Research & Forecast Report | OFFICE Q2 2019

Houston’s office market recovery hits a speed bump in Q2

Lisa Bridges Director of Market Research | Houston

Over the last two quarters, Houston’s office market has shown signs of a slow recovery from the energy downturn, but it hit a Market Indicators Annual Quarterly Quarterly speed bump in Q2. During the quarter, the market posted negative Relative to prior period Change Change Forecast* net absorption of 842,200 SF, a substantial reversal from the positive absorption of 492,000 SF recorded in Q1. The newest VACANCY trend of vacating older spaces for modern/creative, efficient interior NET ABSORPTION designs has tenants effectively leasing less space without reducing NEW INVENTORY head count. Unless the tenant is in an expansion mode, this trend will lead to a reduction in the amount of office space leased. UNDER CONSTRUCTION Leasing activity has trended down in the first half of 2019. The majority of the leasing activity is a result of horizontal movement *Projected (existing tenants in the market relocating). Houston’s overall vacancy rate rose from 19.1% to 19.8% over the quarter and is still well above Houston’s pre-downturn average vacancy rate in 2014 of 11.6%. An additional constraint to recovery is a very tight labor market, not just in Houston, but nationally. Companies wanting to increase head count and expand are finding it difficult to fill the available job openings. Given these conditions, Colliers estimates, in Summary Statistics the most optimistic scenario, it will take six to seven years of steady Houston Office Market Q2 2018 Q1 2019 Q2 2019 absorption to reach a pre-recession vacancy rate. Vacancy Rate 20.1% 19.1% 19.8% Houston’s overall vacancy rate rose from 19.1% to 19.8% over the quarter, and construction activity declined as several buildings Net Absorption -299,400 492,600 -842,200 delivered during Q2. With only 2.1M SF under construction, developers continue to show constraint by holding off on proposed New Inventory 83,100 32,200 982,300 projects. Under Construction 1,839,300 2,531,100 2,093,900 Houston’s job growth increased by 2.6% over the year, according to recent data released by the U.S. Bureau of Labor Statistics. Class A Vacancy Rate The Houston MSA created 79,800 jobs (not seasonally adjusted) CBD 19.7% 19.1% 20.0% Suburban 22.2% 20.5% 20.7% between May 2018 and May 2019, growing faster than the U.S. during the same time period. Employment sectors with the most Asking Rents substantial growth include architectural, engineering and related Per Square Foot Per Year services which grew by 12.8%, support activities for mining which Houston Class A grew by 12.1% over the year and durable goods manufacturing up $34.96 $35.51 $35.36 by 9.3%. CBD Class A $44.18 $46.04 $46.01 Suburban Class A $32.29 $32.31 $31.99

Share or view online at colliers.com/houston Vacancy & Availability Job Growth & Unemployment (not seasonally adjusted) Houston’s citywide vacancy rate increased 70 basis points from 19.1% to 19.8% over the quarter. The average suburban vacancy rate also increased 70 basis UNEMPLOYMENT 5/18 5/19 points from 18.6% to 19.3% and the average CBD vacancy rate rose 90 basis points from 21.4% to 22.3% between quarters. HOUSTON 4.2% 3.2%

The average Class A vacancy rate in the CBD rose 90 basis points. The increase 3.6% 2.9% was primarily due to vacancy in the newly delivered Bank of America Tower. U.S. 3.6% 3.4% The average Class B vacancy rate in the CBD increased from 30.0% to 31.1%. The average suburban Class A vacancy rate rose 20 basis points from 20.5% to 20.7% between quarters, while the average suburban Class B vacancy rate Annual # of Jobs JOB GROWTH Change Added increased 100 basis points from 17.8% to 18.8%. HOUSTON 2.6% 79.8K Of the 1,657 existing office buildings in our survey, 75 buildings have 100,000 SF 2.4% 301.2K or more contiguous space available for lease or sublease. Of these, 26 buildings TEXAS have contiguous space of 200,000 SF or more available. Citywide, available U.S. 1.5.% 2.3M sublease space increased over the quarter from 6.7 million SF to 6.8 million SF. Available space differs from vacant space in that it includes space that is currently being marketed for lease, but may be occupied with a future availability date. In contrast, unoccupied is truly vacant and is available immediately. CBD vs. Suburban CLASS A OFFICE VACANCY HISTORICAL AVAILABLE SUBLEASE SPACE 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 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 5.0% Class A Class B Houston Total

