 1.3% 13.4% 14.8% $24.76 681,219 1,075,402 LBJ Freeway Totals 19,217,375 16,925 501,581 2.6% 23.7% 24.6% $21.96 0 0 North Central Expressway Totals 10,384,032 67,806 521,064 5.0% 11.5% 11.9% $26.98 20,000 0 Preston Center Totals 4,041,986 -9,098 -5,496 -0.1% 9.6% 10.2% $35.31 0 171,583 Richardson/Plano Totals 18,072,227 543,416 583,096 3.2% 18.1% 18.6% $23.92 789,574 339,600 Stemmons Freeway Totals 8,370,956 -34,862 -148,843 -1.8% 26.6% 27.4% $16.63 0 0 Suburbs Totals 128,647,995 966,929 2,805,229 2.2% 16.6% 17.6% $25.02 3,368,999 8,834,401 Dallas Totals 166,718,209 673,646 2,214,846 1.3% 17.7% 18.7% $25.94 4,040,329 10,596,272

CBD A 21,910,848 -487,225 -1,228,426 -5.6% 26.9% 28.2% $26.22 0 261,400 Uptown/Oak Lawn A 9,137,221 43,761 585,214 6.4% 11.9% 12.7% $39.89 671,330 1,500,471 Downtown A 31,048,069 -443,464 -643,212 -2.1% 22.5% 23.7% $30.24 671,330 1,761,871 Far North Dallas A 23,579,858 87,838 1,029,228 4.4% 13.8% 15.1% $31.06 1,680,777 7,130,005 Las Colinas A 16,161,988 327,977 375,270 2.3% 11.0% 13.5% $28.14 681,219 1,075,402 LBJ Freeway A 10,408,036 1,379 20,740 0.2% 23.7% 24.6% $25.34 0 0 North Central Expressway A 6,823,112 79,256 406,556 6.0% 12.4% 12.5% $28.68 0 0 Preston Center A 3,272,504 3,923 -9,854 -0.3% 9.3% 10.0% $36.66 0 171,583 Richardson/Plano A 9,404,917 331,545 504,291 5.4% 16.5% 17.2% $25.67 709,186 300,000 Stemmons Freeway A 3,984,742 185 14,453 0.4% 16.2% 16.3% $18.25 0 0 Suburbs A 73,635,157 832,103 2,340,684 3.2% 14.7% 16.0% $28.26 3,071,182 8,676,990 Dallas A 104,683,226 388,639 1,697,472 1.6% 17.0% 18.2% $28.85 3,742,512 10,438,861

CBD B 4,993,344 152,869 180,757 3.6% 18.1% 18.2% $19.96 0 0 Uptown/Oak Lawn B 2,028,801 -2,688 -127,928 -6.3% 12.2% 17.8% $33.00 0 0 Downtown B 7,022,145 150,181 52,829 0.8% 16.4% 18.1% $23.73 0 0 Far North Dallas B 15,073,887 94,257 -59,576 -0.4% 16.7% 17.1% $21.86 197,429 117,811 Las Colinas B 13,745,686 -127,330 8,905 0.1% 16.1% 16.3% $20.79 0 0 LBJ Freeway B 8,809,339 15,546 480,841 5.5% 23.8% 24.5% $17.97 0 0 North Central Expressway B 3,560,920 -11,450 114,508 3.2% 9.9% 10.7% $23.71 20,000 0 Preston Center B 769,482 -13,021 4,358 0.6% 10.6% 11.0% $29.55 0 0 Richardson/Plano B 8,667,310 211,871 78,805 0.9% 19.9% 20.2% $22.03 80,388 39,600 Stemmons Freeway B 4,386,214 -35,047 -163,296 -3.7% 36.0% 37.4% $15.15 0 0 Suburbs B 55,012,838 134,826 464,545 0.8% 19.2% 19.7% $20.69 297,817 157,411 Dallas B 62,034,983 285,007 517,374 0.8% 18.9% 19.5% $21.03 297,817 157,411

Steve Triolet Research Manager 8343 Douglas Avenue Suite 100 Dallas, TX 75225 tel +1 214 438 6430 [email protected]

Dallas | Q3 2016

New product attracting tenants, activity still high

Vacancy dips as tenants move into new construction Construction concentrated in low vacancy submarkets Net absorption started the year slow, but has moved back above the historic 30.0% 25.1% 24.6% 27.9% norm with over half a million square feet absorbed in the third quarter. Net 20.1% absorption remains strong, but new construction has outpaced demand over the 20.0% 16.3% 14.1% 14.8% 12.6% past year and vacancy is up slightly from last year. As previously noted, the 10.0% vacancy rate is low by historic standards, but it is expected to continue to move 10.0% upward as a sizable amount of new construction is delivered to the market over the next two years.

Source: JLL Research

Rate pressure remains high, new deliveries moving average to new highs Relatively low vacancy and new construction deliveries have been moving the New construction moving rates to new high (A&B p.s.f.) average asking rate to new highs for the market. Year-over-year, direct asking $40 rates increased for Class A & B space by 7.6 percent. Rent increases ranged $30 from less than one percent in Preston Center to almost ten percent in Uptown. $20 Several tenants have expressed rent shock as lease terms come up for renewal. In many cases, tenants have downsized their footprints to adjust to rate pressure. $10

Construction pipeline dips, but points to higher vacancy ahead Source: JLL Research While the construction pipeline is not at record highs, it is above the long term average and above recent net absorption rates. Dallas traditionally has a large spec construction pipeline with about 20 percent being made up of build-to-suit Spec construction set for delivery in remainder of 2016 projects. Currently 60 percent of the construction pipeline is made up of large build-to-suits (most of which will deliver in 2017 and early 2018). Still, for most of the current build-to-suits underway, older existing space will need to be backfilled to keep the market in balance. For the year-to-date, 3.3 million square feet of new construction has been completed. In the fourth quarter another 2 million 850,000 s.f. square feet is scheduled for completion. (vacant spec set2,257 for fourth quarter 2016)

Source: JLL Research

165,531,522 526,528 $25.74 10,947,382 Total inventory (s.f.) Q3 2016 net absorption (s.f.) Direct average asking rent Total under construction (s.f.) 18.9% 1,541,200 7.6% 68% Total vacancy YTD net absorption (s.f.) 12-month rent growth Total preleased Current conditions – submarket Historical leasing activity (s.f.) Far North Dallas, Las Colinas, Richardson/Plano, Uptown 25,000,000

Preston Center Tenantleverage 20,296,585 20,000,000 17,366,201 Dallas, Central Peaking Falling 13,885,546 CBD market market 15,000,000 12,657,498 10,326,641 LBJ Freeway 10,000,000 Rising Bottoming market market 5,000,000 Stemmons Freeway Landlord leverage Landlord 0 2012 2013 2014 2015 YTD 2016

Source: JLL Research Source: JLL Research

Total net absorption (s.f.)

6,000,000 4,794,274 5,000,000 4,000,000 2,925,053 2,991,066 3,000,000 2,314,698 2,293,652 1,644,584 2,000,000 1,332,182 1,541,200 1,000,000 479,116 0 -1,000,000 -462,185 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD 2016

Source: JLL Research

Total vacancy rate (%)

25.0% 25.2% 24.1% 23.6% 22.2% 22.5% 20.0% 21.2% 19.6% 19.4% 18.7% 18.9% 15.0%

10.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3 2016

Source: JLL Research

Direct average asking rent ($ p.s.f.)

$25.74 $26.00 $24.38 $24.00 $22.73 $20.89 $21.17 $20.88 $21.29 $22.00 $20.80 $20.34 $20.38 $20.00 $18.00 $16.00 $14.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3 2016 Source: JLL Research

Dallas | Q3 2016

YTD total net Average direct YTD Under Total net YTD total net Direct vacancy Total vacancy Class Inventory (s.f.) absorption (% asking rent ($ completions construction absorption (s.f.) absorption (s.f.) (%) (%) of stock) p.s.f.) (s.f.) (s.f.) CBD Totals 26,904,055 -363,417 -713,313 -2.7% 24.0% 25.1% $24.87 0 261,400 Uptown/Oak Lawn Totals 11,141,963 356,635 416,213 3.7% 12.4% 14.1% $38.49 671,330 1,500,471 Downtown Totals 38,046,018 -6,782 -297,100 -0.8% 20.6% 21.9% $28.86 671,330 1,761,871 Far North Dallas Totals 38,517,462 143,615 787,557 2.0% 15.6% 16.3% $27.44 1,743,049 7,389,951 Las Colinas Totals 29,682,841 138,956 183,528 0.6% 13.3% 14.8% $24.31 466,219 1,000,402 LBJ Freeway Totals 19,217,951 62,653 484,656 2.5% 24.0% 24.6% $21.78 0 0 North Central Expressway Totals 10,187,979 50,322 453,258 4.4% 12.2% 12.6% $26.49 0 0 Preston Center Totals 4,032,073 25,699 3,602 0.1% 9.5% 10.0% $34.42 0 186,257 Richardson/Plano Totals 17,776,223 135,733 39,680 0.2% 19.7% 20.1% $23.55 459,186 608,901 Stemmons Freeway Totals 8,070,975 -23,668 -113,981 -1.4% 27.2% 27.9% $17.12 0 0 Suburbs Totals 127,485,504 533,310 1,838,300 1.4% 17.2% 18.0% $24.81 2,668,454 9,185,511 Dallas Totals 165,531,522 526,528 1,541,200 0.9% 18.0% 18.9% $25.74 3,339,784 10,947,382

