Research & Forecast Report HOUSTON | OFFICE Q1 2020

Houston’s office market weakens over the quarter and braces itself moving forward amid $20 oil

Lisa Bridges Director of Market Research | Houston

Commentary by Patrick DuffyMCR Market Indicators Annual Quarterly Quarterly Colliers generally uses this space to discuss the trends we see Relative to prior period Change Change Forecast* in market data and in conversations we have with our clients, prospects and friendly competitors. We take that data and attempt VACANCY to project activity going forward. The bulk of the first quarter was, NET ABSORPTION for all practical purposes, pre-COVID. Net “move-in” data, as well as new leases signed, were likely unimpacted for Q1 based on the DELIVERIES virus or only marginally impacted. Our industry has a lead time of UNDER CONSTRUCTION at least 4-6 months before a lease is signed or space made ready for occupancy. The real impact of this COVID crisis will not present *Projected in the data until later in Q2. Inertia will carry us for a few more weeks.

The world is focused on the COVID driven economic slowdown. Houston has two issues to watch – COVID and a collapse in oil prices. The oil issue is driven by Saudi Arabia and Russia failing to reach an agreement on production and by the severe decline of oil and gas demand driven by the COVID shutdown. Oil has been Summary Statistics Houston Office Market Q1 2019 Q4 2019 Q1 2020 in the low 20’s since the collision of these two events. The Energy Information Administration is projecting that supply will continue to Vacancy Rate 19.4% 19.8% 20.0% outpace demand for the balance of this year by approximately 10MM barrels per day. If that projection holds, all land-based storage (3.3B Net Absorption 417,937 837,872 -177,916 barrels) will be full by mid-May. We will likely not see much relief in oil prices for at least 18-24 months, which means the upstream and Deliveries 73,773 0 251,672 midstream companies and the companies that support them will be under a great deal of pressure to trim costs. Under Construction 2,779,924 3,898,804 4,343,232

Houston has diversified its economy and is far less reliant on just Class A Vacancy Rate oil and gas to drive its economy. However, when it comes to the CBD 19.5% 19.3% 20.2% office market, we are still very dependent on oil and gas companies, Suburban 20.8% 21.3% 20.4% both directly in the space or businesses that are dependent on Asking Rents oil and gas companies as clients. These are the big space user Per Square Foot Per Year companies historically. Houston Class A $35.26 $35.60 $35.08 If we optimistically assume that the virus-driven economic CBD Class A $45.89 $46.04 $44.09 shutdown recovers quickly once the all-clear is given, Houston will still have a significant oil slow down to cope with. Most of the Suburban Class A $32.11 $32.45 $32.21 energy companies had already leaned up their workforces since the 2014 price crash. There is not a great deal of fat left in these

Share or view online at colliers.com/houston Commentary - continued Job Growth & Unemployment (not seasonally adjusted) players to trim. The ultimate impact on the office market will likely be a factor of a lack of new space acquisition vs. a significant increase in sublease space, UNEMPLOYMENT 2/19 2/20 which we saw after the 2014 price crash. We hope that overall occupancy will not substantially decline on a net basis by year-end. We are currently projecting HOUSTON 4.2% 3.9% less than a 2-5% decline in occupancy by year-end from Q1 2020 levels based on TEXAS 3.7% 3.6% these assumptions. This marginal move would increase the overall vacancy rate by about 250 – 400 bps. U.S. 4.1% 3.8%

Another issue to watch is the tenants unable to make rent payments or to make reduced rent payments if possible and the impact on the owners of office Annual # of Jobs JOB GROWTH Change Added buildings. There is a potential domino scenario where rent payments are delayed or lost altogether. Owners are then unable to cover their debt, and a loss of HOUSTON 2.2% 68.9K liquidity is created that could easily translate into owners being unable to fund TEXAS 2.4% 306.5K tenant improvements and commissions for new leases. It is a little too early to tell how significant an impact this scenario will have. U.S. 1.6% 2.4M

If the US economy, followed by the global economy, recovers relatively quickly, Houston will get back to work. The energy sector will lag this recovery and will not help the Houston real estate market much in the next two years. CBD vs. Suburban HISTORICAL AVAILABLE SUBLEASE SPACE CLASS A OFFICE VACANCY 25.0% 12,000,000

10,000,000 20.0% 8,000,000

6,000,000 15.0% 4,000,000

2,000,000 10.0% 0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020

Class A Class B Houston Total 5.0%

Of the 1,662 existing office buildings in our survey, 79 buildings have 100,000 SF 0.0% or more contiguous space available for lease or sublease. There are 23 options with 200,000 SF available for lease or sublease. Citywide, 5.5 million SF of sublease space is listed as available and 2.6 million SF of the space is vacant. CBD Vacancy Suburban Vacancy

AVAILABLE SUBLEASE SPACE - 100,000 SF OR GREATER CLASS A OFFICE RENTS $50.00 (Total available in building and/or complex) Large Sublease Availabilities $45.00