0.0% AVAILABLE SUBLEASE SPACE - 100,000 SF OR GREATER

CBD Vacancy Suburban Vacancy Large Sublease Availabilities (Total available in building and/or complex)

BUILDING TENANT SUBMARKET SF CLASS A OFFICE RENTS

5 Oxy Greenway Plaza 746,070 $50.00 Four WestLake Park BP Katy Freeway 454,487 $45.00 Energy Tower II KTI Corporation (Technip) Katy Freeway 297,919 $40.00 1500 Post Oak Blvd BHP Billiton Petroleum West Loop 273,127 $35.00 One Shell Oil CBD 266,990 $30.00 GreenStreet Tower Reliant Energy Retail CBD 194,768 $25.00 Three WestLake Park Phillips 66 Katy Freeway 221,723 $20.00 Hess Corporation CBD 215,887 $15.00 1100 Louisiana Enbridge CBD 179,694 $10.00 BHP Billiton Tower BHP Billiton Petroleum West Loop 162,943 $5.00 Westway Plaza GE Oil & Gas West Belt 131,663 $0.00 Kinder Morgan Building EP Energy Corporation CBD 124,600 10000 Richmond Ave National Oilwell Varco Westchase 118,215

Source: CoStar CBD Rents Suburban Rents

2 Houston Research & Forecast Report | Q2 2019 | Office | Colliers International Absorption & Demand

Houston’s office market posted 842,200 SF of negative net absorption in Q2 2019, a dramatic reversal from the 492,600 SF of positive net absorption recorded in Q1 2019. Suburban Class B space recorded the largest loss, posting 742,500 SF of negative net absorption, while CBD Class A space reported the largest gain posting 332,900 SF of positive net absorption. The majority of negative absorption was caused by tenants relocating, vacating older properties and moving to smaller more efficien spaces in newly constructed office buildings with a larger variety of amenities which help employers attract top talent.

Rental Rates

Houston’s average asking rental rate increased over the quarter from $29.20 per SF to $29.64 per SF. The average asking rental rate for Class A space decreased over the quarter from $35.51 per SF to $35.36 per SF, and the average CBD Class A rental rate decreased marginally from $46.04 to $46.01 per SF. The Suburban average asking rental rate for Class A fell from $32.31 to $31.99 per SF.

Leasing Activity

Houston’s office leasing activity increased over the quarter from 3.1M SF to 3.8M SF. Leasing activity includes new/direct, sublet, renewals, expansions in existing buildings and pre-leasing in proposed buildings. Some of the more notable transactions are noted in the table below.

Q2 2019 Select Office Lease Transactions BUILDING NAME/ADDRESS SUBMARKET SF TENANT LEASE DATE 8770 New Trails Drive The Woodlands 180,000 Alight Solutions1, 3 Apr-19 CityWestPlace 1 Westchase 114,200 Honeywell1 Apr-19 Pinnacle Westchase Westchase 107,000 Empyrean Benefit Solutions, Inc.2 Apr-19 1100 Louisiana CBD 91,300 King & Spalding2 May-19 America Tower Midtown 90,200 Marsh Wortham2 Apr-19 CBD 57,139 White & Case LLP1 Apr-19 609 Main at Texas CBD 56,351 WeWork1 Jun-19 Park Place | River Oaks West Loop 27,300 Compass Real Estate1 Apr-19 Northwest Crossing III Northwest Far 26,810 Harris County Engineering Department1 Apr-19

1New/Direct 2Renewal 3Colliers International Transaction

Sales Activity

Houston’s office investment sales volume increased over the quarter by 81.8% to 675.3M from 371.5M in Q2 2019. The average sales price per square foot trended up from $187 to $233 per SF over the quarter. Houston’s average cap rate of 7.2% lags the average U.S. cap rate of 6.6%.