CBD A 21,910,711 -317,202 -741,201 -3.4% 24.7% 26.0% $25.97 0 261,400 Uptown/Oak Lawn A 9,094,731 402,993 541,453 6.0% 12.6% 13.3% $39.52 671,330 1,500,471 Downtown A 31,005,442 85,791 -199,748 -0.6% 21.2% 22.3% $29.94 671,330 1,761,871 Far North Dallas A 23,510,970 478,747 941,390 4.0% 14.6% 15.5% $31.05 1,680,777 7,225,974 Las Colinas A 15,937,367 67,248 47,293 0.3% 11.7% 14.4% $27.38 466,219 1,000,402 LBJ Freeway A 10,408,612 -29,139 19,361 0.2% 23.9% 24.6% $24.96 0 0 North Central Expressway A 6,664,755 23,526 327,300 4.9% 13.7% 14.0% $28.44 0 0 Preston Center A 3,262,591 17,594 -13,777 -0.4% 9.6% 10.2% $35.67 0 186,257 Richardson/Plano A 9,155,454 89,498 172,746 1.9% 17.8% 18.6% $25.34 459,186 550,000 Stemmons Freeway A 3,684,761 -17,355 14,268 0.4% 17.6% 17.6% $18.25 0 0 Suburbs A 72,624,510 630,119 1,508,581 2.1% 15.5% 16.7% $27.97 2,606,182 8,962,633 Dallas A 103,629,952 715,910 1,308,833 1.3% 17.2% 18.4% $28.56 3,277,512 10,724,504

CBD B 4,993,344 -46,215 27,888 0.6% 21.1% 21.2% $20.03 0 0 Uptown/Oak Lawn B 2,047,232 -46,358 -125,240 -6.1% 11.5% 17.5% $33.94 0 0 Downtown B 7,040,576 -92,573 -97,352 -1.4% 18.3% 20.2% $24.07 0 0 Far North Dallas B 15,006,492 -335,132 -153,833 -1.0% 17.2% 17.4% $21.78 62,272 163,977 Las Colinas B 13,745,474 71,708 136,235 1.0% 15.3% 15.3% $20.75 0 0 LBJ Freeway B 8,809,339 91,792 465,295 5.3% 24.0% 24.7% $18.03 0 0 North Central Expressway B 3,523,224 26,796 125,958 3.6% 9.3% 9.9% $22.79 0 0 Preston Center B 769,482 8,105 17,379 2.3% 9.3% 9.3% $29.10 0 0 Richardson/Plano B 8,620,769 46,235 -133,066 -1.5% 21.7% 21.8% $21.65 0 58,901 Stemmons Freeway B 4,386,214 -6,313 -128,249 -2.9% 35.3% 36.6% $16.17 0 0 Suburbs B 54,860,994 -96,809 329,719 0.6% 19.3% 19.7% $20.62 62,272 222,878 Dallas B 61,901,570 -189,382 232,367 0.4% 19.2% 19.7% $21.01 62,272 222,878

Steve Triolet Research Manager 8343 Douglas Avenue Suite 100 Dallas, TX 75225 tel +1 214 438 6430 [email protected]

Dallas | Q2 2016

Absorption bounces back, construction grows

Vacancy beginning to rise as new construction outpaced absorption Construction pushing vacancies for select submarkets Net absorption was low in the first quarter, but was much stronger in the second 40.0% quarter. Through the first half of the year, there has been just over one million 29.2% 30.0% 23.8% 25.0% square feet of net absorption. Despite this strong level of absorption, the vacancy 18.3% 19.1% 20.0% 15.8% 13.7% rate increased slightly to 19.2 percent due to new spec construction delivered to 12.3% 10.7% the market. As previously noted, the vacancy rate is low by historic standards, 10.0% but it is expected to continue to move upward as a sizable amount of new construction is delivered to the market over the next two years.

Source: JLL Research

Rate pressure remains high Despite the vacancy increase, rate pressure remains in effect for all submarkets. Class A & B rental rates by submarket p.s.f. Year-over-year, direct asking rates increased for Class A & B space by 7.6 $40 percent. Rent increases ranged from 1 percent in Preston Center to 12 percent $30 for Uptown. In some submarkets, like Uptown, some older properties that are $20 well-leased are commanding rates on par, or in some cases, even higher than similar projects currently under construction. $10

Construction pipeline continues to increase, higher vacancy likely Source: JLL Research While the construction pipeline is not at record highs, it is above the long term average and has been increasing over the past few quarters. More than half is made up of very large built-to-suits (most of which will deliver in 2017 and early Spec construction scheduled for late 2016 delivery 2018), but in most cases their existing locations will need to be backfilled. In the first half of 2016, almost 2.2 million square feet of new construction has been completed. In the second half of the year, another 3.3 million square feet is scheduled for completion. Of that pipeline of 3.3 million square feet, 1.8 million square feet is not built-to-suit or preleased. 1.8 million s.f.

(vacant spec set2,257 for second half of 2016)

Source: JLL Research

163,694,286 849,737 $25.24 11,148,693 Total inventory (s.f.) Q2 2016 net absorption (s.f.) Direct average asking rent Total under construction (s.f.) 19.2% 1,014,672 7.6% 68% Total vacancy YTD net absorption (s.f.) 12-month rent growth Total preleased Current conditions – submarket Historical leasing activity (s.f.)

Far North Dallas, Las Colinas, 25,000,000 Richardson/Plano, Uptown Tenantleverage 20,296,585 Preston Center 20,000,000 17,366,201 Dallas, Central Peaking Falling 13,885,546 market market 15,000,000 12,657,498 CBD 10,000,000 5,668,265 LBJ Freeway Rising Bottoming market market 5,000,000

Landlord leverage Landlord 0 Stemmons Freeway 2012 2013 2014 2015 YTD 2016

Source: JLL Research Source: JLL Research

Total net absorption (s.f.)

6,000,000 4,794,274 5,000,000 4,000,000 2,925,053 2,991,066 3,000,000 2,314,698 2,293,652 1,644,584 1,332,182 2,000,000 1,014,672 1,000,000 479,116 0 -1,000,000 -462,185 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD 2016

Source: JLL Research

Total vacancy rate (%)

25.0% 25.2% 24.1% 23.6% 22.2% 22.5% 20.0% 21.2% 19.6% 19.4% 18.7% 19.2% 15.0%

10.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q2 2016

Source: JLL Research

Direct average asking rent ($ p.s.f.)

$25.24 $26.00 $24.38 $24.00 $22.73 $20.89 $21.17 $20.88 $21.29 $22.00 $20.80 $20.34 $20.38 $20.00 $18.00 $16.00 $14.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q2 2016 Source: JLL Research

Dallas | Q2 2016

YTD total net Average direct YTD Under Total net YTD total net Direct vacancy Total vacancy Class Inventory (s.f.) absorption (% asking rent ($ completions construction absorption (s.f.) absorption (s.f.) (%) (%) of stock) p.s.f.) (s.f.) (s.f.) CBD Totals 26,883,789 -205,278 -349,896 -1.3% 23.0% 23.8% $24.74 0 261,400 Uptown/Oak Lawn Totals 10,613,377 51,431 59,578 0.6% 10.7% 12.3% $37.42 141,330 1,794,225 Downtown Totals 37,497,166 -153,847 -290,318 -0.8% 19.5% 20.5% $28.33 141,330 2,055,625 Far North Dallas Totals 37,916,688 478,257 643,942 1.7% 14.3% 15.8% $26.52 1,124,490 7,316,368 Las Colinas Totals 28,695,035 9,304 44,572 0.2% 16.8% 18.3% $24.30 466,219 981,542 LBJ Freeway Totals 19,218,450 475,107 422,003 2.2% 24.3% 25.0% $21.49 0 0 North Central Expressway Totals 10,687,077 206,376 402,936 3.8% 13.4% 13.7% $26.55 0 0 Preston Center Totals 4,032,073 -22,701 -22,097 -0.5% 10.3% 10.7% $34.44 0 186,257 Richardson/Plano Totals 17,394,262 -42,971 -96,053 -0.6% 18.7% 19.1% $22.48 459,186 608,901 Stemmons Freeway Totals 8,253,535 -99,788 -90,313 -1.1% 28.6% 29.2% $17.05 0 0 Suburbs Totals 126,197,120 1,003,584 1,304,990 1.0% 17.8% 18.8% $24.33 2,049,895 9,093,068 Dallas Totals 163,694,286 849,737 1,014,672 0.6% 18.2% 19.2% $25.24 2,191,225 11,148,693