BUILDING TENANT SUBMARKET SF $40.00

Noble Energy Center II Noble Energy FM 1960 437,793 $35.00

Energy Tower II KTI Corporation (Technip) Katy Freeway 297,919 $30.00

Twelve Greenway Plaza CPL Energy Greenway Plaza 201,554 $25.00

GreenStreet Tower Reliant Energy Retail CBD 194,768 $20.00

Westway Plaza GE Oil & Gas West Belt 171,016 $15.00 One Shell Plaza Shell Oil CBD 191,043 $10.00 1100 Louisiana Enbridge CBD 179,694 $5.00 919 Milam St SNC-Lavalin Group Inc CBD 154,863 $0.00 10000 Richmond Ave National Oilwell Varco Westchase 118,215 1500 Post Oak Blvd BHP Billiton Petroleum West Loop 113,565

Source: CoStar CBD Rents Suburban Rents

2 Houston Research & Forecast Report | Q1 2020 | Office | Colliers International Absorption & Demand

Houston’s office market posted negative net absorption of 177,916 SF in the first quarter, a huge decrease from the 837,872 SF of positive net absorption posted in the fourth quarter of 2019. Suburban Class A space recorded the largest gain, posting 463,878 SF of positive net absorption, while suburban Class B space reported the largest loss, posting 330,799 SF of negative net absorption. Since tenants typically do not move into lease space immediately after signing a lease, absorption lags and can occur at anytime after. We believe absorption numbers will trail even longer than usual in the short-term due to the “stay-at-home” orders amid COVID-19, so absorption will more than likely remain negative moving into Q2 2020.

Rental Rates

Houston’s average asking rental rate decreased over the quarter from $29.78 per SF to $29.62 per SF, primarily due to the average CBD asking rate dropping from $40.52 per SF to $39.57 per SF. Houston’s average suburban rental rate remained relatively flat, dropping only $0.04 to $27.00 per SF. Overall, rental rates only decreased by 0.5% on a quarterly basis and by 0.3% on an annual basis. CBD Class A rates posted the largest quarterly percentage decrease of 4.2%.

Leasing Activity

Houston’s office leasing activity increased slightly over the quarter from 3.4M SF to 3.6M SF, and decreased 31% on an annual basis. Leasing activity includes new/direct, sublet, renewals, expansions in existing buildings and pre-leasing in proposed buildings. Some of the more notable transactions are listed in the table below.

Q1 2020 Select Office Lease Transactions BUILDING NAME/ADDRESS SUBMARKET SF TENANT LEASE DATE The Woodlands Tower at Waterway The Woodlands 133,948 Western Midstream Partners1 Mar-20 10451 Clay Rd Katy Freeway 97,293 TGS-Nopec Geophysical Co.3 Feb-20 1501 McKinney St CBD 92,523 EDP Renewables2 Jan-20 BHP Petroleum-1500 Post Oak Blvd West Loop/Galleria 68,139 SEMPRA LNG2 Jan-20 5555 San Felipe West Loop/Galleria 28,331 Serendipity Labs1 Jan-20 Westway Plaza West Belt 27,900 EXP2 Feb-20 1New/Direct 2Sublease 3Renewal or Expansion

Sales Activity

Houston’s office investment sales volume decreased over the year from $704 million in Q1 2019 to $414 million in Q1 2020. The average sales price per square foot trended up from $189 to $279 per SF annually and Houston’s average office cap rate moved from 7.6% to 6.8%..

AVERAGE OFFICE SALES PRICE PER SF AVERAGE OFFICE CAP RATE

United States Houston United States Houston $350 8.0%

$300 7.5%

$250 7.0% $200 6.5% $150 6.0% $100 5.5% $50

$0 5.0%

Sources: CoStar and Real Capital Analytics

3 Houston Research & Forecast Report | Q1 2020 | Office | Colliers International Houston Office Market Summary (CBD, Suburban, & Overall)

SUBLEASE NET ABSORPTION RENTAL INVENTORY DIRECT VACANCY VACANCY VACANCY RATE (%) VACANCY (SF) RATE

# OF RATE RATE TOTAL AVG CLASS TOTAL (SF) (SF) (SF) Q1-2020 Q4-2019 Q1-2020 Q4-2019 BLDGS. (%) (%) (SF) ($/SF) CBD A 36 33,862,459 5,853,754 17.3% 975,241 2.9% 6,828,995 20.2% 19.3% -281,669 349,218 $44.09 B 30 8,537,257 2,893,844 33.9% 154,398 1.8% 3,048,242 35.7% 35.0% -37,178 -48,933 $31.02 C 9 569,543 78,560 13.8% 0 0.0% 78,560 13.8% 16.2% 13,591 -13,591 $17.61 Total 75 42,969,259 8,826,158 20.5% 1,129,639 2.6% 9,955,797 23.2% 22.4% -305,256 286,694 $39.57 SUBURBAN A 400 97,893,033 18,318,791 18.7% 1,672,863 1.7% 19,991,654 20.4% 21.3% 463,878 404,332 $32.21 B 920 76,589,445 14,330,373 18.7% 451,011 0.6% 14,781,384 19.3% 18.6% -330,799 116,288 $20.86 C 267 11,352,798 928,664 8.2% 27,969 0.2% 956,633 8.4% 8.4% -5,739 3,376 $19.04 Total 1587 185,835,276 33,577,828 18.1% 2,151,843 1.2% 35,729,671 19.2% 19.2% 127,340 523,996 $27.00 OVERALL A 436 131,755,492 24,172,545 18.3% 2,648,104 2.0% 26,820,649 20.4% 20.4% 182,209 753,550 $35.08 B 950 85,126,702 17,224,217 20.2% 605,409 0.7% 17,829,626 20.9% 20.4% -367,977 67,355 $22.57 C 276 11,922,341 1,007,224 8.4% 27,969 0.2% 1,035,193 8.7% 8.6% 7,852 16,967 $18.92 Total 1662 228,804,535 42,403,986 18.5% 3,281,482 1.4% 45,685,468 20.0% 19.8% -177,916 837,872 $29.62