AVERAGE OFFICE SALES PRICE PER SF AVERAGE OFFICE CAP RATE

Houston United States Houston United States 8.0% $300 7.8%

$250 7.6% 7.4% $200 7.2% 7.0% $150 6.8% 6.6% $100 6.4% $50 6.2% 6.0% $0 5.8%

Sources: CoStar and Real Capital Analytics

3 Houston Research & Forecast Report | Q2 2019 | 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) Q2-2019 Q1-2019 Q2-2019 Q1-2019 BLDGS. (%) (%) (SF) ($/SF) CBD A 35 32,876,914 5,830,734 17.7% 758,170 0.0% 6,588,904 20.0% 19.1% 332,930 -11,007 $46.01 B 28 9,424,143 2,802,828 29.7% 125,451 0.0% 2,928,279 31.1% 30.0% -102,294 123,909 $30.81 C 11 798,903 76,500 9.6% 0 0.0% 76,500 9.6% 9.6% 0 0 $20.15 Total 74 43,099,960 8,710,062 20.2% 883,621 2.1% 9,593,683 22.3% 21.4% 230,636 112,902 $40.89 SUBURBAN A 398 99,057,725 18,447,423 18.6% 2,032,522 2.1% 20,479,945 20.7% 20.5% -92,015 731,773 $31.99 B 904 76,362,524 13,972,280 18.3% 389,341 0.5% 14,361,621 18.8% 17.8% -742,526 -335,377 $20.58 C 281 13,183,422 1,496,196 11.3% 31,165 0.2% 1,527,361 11.6% 9.8% -238,270 -16,654 $19.88 Total 1583 188,603,671 33,915,899 18.0% 2,453,028 1.3% 36,368,927 19.3% 18.6% -1,072,811 379,742 $26.75 OVERALL A 433 131,934,639 24,278,157 18.4% 2,790,692 2.1% 27,068,849 20.5% 20.1% 240,915 720,766 $35.36 B 932 85,786,667 16,775,108 19.6% 514,792 0.6% 17,289,900 20.2% 19.1% -844,820 -211,468 $22.29 C 292 13,982,325 1,572,696 11.2% 31,165 0.2% 1,603,861 11.5% 9.8% -238,270 -16,654 $19.89 Total 1657 231,703,631 42,625,961 18.4% 3,336,649 1.4% 45,962,610 19.8% 19.1% -842,175 492,644 $29.64

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) Q2-2019 Q1-2019 Q2-2019 Q1-2019 BLDGS. (%) (%) (SF) ($/SF) ALLEN PARKWAY (MIDTOWN) A 8 2,284,619 356,274 15.6% 2,459 0.1% 358,733 15.7% 16.6% 20,389 -11,990 $34.26 B 32 2,527,813 305,745 12.1% 0 0.0% 305,745 12.1% 10.4% -43,723 -29,965 $26.81 C 12 344,855 105,934 30.7% 0 0.0% 105,934 30.7% 27.5% -11,000 0 $29.06 Total 52 5,157,287 767,953 14.9% 2,459 0.0% 770,412 14.9% 12.8% -34,334 -41,955 $30.58 BAYTOWN B 3 186,005 6,841 3.7% 0 0.0% 6,841 3.7% 3.2% -980 2,679 $21.45 C 2 41,208 10,513 12.9% 0 0.0% 10,513 12.9% 25.5% 0 -8,013 - Total 5 227,213 17,354 6.5% 0 0.0% 17,354 6.5% 4.1% -980 -5,334 $21.45 BELLAIRE A 7 1,375,713 128,294 9.3% 8,019 0.6% 136,313 9.9% 10.6% 9,777 24,505 $29.16 B 15 1,716,640 67,755 20.3% 15,406 0.6% 515,963 20.9% 5.0% 17,156 5,183 $23.42 C 5 283,569 28,232 10.1% 0 0.0% 34,782 10.1% 9.8% -480 0 $18.08 Total 27 3,375,922 224,281 15.8% 23,425 0.6% 687,058 16.4% 8.4% 26,453 29,688 $26.03 CONROE AND OUTLYING MONTGOMERY CO A 2 107,161 28,449 26.5% 0 0.0% 28,449 26.5% 26.5% 0 0 $23.53 B 8 343,463 0 0.0% 0 0.0% 0 0.0% 0.0% 0 1,474 $18.00 C 6 247,634 6,135 2.5% 0 0.0% 6,135 2.5% 3.4% 2,407 0 $16.46 Total 16 698,258 34,584 5.0% 0 0.0% 34,584 5.0% 1.8% 2,407 1,474 $22.28 E. FORT BEND CO SUGAR LAND A 17 3,399,208 298,204 8.8% 95,771 2.8% 393,975 11.6% 8.7% -96,568 -8,496 $32.21 B 37 2,153,049 288,200 13.4% 15,659 0.7% 303,859 14.1% 15.5% 29,246 -7,399 $25.27 C 3 69,411 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 - Total 57 5,621,668 586,404 10.4% 111,430 2.0% 697,834 12.4% 10.3% -67,322 -15,895 $28.80