CBD A 21,890,445 -187,118 -423,999 -1.9% 23.6% 24.6% $25.88 0 261,400 Uptown/Oak Lawn A 8,566,220 106,730 138,460 1.6% 10.9% 11.6% $38.22 141,330 1,794,225 Downtown A 30,456,665 -80,388 -285,539 -0.9% 20.0% 20.9% $29.35 141,330 2,055,625 Far North Dallas A 22,494,325 422,057 462,643 2.1% 13.9% 15.5% $29.86 1,085,218 7,036,114 Las Colinas A 15,932,122 -80,300 -19,955 -0.1% 16.4% 18.9% $27.13 466,219 642,183 LBJ Freeway A 10,404,414 347,306 48,500 0.5% 23.7% 24.3% $24.55 0 0 North Central Expressway A 7,051,855 148,178 303,774 4.3% 14.2% 14.5% $28.52 0 0 Preston Center A 3,262,591 -29,735 -31,371 -1.0% 10.3% 10.7% $35.90 0 186,257 Richardson/Plano A 8,766,810 -47,767 83,248 0.9% 15.4% 16.0% $24.86 459,186 550,000 Stemmons Freeway A 3,684,761 30,383 31,623 0.9% 17.1% 17.1% $18.48 0 0 Suburbs A 71,596,878 790,122 878,462 1.2% 16.1% 17.4% $27.43 2,010,623 8,414,554 Dallas A 102,053,543 709,734 592,923 0.6% 17.3% 18.4% $28.00 2,151,953 10,470,179

CBD B 4,993,344 -18,160 74,103 1.5% 20.2% 20.3% $19.72 0 0 Uptown/Oak Lawn B 2,047,157 -55,299 -78,882 -3.9% 9.8% 15.3% $34.08 0 0 Downtown B 7,040,501 -73,459 -4,779 -0.1% 17.2% 18.8% $23.90 0 0 Far North Dallas B 15,422,363 56,200 181,299 1.2% 14.9% 16.2% $21.65 39,272 280,254 Las Colinas B 12,762,913 89,604 64,527 0.5% 17.4% 17.6% $20.76 0 339,359 LBJ Freeway B 8,814,036 127,801 373,503 4.2% 25.0% 25.7% $17.88 0 0 North Central Expressway B 3,635,222 58,198 99,162 2.7% 11.8% 12.2% $22.73 0 0 Preston Center B 769,482 7,034 9,274 1.2% 10.4% 10.4% $28.23 0 0 Richardson/Plano B 8,627,452 4,796 -179,301 -2.1% 22.2% 22.3% $20.07 0 58,901 Stemmons Freeway B 4,568,774 -130,171 -121,936 -2.7% 37.8% 38.9% $15.89 0 0 Suburbs B 54,600,242 213,462 426,528 0.8% 19.9% 20.6% $20.27 39,272 678,514 Dallas B 61,640,743 140,003 421,749 0.7% 19.6% 20.4% $20.68 39,272 678,514

Steve Triolet Research Manager 8343 Douglas Avenue Suite 100 Dallas, TX 75225 tel +1 214 438 6430 [email protected]

Dallas | Q1 2016

Absorption pace pauses, construction remains high

Vacancy beginning to rise as new construction outpaces absorption UC pipeline large, large portion is built-to-suits Corporate relocation and consolidation continues to be driving office demand. 10,000,000 Two examples include McKesson’s recent purchase a 500,000-square-foot complex in Las Colinas to consolidate and expand in the region, while Spire 8,000,000 Realty Capital will be relocating their corporate headquarters from Arizona to 6,000,000 Uptown in mid-2016. In the first quarter of 2016, new speculative construction 4,000,000 outpaced net absorption, moving total vacancy up slightly to 19.1 percent. While 2,000,000 drifting upward, vacancy remains near the region’s historic low, as well as for 0 many submarkets. We expect vacancy to increase slightly through 2016, and the 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD slow pace of first quarter absorption seems to be more related to the market Source: JLL Research taking a pause after 2015’s a very robust pace. Class A & B rental rates by submarket p.s.f. Rate pressure remains in place Despite the vacancy increase, rent pressure remains in effect for all submarkets. $36 Year-over-year, direct asking rates increased for Class A and B space by 7.4 $31 percent. Rent increases ranged from 1.0 percent in Preston Center to 18.0 $26 $21 percent for North Central Expressway, as tenants look for rent relief from higher $16 rent areas like Preston and Uptown. Brokers commonly report sticker shock as some tenants are seeing renewal rates 25.0 to 40.0 percent above their existing leases. We expect new Class A construction to put upward pressure on rates as space is delivered, which is also putting upward pressure on Class B properties. Source: JLL Research There is also a move to convert typically quoted “plus-electric” rates to triple net in an effort to maximize NOI and limit expense exposure. Majority of spec construction scheduled for 2016 Construction pipeline is large, strong absorption needed to keep pace While the construction pipeline is above the historic average, more than half is made of a handful of very large built-to-suits (most of which will deliver in 2017 and early 2018). In the first quarter, over one million square feet was delivered (half built-to-suit, half spec). During 2016, another 3.6 million square feet is 2.5 million s.f. scheduled for completion. Of that pipeline, two million square feet is not built- (vacant spec will2,257 be delivered in 2016) to-suit or preleased. Recently signed deals point to higher net absorption later in the year, but we expect vacancy to inch up in 2016 due to the high volume of Source: JLL Research spec construction.

162,502,918 164,935 $24.79 8,307,051 Total inventory (s.f.) Q1 2016 net absorption (s.f.) Direct average asking rent Total under construction (s.f.) 19.1% 164,935 7.4% 66% Total vacancy YTD net absorption (s.f.) 12-month rent growth Total preleased Office Statistics

Dallas | Q1 2016

YTD total net Average direct YTD Under Total net YTD total net Direct vacancy Total vacancy Class Inventory (s.f.) absorption (% asking rent ($ completions construction absorption (s.f.) absorption (s.f.) (%) (%) of stock) p.s.f.) (s.f.) (s.f.) CBD Totals 26,912,216 -144,618 -144,618 -0.5% 22.3% 23.0% $23.21 0 261,400 Uptown/Oak Lawn Totals 10,516,609 8,147 8,147 0.1% 11.3% 11.5% $35.83 0 1,001,330 Downtown Totals 37,428,825 -136,471 -136,471 -0.4% 19.2% 19.8% $26.76 0 1,262,730 Far North Dallas Totals 37,457,829 165,685 165,685 0.4% 13.9% 15.5% $26.36 496,505 5,740,881 Las Colinas Totals 28,542,021 35,268 35,268 0.1% 16.3% 17.4% $24.23 141,219 867,183 LBJ Freeway Totals 19,215,045 -53,104 -53,104 -0.3% 26.9% 27.4% $21.90 0 0 North Central Expressway Totals 10,687,077 196,560 196,560 1.8% 15.3% 15.6% $26.70 0 0 Preston Center Totals 4,030,324 604 604 0.0% 9.6% 10.1% $34.07 0 186,257 Richardson/Plano Totals 16,883,450 -53,082 -53,082 -0.3% 19.4% 19.5% $21.73 459,186 250,000 Stemmons Freeway Totals 8,258,347 9,475 9,475 0.1% 27.3% 27.9% $16.70 0 0 Suburbs Totals 125,074,093 301,406 301,406 0.2% 18.0% 18.9% $24.20 1,096,910 7,044,321 Dallas Totals 162,502,918 164,935 164,935 0.1% 18.3% 19.1% $24.79 1,096,910 8,307,051

CBD A 21,890,445 -236,881 -236,881 -1.1% 22.9% 23.7% $23.97 0 261,400 Uptown/Oak Lawn A 8,340,657 31,730 31,730 0.4% 10.4% 10.6% $36.87 0 1,001,330 Downtown A 30,231,102 -205,151 -205,151 -0.7% 19.4% 20.1% $27.53 0 1,262,730 Far North Dallas A 21,734,302 40,586 40,586 0.2% 12.4% 14.3% $29.57 472,505 5,578,827 Las Colinas A 15,639,542 60,345 60,345 0.4% 14.8% 16.6% $27.10 141,219 867,183 LBJ Freeway A 10,404,618 -298,806 -298,806 -2.9% 27.0% 27.7% $24.40 0 0 North Central Expressway A 7,051,855 155,596 155,596 2.2% 16.3% 16.6% $28.36 0 0 Preston Center A 3,260,842 -1,636 -1,636 -0.1% 9.2% 9.8% $35.48 0 186,257 Richardson/Plano A 8,262,203 131,015 131,015 1.6% 16.3% 16.4% $24.01 459,186 250,000 Stemmons Freeway A 3,684,761 1,240 1,240 0.0% 18.0% 18.0% $17.13 0 0 Suburbs A 70,038,123 88,340 88,340 0.1% 16.1% 17.3% $27.09 1,072,910 6,882,267 Dallas A 100,269,225 -116,811 -116,811 -0.1% 17.1% 18.1% $27.22 1,072,910 8,144,997