Houston Suburban Office Market Summary

SUBLEASE NET ABSORPTION RENTAL INVENTORY DIRECT VACANCY VACANCY VACANCY RATE (%) VACANCY (SF) RATE

# OF RATE RATE TOTAL AVG CLASS TOTAL (SF) (SF) (SF) Q1-2020 Q4-2019 Q1-2020 Q4-2019 BLDGS. (%) (%) (SF) ($/SF) ALLEN PARKWAY (MIDTOWN) A 10 2,497,830 333,370 13.3% 0 0.0% 333,370 13.3% 12.5% -21,909 94,543 $35.70 B 34 2,584,163 320,478 12.4% 5,401 0.2% 325,879 12.6% 12.7% 1,125 -55,917 $25.40 C 12 385,055 91,179 23.7% 0 0.0% 91,179 23.7% 26.8% 11,872 -98 $30.15 Total 56 5,467,048 745,027 13.6% 5,401 0.1% 750,428 13.7% 12.8% -8,912 38,528 $30.59 BAYTOWN B 2 114,474 11,285 9.9% 0 0.0% 11,285 9.9% 9.9% 0 383 $22.95 C 2 41,208 10,513 25.5% 0 0.0% 10,513 25.5% 25.5% 0 0 $0.00 Total 4 155,682 21,798 14.0% 0 0.0% 21,798 14.0% 4.1% 0 383 $21.45 BELLAIRE A 6 1,173,781 89,541 7.6% 18,070 1.5% 107,611 9.2% 8.8% -4,261 52,247 $29.32 B 15 1,739,507 156,883 9.0% 0 0.0% 156,883 9.0% 4.9% -71,217 -3,075 $22.61 C 5 283,569 29,094 10.3% 0 0.0% 29,094 10.3% 10.4% 284 -1,074 $18.09 Total 26 3,196,857 275,518 8.6% 18,070 0.6% 293,588 9.2% 8.4% -75,194 48,098 $24.31 CONROE AND OUTLYING MONTGOMERY CO A 2 84,913 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 $0.00 B 9 364,423 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 $0.00 C 6 247,634 4,500 1.8% 0 0.0% 4,500 1.8% 2.4% 1,410 0 $0.00 Total 17 696,970 4,500 0.6% 0 0.0% 4,500 0.6% 1.8% 1,410 0 $0.00 E. FORT BEND CO SUGAR LAND A 18 3,555,980 351,678 9.9% 62,831 1.8% 414,509 11.7% 10.9% -25,399 -22,305 $33.64 B 35 1,962,975 175,743 9.0% 13,907 0.7% 189,650 9.7% 12.9% 64,361 12,017 $25.62 C 2 46,239 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 $0.00 Total 55 5,565,194 527,421 9.5% 76,738 1.4% 604,159 10.9% 11.8% 38,962 -10,288 $30.97

4 Houston Research & Forecast Report | Q1 2020 | Office | Colliers International Houston Suburban Office Market Summary - Continued