CBD B 5,021,771 92,263 92,263 1.8% 19.7% 19.8% $19.90 0 0 Uptown/Oak Lawn B 2,175,952 -23,583 -23,583 -1.1% 14.7% 15.1% $31.83 0 0 Downtown B 7,197,723 68,680 68,680 1.0% 18.2% 18.4% $23.51 0 0 Far North Dallas B 15,723,527 125,099 125,099 0.8% 16.0% 17.1% $21.92 24,000 162,054 Las Colinas B 12,902,479 -25,077 -25,077 -0.2% 18.1% 18.2% $20.75 0 0 LBJ Freeway B 8,810,427 245,702 245,702 2.8% 26.8% 27.2% $18.94 0 0 North Central Expressway B 3,635,222 40,964 40,964 1.1% 13.4% 13.8% $23.49 0 0 Preston Center B 769,482 2,240 2,240 0.3% 11.3% 11.3% $28.11 0 0 Richardson/Plano B 8,621,247 -184,097 -184,097 -2.1% 22.3% 22.4% $19.54 0 0 Stemmons Freeway B 4,573,586 8,235 8,235 0.2% 34.8% 36.0% $16.36 0 0 Suburbs B 55,035,970 213,066 213,066 0.4% 20.5% 21.1% $20.52 24,000 162,054 Dallas B 62,233,693 281,746 281,746 0.5% 20.3% 20.8% $20.87 24,000 162,054

Steve Triolet Research Manager 8343 Douglas Avenue Suite 100 Dallas, TX 75225 tel +1 214 438 6430 [email protected]

Far North Dallas, Las Colinas, 25,000,000 Richardson/Plano, Uptown Tenant leverage 20,296,585 Preston Center 20,000,000 17,366,201 Dallas, Central Peaking Falling 13,885,546 market market 15,000,000 12,657,498 CBD 10,000,000 LBJ Freeway Rising Bottoming market market 5,000,000 2,075,283

Landlord leverage 0 Stemmons Freeway 2012 2013 2014 2015 YTD 2016

Source: JLL Research Source: JLL Research

Total net absorption (s.f.)

6,000,000 4,794,274 5,000,000 4,000,000 2,925,053 2,991,066 3,000,000 2,314,698 2,293,652 1,644,584 2,000,000 1,332,182 479,116 1,000,000 164,935 0 -1,000,000 -462,185 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD 2016 Source: JLL Research

Total vacancy rate (%)

25.0% 25.2% 24.1% 23.6% 22.2% 22.5% 20.0% 21.2% 19.6% 19.4% 18.7% 19.1% 15.0%

10.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1 2016

Source: JLL Research

Direct average asking rent ($ p.s.f.)

$26.00 $24.38 $24.79 $24.00 $22.73 $20.89 $21.17 $20.88 $21.29 $22.00 $20.80 $20.34 $20.38 $20.00 $18.00 $16.00 $14.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1 2016 Source: JLL Research

Dallas | Q4 2015

2015 a banner year for demand and rate increases

Demand for space closely tied to new construction deliveries Majority of net absorption in 2015 was in new construction The Dallas economy has shown great strength in 2015 with 103,500 jobs added over the past 12 months. The improving labor market has resulted in office net absorption running at more than double the 10-year average. Almost 4.8 million Of the 4.8 million sf of positive net square feet were absorbed in 2015; while the 10-year average is about 2.2 absorption in 2015, about 85% million square feet. For 2015, the vast majority of positive net absorption was was directly attributed to tenants directly attributed to recently completed new construction. The Richardson/Plano taking occupancy of new 84% construction. submarket recorded the most new construction and net absorption, all of which were built-to-suit projects for State Farm and Raytheon, while Far North Dallas and the Downtown area saw more of a mix of built-to-suit and spec projects Source: JLL Research (FedEx, KPMG, Frost Bank, The Richards Group). Class A & B rental rates by submarket p.s.f. Rate pressure remains in place $40.0 Though a significant amount of new construction has been brought to the market, $30.0 vacancy did not increase and upward rate pressure remains strong. The 18.7 $20.0 percent total vacancy rate is not low by national standards, but is low by local, $10.0 historic standards. The lower vacancy rate has helped push rates higher for all $0.0 local area submarkets. Year-over-year, overall direct asking rates increased for Class A & B space by 6.6 percent, and ranged from 1.1 percent in Preston Center to 11.5 percent for North Central Expressway. Class A space is outpacing Source: JLL Research this slightly (6.9 percent) with some of the more value-driven submarkets seeing above average increases (Class A space in North Central Expressway and LBJ Freeway went up 12.9 percent and 14.2 percent, respectively). In-demand submarkets seeing the most new construction

30.0% Construction pipeline is large; high absorption needed to keep pace 20.0% 27.1% 29.8% 23.4% Over the next year about 4.5 million square feet of space is expected to deliver to 10.0% 14.5% 17.1% 17.7% 10.1% 14.9% the market. Of that near term construction pipeline, over 2.6 million square feet is 0.0% 11.6% unaccounted for (not built-to-suit or preleased). In addition, a half dozen properties in the West End area of the CBD are in various stages of renovation 2,257 that will convert them from old industrial properties into office properties. To keep new supply and demand in balance, the Dallas market will have to maintain near Source: JLL Research record absorption levels over the next two years to match the current construction pipeline.

162,054,191 839,434 $24.38 7,605,715 Total inventory (s.f.) Q4 2015 net absorption (s.f.) Direct average asking rent Total under construction (s.f.) 18.7% 4,794,274 6.6% 57% Total vacancy YTD net absorption (s.f.) 12-month rent growth Total preleased Current conditions – submarket Historical leasing activity (s.f.)

Far North Dallas, Las Colinas, 25,000,000 Richardson/Plano, Uptown Tenant leverage Tenant 20,296,585 Preston Center 20,000,000 17,366,201 Peaking Falling 16,461,855 Dallas, Central 13,885,546 market market 15,000,000 12,657,498 CBD 10,000,000 LBJ Freeway Rising Bottoming

market market 5,000,000

Landlord leverage Landlord 0 2011 2012 2013 2014 2015 Stemmons Freeway Source: JLL Research Source: JLL Research

Total net absorption (s.f.)

6,000,000 4,794,274 5,000,000 3,930,459 4,000,000 2,925,053 2,991,066 3,000,000 2,314,698 2,293,652 1,644,584 2,000,000 1,332,182 1,000,000 479,116 0 -1,000,000 -462,185 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: JLL Research

Total vacancy rate (%)

25.0% 25.2% 24.1% 23.6% 22.1% 22.2% 22.5% 20.0% 21.2% 19.6% 19.4% 18.7% 15.0%

10.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: JLL Research

Direct average asking rent ($ p.s.f.)

$26.00 $24.38 $24.00 $22.73 $20.89 $21.17 $20.88 $21.29 $22.00 $20.80 $20.34 $20.38 $19.56 $20.00 $18.00 $16.00 $14.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: JLL Research

Dallas | Q4 2015

YTD total net Average direct YTD Under Total net YTD total net Direct vacancy Total vacancy Class Inventory (s.f.) absorption (% asking rent ($ completions construction absorption (s.f.) absorption (s.f.) (%) (%) of stock) p.s.f.) (s.f.) (s.f.) CBD Totals 26,873,273 -15,852 99,637 0.4% 22.8% 23.4% $23.26 459,383 0 Uptown/Oak Lawn Totals 10,533,946 5,619 407,778 3.9% 11.2% 11.6% $35.83 417,735 871,330 Downtown Totals 37,407,219 -10,233 507,415 1.4% 19.5% 20.0% $26.80 877,118 871,330 Far North Dallas Totals 37,158,334 303,300 1,697,819 4.6% 13.3% 14.5% $25.96 1,105,832 4,588,462 Las Colinas Totals 28,435,729 44,317 275,918 1.0% 15.9% 17.1% $23.77 165,000 1,008,402 LBJ Freeway Totals 19,234,470 -44,680 108,824 0.6% 26.8% 27.1% $21.12 0 0 North Central Expressway Totals 10,750,492 54,210 441,820 4.1% 17.2% 17.7% $25.09 207,041 0 Preston Center Totals 4,030,324 134,580 93,353 2.3% 9.5% 10.1% $34.04 190,000 186,257 Richardson/Plano Totals 16,703,439 351,355 1,428,438 8.6% 14.8% 14.9% $21.53 2,148,722 951,264 Stemmons Freeway Totals 8,334,184 6,585 240,687 2.9% 29.2% 29.8% $16.28 0 0 Suburbs Totals 124,646,972 849,667 4,286,859 3.4% 17.5% 18.2% $23.66 3,816,595 6,734,385 Dallas Totals 162,054,191 839,434 4,794,274 3.0% 17.9% 18.7% $24.38 4,693,713 7,605,715