SUBLEASE NET ABSORPTION RENTAL INVENTORY DIRECT VACANCY VACANCY VACANCY RATE (%) VACANCY (SF) RATE

# OF TOTAL RATE RATE TOTAL AVG CLASS (SF) (SF) Q1-2020 Q4-2019 Q1-2020 Q4-2019 BLDGS. (SF) (%) (%) (SF) ($/SF) FM 1960 A 14 3,115,309 501,359 16.1% 38,142 1.2% 539,501 17.3% 16.5% -24,656 24,832 $27.29 B 68 4,591,517 1,192,911 26.0% 18,116 0.4% 1,211,027 26.4% 26.7% 12,683 -22,053 $16.89 C 25 874,085 64,203 7.3% 0 0.0% 64,203 7.3% 6.0% -11,580 9,068 $16.88 Total 107 8,580,911 1,758,473 20.5% 56,258 0.5% 1,814,731 21.1% 16.8% -23,553 11,847 $19.85 GREENWAY PLAZA A 19 6,688,440 1,229,055 18.4% 108,097 1.6% 1,337,152 20.0% 21.1% 72,383 -271,192 $37.98 B 33 3,608,497 453,322 12.6% 24,096 0.7% 477,418 13.2% 12.5% -25,863 1,161 $29.94 C 10 350,055 34,883 10.0% 1,700 0.5% 36,583 10.5% 9.8% -2,107 2,391 $26.60 Total 62 10,646,992 1,717,260 16.1% 133,893 0.5% 1,851,153 17.4% 17.5% 44,413 -267,640 $35.63 GULF FREEWAY PASADENA A 2 105,782 1,295 1.2% 0 0.0% 1,295 1.2% 1.2% 0 0 $32.03 B 41 2,309,502 249,509 10.8% 52,883 2.3% 302,392 13.1% 14.3% 27,741 -20,923 $20.50 C 22 789,888 111,938 14.2% 0 0.0% 111,938 14.2% 14.2% 0 -13,404 $24.44 Total 65 3,205,172 362,742 11.3% 52,883 1.6% 415,625 13.0% 14.6% 27,741 -34,327 $21.21 I-10 EAST B 6 427,851 69,160 16.2% 0 0.0% 69,160 16.2% 13.8% -10,116 2,033 $18.48 C 4 150,124 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 $0.00 Total 10 577,975 69,160 12.0% 0 0.0% 69,160 12.0% 16.3% -10,116 2,033 $18.48 KATY FREEWAY A 85 21,936,756 3,384,264 15.4% 554,437 2.5% 3,938,701 18.0% 19.5% 331,781 418,316 $36.29 B 108 9,868,965 2,261,024 22.9% 67,500 0.7% 2,328,524 23.6% 24.3% 64,706 66,472 $22.84 C 28 1,242,343 61,614 5.0% 4,769 0.4% 66,383 5.3% 4.4% -11,775 -699 $20.23 Total 221 33,048,064 5,706,902 17.3% 626,706 1.9% 6,333,608 19.2% 22.0% 384,712 484,089 $30.79 KATY GRAND PARKWAY A 16 1,657,394 275,008 16.6% 42,848 2.6% 317,856 19.2% 19.4% 3,666 -35,269 $29.25 B 17 1,140,506 28,508 2.5% 0 0.0% 28,508 2.5% 1.8% -7,712 -13,568 $30.72 C 2 149,262 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 $0.00 Total 35 2,947,162 303,516 10.3% 42,848 1.5% 346,364 11.8% 10.1% -4,046 -48,837 $29.39 KINGWOOD HUMBLE B 16 1,235,229 80,337 6.5% 0 0.0% 80,337 6.5% 6.4% -711 -7,169 $22.19 C 5 153,601 4,175 2.7% 0 0.0% 4,175 2.7% 1.4% -2,047 1,265 $22.86 Total 21 1,388,830 84,512 6.1% 0 0.0% 84,512 6.1% 6.2% -2,758 -5,904 $22.22 NASA CLEAR LAKE A 10 1,601,484 186,740 11.7% 27,661 1.7% 214,401 13.4% 12.9% -7,232 -11,302 $26.06 B 43 2,819,129 605,080 21.5% 1,185 0.0% 606,265 21.5% 21.1% 5,917 15,455 $19.36 C 15 440,364 54,131 12.3% 0 0.0% 54,131 12.3% 13.0% 3,183 3,014 $17.70 Total 68 4,860,977 845,951 17.4% 28,846 1.4% 874,797 18.0% 22.9% 1,868 7,167 $20.73 NORTH BELT GREENSPOINT A 24 5,419,685 3,172,766 58.5% 4,287 0.1% 3,177,053 58.6% 58.6% 1,131 19,849 $21.21 B 54 5,538,945 1,905,022 34.4% 3,551 0.1% 1,908,573 34.5% 34.8% 21,185 2,679 $15.16 C 22 1,196,594 104,734 8.8% 0 0.0% 104,734 8.8% 8.2% -6,785 16,835 $11.46 Total 100 12,155,224 5,182,522 42.6% 7,838 1.4% 5,190,360 42.7% 44.3% 15,531 39,363 $18.79 NORTHEAST NEAR AND OUTLIER A 3 642,223 14,025 2.2% 0 0.0% 14,025 2.2% 2.2% 0 6,355 $0.00 B 4 183,158 29,661 16.2% 4,000 2.2% 33,661 18.4% 10.1% -15,169 4,101 $20.95 C 2 56,562 26,538 46.9% 0 0.0% 26,538 46.9% 29.3% -9,960 -628 $15.00 Total 9 881,943 70,224 8.0% 4,000 0.5% 74,224 8.4% 6.3% -25,129 9,828 $14.52

5 Houston Research & Forecast Report | Q1 2020 | Office | Colliers International Houston Suburban Office Market Summary - Continued