CBD A 22,188,234 -29,183 338,107 1.5% 23.6% 24.3% $24.08 459,383 0 Uptown/Oak Lawn A 8,311,476 8,704 153,409 1.8% 10.6% 11.0% $36.81 417,735 871,330 Downtown A 30,499,710 -20,479 491,516 1.6% 20.1% 20.7% $27.55 877,118 871,330 Far North Dallas A 21,429,154 32,874 953,814 4.5% 11.0% 12.2% $29.52 698,121 4,508,136 Las Colinas A 15,587,158 13,195 222,707 1.4% 14.2% 16.3% $26.61 165,000 1,008,402 LBJ Freeway A 10,041,691 -31,762 -52,936 -0.5% 24.1% 24.3% $24.36 0 0 North Central Expressway A 7,052,036 87,803 377,745 5.4% 18.4% 18.8% $27.60 207,041 0 Preston Center A 3,260,842 177,390 131,802 4.0% 9.1% 9.8% $35.58 190,000 186,257 Richardson/Plano A 7,821,852 387,323 1,596,492 20.4% 9.2% 9.2% $23.88 2,148,722 852,349 Stemmons Freeway A 3,684,656 7,881 197,984 5.4% 18.0% 18.0% $18.74 0 0 Suburbs A 68,877,389 674,704 3,427,608 5.0% 14.5% 15.4% $26.98 3,408,884 6,555,144 Dallas A 99,377,099 654,225 3,919,124 3.9% 16.2% 17.0% $27.16 4,286,002 7,426,474

CBD B 4,685,039 13,331 -238,470 -5.1% 18.8% 18.8% $19.36 0 0 Uptown/Oak Lawn B 2,222,470 -3,085 254,369 11.4% 13.5% 13.7% $32.15 0 0 Downtown B 6,907,509 10,246 15,899 0.2% 17.1% 17.2% $23.48 0 0 Far North Dallas B 15,729,180 270,426 744,005 4.7% 16.5% 17.7% $21.12 407,711 80,326 Las Colinas B 12,848,571 31,122 53,211 0.4% 17.9% 18.0% $20.32 0 0 LBJ Freeway B 9,192,779 -12,918 161,760 1.8% 29.8% 30.2% $17.58 0 0 North Central Expressway B 3,698,456 -33,593 64,075 1.7% 15.1% 15.5% $20.29 0 0 Preston Center B 769,482 -42,810 -38,449 -5.0% 11.4% 11.6% $27.50 0 0 Richardson/Plano B 8,881,587 -35,968 -168,054 -1.9% 19.7% 19.8% $19.46 0 98,915 Stemmons Freeway B 4,649,528 -1,296 42,703 0.9% 38.1% 39.2% $14.33 0 0 Suburbs B 55,769,583 174,963 859,251 1.5% 21.2% 21.7% $19.55 407,711 179,241 Dallas B 62,677,092 185,209 875,150 1.4% 20.7% 21.2% $19.99 407,711 179,241

Steve Triolet Research Manager 8343 Douglas Avenue Suite 100 Dallas, TX 75225 tel +1 214 438 6430 [email protected]

Dallas | Q3 2015

Shifting landscape offers opportunity for investors

Upward pressure on rates has expanded to all submarkets Class A & B rental rates by submarket p.s.f. The region’s ongoing job gains and the continued tight market conditions has $40.0 resulted in significant rental rate growth over the past two years in half of Dallas’ $30.0 submarkets. That upward pressure on rates has now begun to impact all $20.0 submarkets, even those with higher vacancy like the Stemmons and LBJ $10.0 Freeway submarkets. $0.0

Over the past quarter, all submarkets showed an increase in average asking rates, with the active submarkets seeing the larger increases (Far North Dallas, Uptown, Las Colinas). Year-over-year, rate increases for Class A and B space Source: JLL Research now average 6.3 percent, and range from 1.5 percent in Stemmons Freeway to 9.0 percent for North Central Expressway. Class A space is outpacing this YTD net absorption and construction completions slightly as some of the highest demand submarkets are realizing gains well above 8.0 percent.

Majority of net absorption has gone into newly delivered construction 3.95 million s.f. 2015 absorption has been on a fast pace, partly driven by State Farm’s occupancy of their new, regional HQ. Even after adjusting for this impact, net YTD net absorption, absorption through Q3 has totaled 2.4 million square feet, which is a strong year. (3.94 million s.f. of completions) Overall, new construction has been in balance with both net absorption and new Source: JLL Research deliveries coming in at just under 4 million square feet each. The high net absorption has been driven by a mix of leasing in built-to-suit projects (State Farm, FedEx, The Richards Group, Monitronics) and lead tenants taking Total vacancy (%) YTD by submarket occupancy on some spec developments (KPMG, Polsinelli, Frost Bank). 30.0%

20.0% 26.2% 23.3% 25.1% 10.0% 18.2% 17.2% 15.0% 17.2% Vacancy is stable and near historic lows, despite new spec deliveries 11.7% 0.0% 9.2% Dallas is currently posting almost double the historic average of demand for space. The 7.7 million-square-foot construction pipeline and additional projects 2,257 that may break ground suggest that vacancy may be at its low point in this cycle. We expect vacancy to begin to rise in 2016. We see this as a gradual shift Source: JLL Research because new spec construction should remain below previous cycles as a percent of total inventory and the economic outlook continues to be strong. 160,940,114 1,074,290 $23.93 7,735,314 Total inventory (s.f.) Q3 2015 net absorption (s.f.) Direct average asking rent Total under construction (s.f.) 18.7% 3,954,840 6.3% 59.0% Total vacancy YTD net absorption (s.f.) 12-month rent growth Total preleased Dallas | Q3 2015

Current conditions – submarket Historical leasing activity (s.f.)

Far North Dallas, Las Colinas, 25,000,000 Richardson/Plano, Uptown Tenant leverage 20,296,585 Preston Center 20,000,000 16,461,855 17,366,201 Dallas, Central Peaking Falling market market 15,000,000 13,885,546 CBD 10,000,000 6,067,906 LBJ Freeway Rising Bottoming market market 5,000,000

Landlord leverage 0 2011 2012 2013 2014 YTD 2015 Stemmons Freeway Source: JLL Research Source: JLL Research

Total net absorption (s.f.)

5,000,000 3,930,459 3,954,840 4,000,000 2,925,053 2,991,066 3,000,000 2,314,698 2,293,652 1,644,584 2,000,000 1,332,182 1,000,000 479,116 0 -1,000,000 -462,185 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015

Source: JLL Research

Total vacancy rate (%)

25.0% 25.2% 24.1% 23.6% 22.1% 22.2% 22.5% 20.0% 21.2% 19.6% 19.4% 18.7% 15.0%

10.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015

Source: JLL Research

Direct average asking rent ($ p.s.f.)

$23.93 $24.00 $22.73

$22.00 $21.17 $21.29 $20.89 $20.80 $20.88 $20.34 $20.38 $20.00 $19.56

$18.00

$16.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015 Source: JLL Research

Dallas | Q3 2015

YTD total net Average direct YTD Under Total net YTD total net Direct vacancy Total vacancy Class Inventory (s.f.) absorption (% asking rent ($ completions construction absorption (s.f.) absorption (s.f.) (%) (%) of stock) p.s.f.) (s.f.) (s.f.) CBD Totals 26,745,091 122,962 115,489 0.4% 22.6% 23.3% $23.28 459,383 0 Uptown/Oak Lawn Totals 10,531,517 83,487 402,159 3.8% 11.2% 11.7% $35.08 417,735 671,330 Downtown Totals 37,276,608 206,449 517,648 1.4% 19.4% 20.0% $26.61 877,118 671,330 Far North Dallas Totals 37,116,350 593,449 1,394,519 3.8% 14.1% 15.0% $25.17 1,039,832 4,781,190 Las Colinas Totals 28,339,441 338,643 231,601 0.8% 15.8% 17.2% $23.49 165,000 681,219 LBJ Freeway Totals 19,253,769 122,634 153,504 0.8% 26.1% 26.2% $19.85 0 0 North Central Expressway Totals 10,750,492 155,364 387,610 3.6% 17.8% 18.2% $24.30 207,041 0 Preston Center Totals 3,840,324 -5,003 -41,227 -1.1% 8.7% 9.2% $34.32 0 361,583 Richardson/Plano Totals 16,028,946 -331,349 1,077,083 6.7% 13.1% 17.2% $21.82 1,659,722 1,239,992 Stemmons Freeway Totals 8,334,184 -5,897 234,102 2.8% 24.2% 25.1% $16.18 0 0 Suburbs Totals 123,663,506 867,841 3,437,192 2.8% 17.1% 18.3% $23.12 3,071,595 7,063,984 Dallas Totals 160,940,114 1,074,290 3,954,840 2.5% 17.6% 18.7% $23.93 3,948,713 7,735,314

CBD A 21,466,723 96,761 367,290 1.7% 22.1% 22.9% $24.24 459,383 0 Uptown/Oak Lawn A 8,309,047 82,561 144,705 1.7% 10.6% 11.1% $36.29 417,735 671,330 Downtown A 29,775,770 179,322 511,995 1.7% 18.9% 19.6% $27.60 877,118 671,330 Far North Dallas A 21,449,448 518,496 920,940 4.3% 11.9% 12.5% $28.43 698,121 4,658,136 Las Colinas A 15,563,710 190,369 209,512 1.3% 14.2% 16.4% $26.42 165,000 681,219 LBJ Freeway A 10,061,278 10,412 -21,174 -0.2% 23.9% 24.0% $22.28 0 0 North Central Expressway A 7,052,036 56,109 289,942 4.1% 19.7% 20.0% $26.92 207,041 0 Preston Center A 3,070,842 -2,922 -45,588 -1.5% 9.4% 10.0% $35.90 0 361,583 Richardson/Plano A 7,201,311 -297,852 1,209,169 16.8% 6.4% 13.1% $24.30 1,659,722 1,239,992 Stemmons Freeway A 3,684,656 23,904 190,103 5.2% 16.8% 18.2% $18.68 0 0 Suburbs A 68,083,281 498,516 2,752,904 4.0% 14.6% 16.1% $26.28 2,729,884 6,940,930 Dallas A 97,859,051 677,838 3,264,899 3.3% 15.9% 17.2% $26.68 3,607,002 7,612,260

CBD B 5,278,368 26,201 -251,801 -4.8% 24.8% 24.8% $19.37 0 0 Uptown/Oak Lawn B 2,222,470 926 257,454 11.6% 13.5% 14.0% $30.55 0 0 Downtown B 7,500,838 27,127 5,653 0.1% 21.4% 21.6% $22.68 0 0 Far North Dallas B 15,666,902 74,953 473,579 3.0% 17.2% 18.4% $20.70 341,711 123,054 Las Colinas B 12,775,731 148,274 22,089 0.2% 17.8% 18.1% $19.92 0 0 LBJ Freeway B 9,192,491 112,222 174,678 1.9% 28.4% 28.7% $17.18 0 0 North Central Expressway B 3,698,456 99,255 97,668 2.6% 14.2% 14.6% $19.29 0 0 Preston Center B 769,482 -2,081 4,361 0.6% 5.8% 6.0% $28.01 0 0 Richardson/Plano B 8,827,635 -33,497 -132,086 -1.5% 18.5% 20.5% $19.79 0 0 Stemmons Freeway B 4,649,528 -29,801 43,999 0.9% 30.0% 30.5% $14.20 0 0 Suburbs B 55,580,225 369,325 684,288 1.2% 20.1% 21.0% $19.26 341,711 123,054 Dallas B 63,081,063 396,452 689,941 1.1% 20.3% 21.0% $19.66 341,711 123,054

Steve Triolet Research Manager 8343 Douglas Avenue Suite 100 Dallas, TX 75225 tel +1 214 438 6430 [email protected]

Dallas | Q2 2015

Near record demand pushing rates and costs up

Relocations and consolidations driving near record-high absorption Needle-mover relocations/consolidations/built-to-suits (SF) Dallas has been outpacing long term trends with outsized net absorption, which has been given a tremendous boost by large corporate users relocating or 2014 Santander 350K, Omnitracs/ActiveNetwork 300K consolidating operations in the Dallas market. In many cases this has involved large built-to-suit projects (State Farm, Toyota, Liberty Mutual), but in others it 2015 State Farm 1.5M, Richards Group 250K has been less high profile backfilling of large blocks of space (Realpage, Santander). Over the past three years, the Dallas market has averaged over 2.7 2016 State Farm 500K, Realpage 400K, Raytheon 490K, million square feet of positive net absorption. Through the first half of 2015, that number has already been surpassed, partly due to State Farm taking occupancy 2017 Toyota 2M SF, Liberty Mutual 1M, FedEx 265K in the first phase of its new campus. Recently signed lease transactions point to Source: JLL Research strong net absorption over the next two years.

Rates and related expenses up significantly Strong demand coupled with increased expenses pushing rates higher All of this strong demand for space has put strong upward pressure on rates. Some of that pressure is from a tighter vacancy rate, but also from an expense and labor perspective. The active construction pipeline has utilized almost all of 12.5% the available labor pool for construction workers, which has resulted in large Asking rates past two years increases in base construction costs, tenant finishes and related projects. Tenant improvement costs alone have increased somewhere in the 15 to 18% range over the past two years. These higher expenses ultimately get passed on to 16.5% tenants through increased rates. Source: JLL Research Tenant improvement costs

Vacancy likely at low point in the cycle with new spec near completion Construction pipeline points toward rising vacancy rate With over 8.5 million square feet currently underway and several more 27.0% announced projects soon to break ground, the market is likely near or at the low 25.0% point from a vacancy rate perspective this cycle. Most of the construction 23.0% 25.2% completed over the past two years has been built-to-suit projects, but this 23.6% 21.0% dynamic is expected to shift more toward spec development. Still with strong 22.5% 19.0% 21.2% 21.1% 21.3% pre-leasing activity and a lower than average vacancy rate, the market is 19.6% 17.0% 2,257 19.4% 19.2% expected to remain landlord favorable for at least the next two years. 15.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: JLL Research

159,866,162 1,024,752 $23.45 8,508,652 Total inventory (s.f.) Q2 2015 net absorption (s.f.) Direct average asking rent Total under construction (s.f.) 18.7% 2,880,550 5.2% 61.3% Total vacancy YTD net absorption (s.f.) 12-month rent growth Total preleased Dallas | Q3 2015

Current conditions – submarket Historical leasing activity (s.f.)

Far North Dallas, Las Colinas, 25,000,000

Richardson/Plano, Uptown leverage Tenant 20,296,585 Preston Center 20,000,000 17,366,201 Peaking Falling 16,461,855 Dallas, Central market market 15,000,000 13,885,546 CBD 10,000,000 6,067,906 LBJ Freeway Rising Bottoming market market 5,000,000

Landlord Landlord leverage 0 2011 2012 2013 2014 YTD 2015 Stemmons Freeway Source: JLL Research Source: JLL Research

Total net absorption (s.f.)

5,000,000 3,930,459 4,000,000 2,925,053 2,991,066 2,880,550 3,000,000 2,314,698 2,293,652 1,644,584 2,000,000 1,332,182 1,000,000 479,116 0 -1,000,000 -462,185 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015

Source: JLL Research

Total vacancy rate (%)

25.0% 25.2% 24.1% 23.6% 22.1% 22.2% 22.5% 20.0% 21.2% 19.6% 19.4% 18.7% 15.0%

10.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015

Source: JLL Research

Direct average asking rent ($ p.s.f.)

$23.45 $24.00 $22.73 $21.29 $22.00 $20.89 $21.17 $20.80 $20.88 $20.34 $20.38 $20.00 $19.56 $18.00 $16.00 $14.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015

Source: JLL Research

Dallas | Q2 2015

YTD total net Average direct YTD Under Total net YTD total net Direct vacancy Total vacancy Class Inventory (s.f.) absorption (% asking rent ($ completions construction absorption (s.f.) absorption (s.f.) (%) (%) of stock) p.s.f.) (s.f.) (s.f.) CBD Totals 26,304,414 208,683 -7,473 0.0% 21.9% 22.5% $22.73 0 450,000 Uptown/Oak Lawn Totals 10,312,952 91,085 318,672 3.1% 10.8% 11.2% $33.53 250,000 847,735 Downtown Totals 36,617,366 299,768 311,199 0.8% 18.8% 19.3% $25.77 250,000 1,297,735 Far North Dallas Totals 36,430,017 336,243 801,070 2.2% 13.5% 15.0% $24.98 273,458 5,274,614 Las Colinas Totals 28,478,584 242,516 -107,042 -0.4% 16.9% 18.3% $23.09 0 654,219 LBJ Freeway Totals 19,297,022 -36,352 30,870 0.2% 26.6% 26.8% $19.67 0 0 North Central Expressway Totals 10,797,895 186,808 232,246 2.2% 19.3% 19.5% $23.74 207,041 0 Preston Center Totals 3,840,324 15,699 -36,224 -0.9% 8.5% 9.0% $34.14 0 190,000 Richardson/Plano Totals 16,071,469 -84,312 1,408,432 8.8% 12.9% 15.1% $21.00 1,557,638 1,092,084 Stemmons Freeway Totals 8,333,485 64,382 239,999 2.9% 24.1% 25.0% $15.98 0 0 Suburbs Totals 123,248,796 724,984 2,569,351 2.1% 17.3% 18.5% $22.76 2,038,137 7,210,917 Dallas Totals 159,866,162 1,024,752 2,880,550 1.8% 17.7% 18.7% $23.45 2,288,137 8,508,652