SUBLEASE NET ABSORPTION RENTAL INVENTORY DIRECT VACANCY VACANCY VACANCY RATE (%) VACANCY (SF) RATE

# OF TOTAL RATE RATE TOTAL AVG CLASS (SF) (SF) Q1-2020 Q4-2019 Q1-2020 Q4-2019 BLDGS. (SF) (%) (%) (SF) ($/SF) NORTHWEST AND NORTHWEST OUTLIER A 9 1,986,421 609,634 30.7% 7,233 0.4% 616,867 31.1% 33.7% 53,112 79,220 $25.45 B 72 5,504,708 862,223 15.7% 10,567 0.2% 872,790 15.9% 16.9% 58,388 11,944 $19.57 C 32 1,295,439 43,326 3.3% 0 0.0% 43,326 3.3% 3.7% 4,901 0 $13.06 Total 113 8,786,568 1,515,183 17.2% 17,800 0.2% 1,532,983 17.4% 20.0% 116,401 91,164 $21.75 RICHMOND FOUNTAINVIEW B 14 852,602 118,853 13.9% 0 0.0% 118,853 13.9% 15.2% 10,529 -285 $17.09 C 9 314,300 3,582 1.1% 0 0.0% 3,582 1.1% 1.6% 1,357 -4,775 $15.59 Total 23 1,166,902 122,435 10.5% 0 0.0% 122,435 10.5% 12.7% 11,886 -5,060 $17.05 SAN FELIPE VOSS A 3 1,720,793 371,331 21.6% 19,222 1.1% 390,553 22.7% 23.4% 12,825 -36,115 $34.85 B 33 3,395,344 656,146 19.3% 5,933 0.2% 662,079 19.5% 18.5% -34,795 34,671 $23.96 Total 36 5,116,137 1,027,477 20.1% 25,155 0.5% 1,052,632 20.6% 22.0% -21,970 -1,444 $27.90 SOUTH B 11 331,493 38,492 11.6% 0 0.0% 38,492 11.6% 11.3% -1,087 -7,871 $26.75 C 4 165,387 23,477 14.2% 0 0.0% 23,477 14.2% 14.2% 73 0 $28.20 Total 15 496,880 61,969 12.5% 0 0.0% 61,969 12.5% 8.0% -1,014 -7,871 $27.26 SOUTH MAIN MEDICAL CENTER B 10 842,173 137,967 16.4% 1,500 0.2% 139,467 16.6% 19.7% 26,383 3,950 $20.05 C 10 842,173 137,967 16.4% 1,500 0.2% 139,467 16.6% 19.7% 26,383 3,950 $20.05 Total 20 1,684,346 275,934 16.4% 3,000 0.2% 278,934 16.6% 9.7% 52,766 7,900 $16.65 SOUTHEAST B 14 1,137,999 26,375 2.3% 0 0.0% 26,375 2.3% 2.2% -1,201 -880 $15.80 C 2 322,220 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 $0.00 Total 16 1,460,219 26,375 1.8% 0 0.0% 26,375 1.8% 8.1% -1,201 -880 $15.91 SOUTHWEST A 6 1,586,913 441,137 27.8% 0 0.0% 441,137 27.8% 30.2% 38,584 14,724 $17.72 B 59 5,890,803 1,146,422 19.5% 80,120 1.4% 1,226,542 20.8% 20.8% -2,448 79,307 $16.03 C 28 1,332,136 95,045 7.1% 0 0.0% 95,045 7.1% 6.4% -9,382 -12,969 $13.31 Total 93 8,809,852 1,682,604 19.1% 80,120 0.9% 1,762,724 20.0% 19.3% 26,754 81,062 $16.32 SOUTHWEST FAR AND OUTLIER A 2 158,720 40,681 25.6% 0 0.0% 40,681 25.6% 25.6% 0 0 $0.00 B 13 926,040 218,589 23.6% 0 0.0% 218,589 23.6% 23.9% 40,647 0 $0.00 C 3 91,661 2,500 2.7% 0 0.0% 2,500 2.7% 7.6% 4,500 0 $0.00 Total 18 1,176,421 261,770 22.3% 0 0.0% 261,770 22.3% 22.9% 45,147 0 $26.23 THE WOODLANDS A 57 13,033,408 950,759 7.3% 97,556 0.7% 1,048,315 8.0% 8.9% 277,596 79,704 $38.58 B 62 4,231,965 785,057 18.6% 44,018 1.0% 829,075 19.6% 10.3% -391,360 35,556 $32.18 C 6 169,558 2,220 1.3% 0 0.0% 2,220 1.3% 0.0% -2,220 500 $19.29 Total 125 17,434,931 1,738,036 10.0% 141,574 0.8% 1,879,610 10.8% 9.8% -115,984 115,760 $35.66 WEST BELT A 29 3,732,820 700,094 18.8% 173,756 4.7% 873,850 23.4% 19.7% -138,347 -80,817 $27.52 B 37 2,038,552 350,035 17.2% 75,954 3.7% 425,989 20.9% 20.8% -2,078 -21,909 $21.63 C 4 112,629 0 0.0% 20000 17.8% 20,000 17.8% 17.8% 0 0 $0.00 Total 70 5,884,001 1,050,129 17.8% 269,710 4.6% 1,319,839 22.4% 28.8% -140,425 -102,726 $25.56

6 Houston Research & Forecast Report | Q1 2020 | Office | Colliers International Houston Suburban Office Market Summary - Continued

SUBLEASE NET ABSORPTION RENTAL INVENTORY DIRECT VACANCY VACANCY VACANCY RATE (%) VACANCY (SF) RATE # OF TOTAL RATE RATE TOTAL AVG CLASS (SF) (SF) Q1-2020 Q4-2019 Q1-2020 Q4-2019 BLDGS. (SF) (%) (%) (SF) ($/SF) WEST LOOP A 52 17,427,019 3,260,964 18.7% 231,831 1.3% 3,492,795 20.0% 20.2% 32,370 131,513 $38.09 B 48 5,304,199 745,920 14.1% 33,414 0.6% 779,334 14.7% 14.7% 1,078 81,981 $26.39 C 3 153,712 13,034 8.5% 0 0.0% 13,034 8.5% 8.6% 129 0 $19.50 Total 103 22,884,930 4,019,918 17.6% 265,245 1.2% 4,285,163 18.7% 18.9% 33,577 213,494 $35.86 WESTCHASE A 33 9,767,362 2,405,090 24.6% 286,892 2.9% 2,691,982 27.6% 26.2% -137,766 -59,971 $34.84 B 62 7,644,726 1,705,371 22.3% 8,866 0.1% 1,714,237 22.4% 21.1% -101,785 -81,772 $21.76 C 4 147,000 10,011 6.8% 0 0.0% 10,011 6.8% 4.1% -3,975 0 $14.50 Total 99 17,559,088 4,120,472 23.5% 295,758 1.7% 4,416,230 25.2% 19.8% -243,526 -141,743 $28.65

Office Development Pipeline

4.3 million SF of office space is under construction and approximately 57% is pre-leased. 2.5 million SF is spec development of which 27% is pre-leased. Below is a summary of the office buildings under construction with a GBA of 150,000 SF or greater.

PRE- EST. BUILDING NAME ADDRESS SUBMARKET SF DEVELOPER/CONTRACTOR LEASED DELIVERY Texas Tower 845 Texas Ave CBD 1,101,856 39.1% Hines Securities, Inc. Oct-21 Marathon Oil 990 Town & Country Blvd Katy Freeway 440,000 94.9% Hines Dec-21 Crown Castle International 8020 Katy Freeway Katy Freeway 420,000 100% Excel Commercial Jan-21 Insperity Campus Bldg 5 US-59 N & Kingwood Dr. Kingwood/Humble 270,000 100% Insperity with D E Harvey Cleary Jun-20 Park Place | River Oaks 4200 Westheimer West Loop 207,202 28.8% Stonelake Capital Partners May-20 9753 Katy Fwy 9753 Katy Freeway Katy Freeway 190,000 15.1% MetroNational Corporation Jun-21 Katy Ranch Phase II 24279 Katy Freeway Katy/Grand Pkwy West 150,900 0% Freeway Properties Sep-20 Village Tower II 9655 Katy Freeway Katy Freeway 150,000 0% Moody National Companies Mar-21 Village Tower I 9655 Katy Freeway Katy Freeway 150,000 90% Moody National Companies Jun-20 Post Houston 401 Franklin St CBD 150,000 19.3% Lovett Commercial Feb-21

Skylines | Now Available Online at colliers.com/houston A skyline view of available space for ten of Houston’s Class A office submarkets including the CBD, Galleria, Energy Corridor, Greenway Plaza, NASA/Clear Lake, North Belt, Sugar Land, The Woodlands, West Belt and Westchase, is now available online.

75 CLASS A OFFICE BUILDINGS 75 CLASS A OFFICE BUILDINGS

70 CENTRAL BUSINESS DISTRICT HOUSTON, TEXAS 70 CENTRAL BUSINESS DISTRICT HOUSTON, TEXAS FEBRUARY 2020 65 65 FEBRUARY 2020 AVAILABLE* SUBLEASE* AVAILABLE* SUBLEASE* 60 Under 60 55 Construction 55 Delivering 50 10/21 50 45 45