CBD A 21,007,340 174,794 270,529 1.3% 21.0% 21.7% $23.55 0 450,000 Uptown/Oak Lawn A 8,096,465 71,996 62,144 0.8% 9.9% 10.4% $34.35 250,000 847,735 Downtown A 29,103,805 246,790 332,673 1.1% 17.9% 18.5% $25.22 250,000 1,297,735 Far North Dallas A 20,903,396 48,485 402,444 1.9% 11.5% 12.7% $28.23 198,841 4,888,814 Las Colinas A 15,395,312 277,295 19,143 0.1% 14.5% 16.7% $25.95 0 306,219 LBJ Freeway A 10,061,278 -10,116 -31,586 -0.3% 24.0% 24.1% $22.13 0 0 North Central Expressway A 7,069,940 185,273 233,833 3.3% 20.6% 20.8% $26.12 207,041 0 Preston Center A 3,070,842 4,571 -42,666 -1.4% 9.2% 9.9% $35.75 0 190,000 Richardson/Plano A 7,199,377 -153,463 1,507,021 20.9% 6.5% 9.0% $23.25 1,557,638 1,092,084 Stemmons Freeway A 3,684,656 42,522 166,199 4.5% 17.5% 18.9% $18.53 0 0 Suburbs A 67,384,801 394,567 2,254,388 3.3% 14.7% 16.0% $25.86 1,963,520 6,477,117 Dallas A 96,488,606 641,357 2,587,061 2.7% 15.7% 16.7% $25.66 2,213,520 7,774,852

CBD B 5,297,074 33,889 -278,002 -5.2% 25.6% 25.6% $19.47 0 0 Uptown/Oak Lawn B 2,216,487 19,089 256,528 11.6% 13.9% 14.1% $30.53 0 0 Downtown B 7,513,561 52,978 -21,474 -0.3% 22.1% 22.2% $21.52 0 0 Far North Dallas B 15,526,621 287,758 398,626 2.6% 16.2% 18.0% $20.61 74,617 385,800 Las Colinas B 13,083,272 -34,779 -126,185 -1.0% 19.7% 20.1% $19.73 0 348,000 LBJ Freeway B 9,235,744 -26,236 62,456 0.7% 29.5% 29.8% $16.98 0 0 North Central Expressway B 3,727,955 1,535 -1,587 0.0% 16.7% 17.2% $19.24 0 0 Preston Center B 769,482 11,128 6,442 0.8% 5.5% 5.8% $27.71 0 0 Richardson/Plano B 8,872,092 69,151 -98,589 -1.1% 18.2% 20.1% $19.18 0 0 Stemmons Freeway B 4,648,829 21,860 73,800 1.6% 29.4% 29.9% $13.96 0 0 Suburbs B 55,863,995 330,417 314,963 0.6% 20.5% 21.5% $19.03 74,617 733,800 Dallas B 63,377,556 383,395 293,489 0.5% 20.7% 21.6% $19.32 74,617 733,800

Steve Triolet Research Manager 8343 Douglas Avenue Suite 100 Dallas, TX 75225 tel +1 214 438 6430 [email protected]

Dallas | Q1 2015

Built-to-suit deliveries drive strong absorption

Job growth has accelerated over recent months, resulting in near First quarter job growth and absorption outpacing 2014 record- high absorption in early 2015 Like much of the country, there was a notable uptick in job growth in the early part of 2015, with Dallas recording an annual 140,800 net job gain. This job growth has been from a broad spectrum of industries and is expected to fuel January 2015 = 141K jobs strong demand for space for the foreseeable future. As a result of job growth, strong absorption moved the total vacancy rate to 19.0 percent. This vacancy 2014 =123K jobs rate is extremely low by historical standards. As vacancy declines, upward Annualized net job growth pressure on rates has continued, with average asking rates rising more than 5.0 percent over the past year. Source: BLS, JLL Research

Construction deliveries of large built-to-suits drive demand Pipeline expands, built-to-suit is significant component A majority of the 1.9 million square feet of positive net absorption in the first quarter was driven by the completion of State Farm’s and the Richard Group’s 8,000,000 built-to-suit projects. Neither company was a corporate relocation, which have 6,000,000 been a positive catalyst for the Dallas market, as both companies expanded their 4,000,000 employment and real estate footprints in Dallas. Of the current 7.2 million- square-foot construction pipeline, there are significant additional built-to-suits, 2,000,000 including Toyota, FedEx, 7-Eleven and Raytheon. Most of these projects are in 0 the early stages and won’t be delivered to the market until 2016 or 2017. 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 Source: JLL Research 2015

Class A properties continue to dominate leasing activity Despite price premium, Class A continues to pace Class B Despite higher rates and rate increases, tenants have been willing to lease and 4,000,000 expand within Class A product. To date, most tenants have opted to mitigate rate 3,000,000 increases through higher density instead of lower cost alternatives. With the 2,000,000 robust construction pipeline underway, this concentration on Class A space is 1,000,000 expected to continue for at least the next two years. 0 -1,000,000 2011 2012 2013 2014 Q1 2015 Class A Net absorption (sf) Class B Net absorption (sf) Source: JLL Research

7,177,086 19.0% 1,855,788 5.1% Total under construction (s.f.) Total vacancy Q1 2015 net absorption (s.f.) 12-month rent growth 59.4% Total preleased Current conditions – market and submarket Historical leasing activity

25,000,000

Non-CBD leverageTenant 20,296,585 Dallas 20,000,000 17,366,201 Peaking Falling 16,461,855 market market 15,000,000 13,885,546 10,000,000 Rising Bottoming 3,747,786 market market 5,000,000

Landlord Landlord leverage CBD 0 2011 2012 2013 2014 Q1 2015

Source: JLL Research Source: JLL Research

Total net absorption (s.f.)

5,000,000 3,930,459 4,000,000 2,925,053 2,991,066 3,000,000 2,314,698 2,293,652 1,644,584 1,855,788 2,000,000 1,332,182 1,000,000 479,116 -462,185 0 -1,000,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015 Source: JLL Research

Total vacancy rate 30.0%

25.2% 24.1% 23.6% 20.0% 22.1% 22.2% 22.5% 21.2% 19.6% 19.4% 19.0%

10.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015

Source: JLL Research

Direct average asking rent ($ p.s.f.)

$24.00 $22.73 $23.09 $21.17 $21.29 $22.00 $20.89 $20.80 $20.34 $20.38 $20.88 $19.56 $20.00 $18.00 $16.00 $14.00 $12.00 $10.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015 Source: JLL Research

YTD total net Average direct YTD Under Total net YTD total net Direct vacancy Total vacancy Class absorption (% asking rent ($ completions construction absorption (s.f.) absorption (s.f.) (%) (%) of stock) p.s.f.) (s.f.) (s.f.) CBD Totals 26,706,979 -216,156 -216,156 -0.8% 21.8% 22.4% $22.16 0 450,000 Uptown/Oak Lawn Totals 10,394,835 227,577 227,577 2.2% 11.2% 11.8% $33.27 250,000 847,735 Downtown Totals 37,101,814 11,421 11,421 0.0% 18.8% 19.5% $25.27 250,000 1,297,735 Far North Dallas Totals 36,320,565 464,827 464,827 1.3% 14.2% 15.8% $24.65 197,784 4,316,239 Las Colinas Totals 28,131,688 -349,558 -349,558 -1.2% 17.9% 19.2% $22.85 0 631,219 LBJ Freeway Totals 19,334,339 67,222 67,222 0.3% 26.4% 26.6% $19.30 0 0 North Central Expressway Totals 10,590,863 45,438 45,438 0.4% 19.3% 19.7% $22.63 0 235,893 Preston Center Totals 3,840,324 -51,923 -51,923 -1.4% 9.0% 9.4% $33.72 0 206,000 Richardson/Plano Totals 16,496,203 1,492,744 1,492,744 9.0% 12.7% 14.2% $21.03 1,557,638 490,000 Stemmons Freeway Totals 8,333,372 175,617 175,617 2.1% 24.8% 25.8% $15.89 0 0 Suburbs Totals 123,047,354 1,844,367 1,844,367 1.5% 17.8% 18.9% $22.43 1,755,422 5,879,351 Dallas Totals 160,149,168 1,855,788 1,855,788 1.2% 18.0% 19.0% $23.09 2,005,422 7,177,086