40 40

35 35

30 30

25 25

20 20

15 15

10 10 196,770 SF Sublease thru 12/2020 5 5 Direct after 12/2020

1 2 3 4 5 PENNZOIL PLACE 6 7 8 9 10 11 12 13 26 27 28 29 30 31 32 33 34 35 BUILDING NAME 717 TEXAS TEXAS TOWER 600 TRAVIS TC ENERGY CENTER NORTH BLDG SOUTH BLDG Bank of America Tower 811 LOUISIANA ONE SHELL PLAZA 609 MAIN AT TEXAS 811 MAIN STREET 2 HOUSTON CENTER LYONDELLBASELL TOWER BUILDING NAME TOTAL PLAZA THREE ALLEN CENTER TWO ALLEN CENTER HESS TOWER GreenStreet 1301 FANNIN OFFICE TOWER 1400 SMITH WEDGE INT’L TOWER 1600 SMITH 1500 LOUISIANA ADDRESS 717 Texas Avenue 845 Texas Avenue 600 Travis Street 700 Louisiana Street 700 Milam Street 711 Louisiana Street 800 Capitol St 811 Louisiana Street 910 Louisiana Street 609 Main Street 811 Main Street 909 Fannin Street 1221 McKinney Street ADDRESS 1201 Louisiana Street 333 Clay Street 1200 Smith Street 1501 McKinney Street 1201 Fannin Street 1301 Fannin Street 1400 Smith Street 1415 Louisiana Street 1600 Smith Street 1500 Louisiana Street RBA / AVG FLOOR / # OF FLOORS 697,541 / 21,127 / 33 1,101,856 / 30,700 / 47 1,656,529 / 22,575 / 75 1,268,480 / 25,000 / 56 694,021 / 20,523 / 36 666,762 / 20,000 / 34 780,341 / 31,402 / 35 588,423 / 31,500 / 26 1,228,923 / 24,572 / 50 1,057,237 / 28,000 / 48 972,474 / 27,000 / 46 1,024,956 / 25,624 / 40 1,065,215 / 24,000 / 46 RBA / AVG FLOOR / # OF FLOORS 843,533 / 24,600 / 35 1,194,719 / 25,000 /50 995,623 / 26,613 / 36 844,763 / 30,500 /29 275,223 / 25,020 / 11 784,143 / 26,000 / 24 1,250,677 / 25,013 / 50 520,475 / 18,000 / 43 1,098,399 / 23,000 /51 1,157,690 / 25,263 / 40 % LEASED 56.5% 39.1% 80.5% 75.4% 70.2% 62.9% 85.1% 60.0% 88.8% 94.5% 100% 74.7% 88.9% % LEASED 96.6% 87.3% 68.4% 100% 96.6% 77.0% 100% 53.9% 57.9% 100% TOTAL AVAILABLE SF 303,126 671,342 484,772 349,541 199,066 298,491 96,344 231,532 153,572 109,083 74,659 276,908 212,071 TOTAL AVAILABLE SF 28,426 193,204 407,377 61,682 252,919 121,816 0 265,471 462,788 0 MAX CONTIGUOUS SF 273,174 671,342 192,461 83,381 149,954 207,758 31,750 114,504 125,887 39,144 74,659 68,043 94,080 MAX CONTIGUOUS SF 8,867 92,453 171,358 61,682 194,768 67,544 0 119,708 304.302 0 $44.95 $44.95 $39.00 NNN $47.46 $43.65 $58.00 $53.00 $43.83 $45.79 QUOTED RATE** $45.30 $65.00 $45.37 $45.81 QUOTED RATE** $43.37 $46.74 $45.62 N/A N/A $38.63 N/A $34.11 $38.94 N/A PARKING RATIO 2.1 1.5 1.0 2.0 3.0 3.0 2.0 2.0 0.3 1.7 1.2 1.0 1.0 PARKING RATIO 1.0 1.0 1.0 1.5 1.5 1.0 N/A 2.7 1.0 1.1 OWNER Hines Hines Hines M-M Properties Metropolis Investment Metropolis Investment Busycon Properties LLC Busycon Properties LLC Busycon Properties LLC Hines Invesco Advisers, Inc. Brookželd Asset Brookželd Asset OWNER Brook˜eld Ošce Brook˜eld Ošce Brook˜eld Ošce H&R REIT Midway Companies/ Netrality Properties Chevron Corporation Wedge Group, Inc. Brook˜eld Ošce Properties, Inc. ChevronTexaco Corp. Holdings Inc. Holdings Inc. Management Inc. Management Inc. Properties, Inc. Properties, Inc. Properties, Inc. Lionstone Investments 75

70 Available Direct Space Class A Rental Rate and Vacancy Percentage 65 Available Direct Space Q4 2019 Central Business District Central Business District - Houston, TX Class A: 8,044,696 SF or 22.9% 60 CBD Class A Rents CBD Class A Vacancy Class B: 3,181,043 SF or 37.2% $48.00 22.0% 3 Class A Class B $46.00 20.0% 55 9,000,000 $44.00 $42.00 18.0% 4 8,000,000 21 $40.00 50 1 2 7,000,000 $38.00 16.0% 10 $36.00 22 9 6,000,000 14.0% 5 $34.00 45 23 6 5,000,000 $32.00 12.0% 27 11 24 4,000,000 $30.00 8 $28.00 10.0% 40 20 25 3,000,000 $26.00 87,000 SF 7 12 13 14 8.0% Available 32 28 2,000,000 $24.00 December 2020 26 19 16 $22.00 6.0% 35 1,000,000 34 17 393,634 SF 35 33 0 30 Available 18 29 15 *Vacancy percentage includes direct and sublease space. 25 March 2022 31 28 20 30