CBD A 21,648,696 95,735 95,735 0.4% 22.5% 23.3% $22.81 0 450,000 Uptown/Oak Lawn A 7,923,553 -9,852 -9,852 -0.1% 10.7% 11.3% $34.12 0 847,735 Downtown A 29,572,249 85,883 85,883 0.3% 19.3% 20.1% $24.48 0 1,297,735 Far North Dallas A 20,646,507 353,959 353,959 1.7% 11.3% 12.7% $28.35 123,167 3,883,539 Las Colinas A 15,254,013 -258,152 -258,152 -1.7% 16.6% 18.7% $25.48 0 306,219 LBJ Freeway A 10,061,278 -21,470 -21,470 -0.2% 23.8% 24.0% $21.38 0 0 North Central Expressway A 6,862,899 48,560 48,560 0.7% 20.6% 21.1% $24.47 0 235,893 Preston Center A 3,070,842 -47,237 -47,237 -1.5% 9.5% 10.0% $35.34 0 190,000 Richardson/Plano A 7,624,775 1,660,484 1,660,484 21.8% 5.8% 6.5% $23.44 1,557,638 490,000 Stemmons Freeway A 3,684,656 123,677 123,677 3.4% 18.6% 20.0% $18.49 0 0 Suburbs A 67,204,970 1,859,821 1,859,821 2.8% 15.0% 16.2% $25.48 1,680,805 5,105,651 Dallas A 96,777,219 1,945,704 1,945,704 2.0% 16.3% 17.4% $25.18 1,680,805 6,403,386

CBD B 5,058,283 -311,891 -311,891 -6.2% 18.8% 18.8% $19.38 0 0 Uptown/Oak Lawn B 2,471,282 237,429 237,429 9.6% 13.1% 13.4% $30.53 250,000 0 Downtown B 7,529,565 -74,462 -74,462 -1.0% 16.9% 17.0% $22.21 250,000 0 Far North Dallas B 15,674,058 110,868 110,868 0.7% 18.1% 19.9% $19.78 74,617 432,700 Las Colinas B 12,877,675 -91,406 -91,406 -0.7% 19.4% 19.9% $19.73 0 325,000 LBJ Freeway B 9,273,061 88,692 88,692 1.0% 29.2% 29.4% $17.04 0 0 North Central Expressway B 3,727,964 -3,122 -3,122 -0.1% 16.7% 17.2% $19.25 0 0 Preston Center B 769,482 -4,686 -4,686 -0.6% 7.0% 7.2% $27.23 0 16,000 Richardson/Plano B 8,871,428 -167,740 -167,740 -1.9% 18.5% 20.8% $18.95 0 0 Stemmons Freeway B 4,648,716 51,940 51,940 1.1% 29.8% 30.4% $13.83 0 0 Suburbs B 55,842,384 -15,454 -15,454 0.0% 21.0% 22.1% $18.75 74,617 773,700 Dallas B 63,371,949 -89,916 -89,916 -0.1% 20.5% 21.5% $19.16 324,617 773,700

Steve Triolet Research Manager 8343 Douglas Avenue Suite 100 Dallas, TX 75225 tel +1 214 438 6430 [email protected]

YTD Total net YTD total net YTD total net Under YTD Direct net direct net absorption absorption absorption Direct Direct Total vacancy Total vacancy Average asking construction / completion (sf) Inventory (sf) absorption (sf) absorption (sf) (sf) (sf) (% of stock) vacancy (sf) vacancy (%) (sf) (%) rent ($ psf) renovation (sf)

CBD Class A 235,734 66,569,934 667,042 1,392,318 733,532 1,520,190 2.3% 9,439,528 14.2% 10,173,042 15.3% $31.41 5,115,921 Class B 0 24,891,713 94,133 449,775 88,383 463,035 1.9% 3,625,926 14.6% 4,025,617 16.2% $25.14 45,700 Totals 235,734 91,461,647 761,175 1,842,093 821,915 1,983,225 2.2% 13,065,455 14.3% 14,198,659 15.5% $29.86 5,161,621

Suurbs Class A 6,314,854 157,298,465 847,068 4,516,956 525,730 4,118,485 2.6% 20,760,888 13.2% 23,532,174 15.0% $28.75 20,214,692 Class B 365,446 137,468,125 401,315 1,340,012 307,867 1,011,277 0.7% 24,088,736 17.5% 25,857,273 18.8% $20.19 185,297 Totals 6,680,300 294,766,590 1,248,383 5,856,968 833,597 5,129,762 1.7% 44,849,625 15.2% 49,389,447 16.8% $24.79 20,399,989

Texas totals Class A 6,550,588 223,868,399 1,514,110 5,909,274 1,259,262 5,638,675 2.5% 30,200,416 13.5% 33,705,217 15.1% $29.58 25,330,613 Class B 365,446 162,359,838 495,448 1,789,787 396,250 1,474,312 0.9% 27,714,663 17.1% 29,882,889 18.4% $20.83 230,997 Totals 6,916,034 386,228,237 2,009,558 7,699,061 1,655,512 7,112,987 1.8% 57,915,079 15.0% 63,588,106 16.5% $25.94 25,561,610

Austin Class A 235,734 7,059,596 149,930 418,475 159,331 425,766 6.2% 438,231 6.2% 519,537 7.4% $43.95 1,537,148 Class B 0 2,268,681 -5,324 61,681 -5,324 65,517 2.9% 86,923 3.8% 94,761 4.2% $34.51 45,700 Totals 235,734 9,328,277 144,606 480,156 154,007 491,283 5.4% 525,153 5.6% 614,299 6.6% $41.65 1,582,848

Dallas Class A 0 29,486,059 78,454 509,486 95,451 546,310 1.9% 5,812,974 19.7% 6,022,284 20.4% $25.13 1,014,735 Class B 0 7,631,084 43,712 150,055 51,261 164,257 2.2% 1,325,542 17.4% 1,332,014 17.5% $20.59 0 Totals 0 37,117,143 122,166 659,541 146,712 710,567 1.9% 7,138,516 19.2% 7,354,298 19.8% $24.21 1,014,735

Houston Class A 0 28,189,793 448,000 516,400 488,092 596,484 2.1% 2,957,622 10.5% 3,399,175 12.1% $42.41 2,564,038 Class B 0 11,651,502 52,860 230,216 39,561 226,251 1.9% 1,580,768 13.6% 1,961,994 16.8% $30.80 0 Totals 0 39,841,295 500,860 746,616 527,653 822,735 2.1% 4,538,390 11.4% 5,361,169 13.5% $39.01 2,564,038

San Antonio Class A 0 1,834,486 -9,342 -52,043 -9,342 -48,370 -2.6% 230,701 12.6% 232,046 12.6% $25.08 0 Class B 0 3,340,446 2,885 7,823 2,885 7,010 0.2% 632,694 18.9% 636,847 19.1% $19.24 0 Totals 0 5,174,932 -6,457 -44,220 -6,457 -41,360 -0.8% 863,395 16.7% 868,893 16.8% $21.31 0

Austin Class A 557,153 19,771,539 106,465 514,199 73,700 267,042 1.4% 2,266,118 11.5% 2,713,452 13.7% $32.84 1,781,026 Class B 0 17,662,832 73,815 29,444 71,044 -106,595 -0.6% 2,386,037 13.5% 2,616,034 14.8% $24.56 81,116 Totals 557,153 37,434,371 180,280 543,643 144,744 160,447 0.4% 4,652,155 12.4% 5,329,486 14.2% $28.93 1,862,142

Dallas Class A 2,313,718 65,474,137 758,571 1,796,201 531,802 1,653,755 2.6% 10,255,981 15.7% 11,053,884 16.9% $25.37 4,180,461 Class B 327,446 56,108,165 35,728 245,656 -136,829 -70,670 -0.1% 11,788,731 21.0% 12,321,395 22.0% $18.69 49,964 Totals 2,641,164 121,582,302 794,299 2,041,857 394,973 1,583,085 1.3% 22,044,712 18.1% 23,375,279 19.2% $22.29 4,230,425

Houston Class A 3,215,483 64,671,832 31,205 2,134,461 -17,784 2,152,205 3.5% 6,967,581 10.8% 8,294,867 12.8% $33.02 13,661,564 Class B 0 50,783,049 357,381 934,805 441,061 1,045,096 2.1% 8,006,221 15.8% 8,942,752 17.6% $20.99 0 Totals 3,215,483 115,454,881 388,586 3,069,266 423,277 3,197,301 2.8% 14,973,803 13.0% 17,237,619 14.9% $27.73 13,661,564

San Antonio Class A 228,500 7,380,957 -49,173 72,095 -61,988 45,483 0.6% 1,271,208 15.9% 1,469,971 18.5% $25.31 591,641 Class B 38,000 12,914,079 -65,609 130,107 -67,409 143,446 1.1% 1,907,747 13.4% 1,977,092 14.0% $20.62 54,217 Totals 266,500 20,295,036 -114,782 202,202 -129,397 188,929 0.9% 3,178,955 14.3% 3,447,063 15.5% $22.32 645,858