Available Sublease Space 15 aabe0 Subease Sae Q4 2019 Centra Busness Dstrt Class A: 1,381,239 SF or 3.9% 10 187,693 SF Class B: 238,252 SF or 2.8% Cass Cass B 5 Available 2,500,000 January 2021 2,000,000 14 15 16 17 18 19 20 21 22 23 24 25 BUILDING NAME FULBRIGHT TOWER 5 HOUSTON CENTER 1001 FANNIN ONE CITY CENTRE HILCORP ENERGY TOWER 1000 MAIN KINDER MORGAN BLDG. WELLS FARGO PLAZA HERITAGE PLAZA 1100 LOUISIANA CENTERPOINT ENERGY ONE ALLEN CENTER 1,500,000 ADDRESS 1301 McKinney Street 1401 McKinney Street 1001 Fannin Street 1021 Main Street 1111 Main Street 1000 Main Street 1001 Louisiana Street 1000 Louisiana Street 1111 Bagby Street 1100 Louisiana Street 1111 Louisiana Street 500 Dallas Street 1,000,000 RBA / AVG FLOOR / # OF FLOORS 1,247,061 / 24,452 / 51 580,875 / 29,649 / 27 1,385,212 / 27,210 / 49 608,660 / 21,266 / 29 406,600 / 17,678 / 23 837,161 / 23,333 / 36 937,003 / 28,510 / 32 1,721,242 / 24,243 / 71 1,149,635 / 26,652 / 51 1,327,882 / 23,060 / 55 1,081,251 / 22,968 / 47 993,297 / 29,229 / 34 % LEASED 69.3% 65.0% 97.1% 76.9% 95.7% 78.8% 100% 73.6% 100% 98.0% 100% 86.3% 500,000 TOTAL AVAILABLE SF 489,027 206,046 568,516 512,351 0 204,079 124,600 480,777 104,470 489,471 0 234,720 0 MAX CONTIGUOUS SF 124,756 393,634 187,693 124,600 101,773 87,000 181,718 0 70,171 75,376 0 144,394 *Gold and white indicators are approximate only at the time of printing and are presented to show approximate COLLIERS INTERNATIONAL QUOTED RATE** $49.68 $49.40 $44.97 $30.61 N/A $49.72 N/A $47.86 $53.85 $43.70 N/A $46.50 percentage of available space by oor/building. All indicators are left-to-right and are not meant to show location PARKING RATIO 1.0 2.0 1.0 2.3 N/A 1.7 1.0 1.7 2.4 1.8 2.5 1.0 of available space. 1233 West Loop South, Suite 900 OWNER Brookželd Asset Spear Street Capital JMB Financial Advisors Accesso Partners, LLC Hilcorp Ventures Inc. 1000 Main Llc Kinder Morgan, Inc. New York State Common AEW Capital Enterprise Products CenterPoint Energy, Inc. Brookželd OŸce Houston, TX 77027 Retirement Fund Partners L.P. Properties, Inc. Management Inc. Management **Rental rates listed are net + operating expenses. www.colliers.com/texas

7 Houston Research & Forecast Report | Q1 2020 | Office | Colliers International Quoted gross rental rates for existing top performing office buildings YEAR % AVAIL. RENT BUILDING NAME ADDRESS SUBMARKET RBA (SF) OWNER BUILT LEASED SF ($/SF) San Felipe Place 2229 San Felipe Allen Parkway/ 167,562 2015 94.0% 8,594 $49.63 Hines Midtown 1100 Louisiana 1100 Louisiana St CBD 1,327,882 1980/ 98.0% 489,471 $43.70 Enterprise Products 2019 Partners L.P. 609 Main at Texas 609 Main St CBD 1,057,237 2017 94.4% 68,243 $56.00 Hines Securities, Inc. Kirby Grove 2925 Richmond Ave Greenway Plaza 248,275 2015 96.2% 35,609 $47.33 Midway Companies CityCentre Four 840 W Sam Houston Pky Katy Freeway 120,052 2013 97.6% 5,511 $50.00 Midway Town Centre One 750 Town & Country Blvd Katy Freeway 253,714 2015 98.9% 11,450 $45.59 Moody Rambin Williams Tower 2800 Post Oak Blvd West Loop/Galleria 1,476,973 1983 92.6% 344,263 $45.00 Invesco Real Estate Two BriarLake Plaza 2050 W Sam Houston Pky S Westchase 333,100 2000 88.1% 54,119 $45.47 Cousins Properties Inc. Theww Hughes Landing 1780 Hughes Landing Blvd The Woodlands 320,815 2015 89.0% 35,342 $42.94- The Howard Hughes $45.44 Corporation

Note: Available SF includes direct and sublet space as well as any future available space currently listed. Source: CoStar Property Q1 2020 Houston Office Highlights

TOTAL OFFICE 228.8M SF LEASING INVENTORY ACTIVITY NEW 4.0M SF 131.8M SF 85.1M SF CONSTRUCTION (DELIVERIES) -31% 8.0M SFANNUAL 11.9M SF 251,672 SF DECREASE TOTAL INVENTORY BY CLASS CLASS A: 58% CLASS B: 37% CLASS C: 5%

UNDER 20% -177,916 SF CONSTRUCTION VACANCY QUARTERLY ABSORPTION 4.3M SF CURRENT

FOR MORE INFORMATION Lisa Bridges CPRC Patrick Duffy MCR Colliers statistical criteria Director of Market Research | Houston President | Houston includes all general purpose multi +1 713 830 2125 +1 713 830 2112 and single tenant office buildings [email protected] [email protected] 20,000 SF or greater.

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