4 Houston Research & Forecast Report | Q2 2019 | 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) Q2-2019 Q1-2019 Q2-2019 Q1-2019 BLDGS. (SF) (%) (%) (SF) ($/SF) FM 1960 A 13 2,972,664 326,741 11.0% 6,697 0.2% 333,438 11.2% 11.6% 12,107 2,057 $27.58 B 66 4,280,663 1,113,896 26.0% 36,190 0.8% 1,150,086 26.9% 18.9% -342,579 32,486 $16.83 C 29 2,210,467 540,877 24.5% 2,058 0.1% 542,935 24.6% 14.2% -228,368 2,063 $22.05 Total 108 9,463,794 1,981,514 20.9% 44,945 0.5% 2,026,459 21.4% 16.8% -558,840 36,606 $20.03 GREENWAY PLAZA A 19 6,684,126 1,116,125 16.7% 66,116 1.0% 1,182,241 17.7% 17.7% -1,869 42,641 $36.46 B 31 3,159,143 347,637 11.0% 3,631 0.1% 351,268 11.1% 10.2% -30,191 -35,675 $27.08 C 12 405,729 38,012 9.4% 0 0.0% 38,012 9.4% 8.9% -1,877 -1,932 $22.51 Total 62 10,248,998 1,501,774 14.7% 69,747 0.7% 1,571,521 15.3% 17.5% -33,937 5,034 $33.94 GULF FREEWAY PASADENA A 2 105,782 1,295 1.2% 0 0.0% 1,295 1.2% 0.0% -1,295 0 $33.09 B 42 2,405,860 208,301 8.7% 2,233 0.1% 210,534 8.8% 9.2% 9,710 -1,521 $20.98 C 25 943,794 120,870 12.8% 0 0.0% 120,870 12.8% 12.9% 1,100 -450 $23.53 Total 69 3,455,436 330,466 9.6% 2,233 0.1% 332,699 9.6% 14.6% 9,515 -1,971 $21.21 I-10 EAST B 6 427,851 52,279 12.2% 0 0.0% 52,279 12.2% 11.9% -1,197 3,368 $17.56 C 4 150,124 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 $19.57 Total 10 577,975 52,279 9.0% 0 0.0% 52,279 9.0% 16.3% -1,197 3,368 $17.56 KATY FREEWAY A 87 22,609,773 4,072,755 18.0% 1,042,937 4.6% 5,115,692 22.6% 21.7% -217,744 153,452 $36.86 B 105 9,744,852 2,451,985 25.2% 38,645 0.4% 2,490,630 25.6% 23.3% -220,793 -111,420 $22.71 C 29 1,361,172 98,088 7.2% 2,507 0.2% 100,595 7.4% 8.0% 8,675 4,978 $20.60 Total 221 33,715,797 6,622,828 19.6% 1,084,089 3.2% 7,706,917 22.9% 22.0% -429,862 47,010 $31.38 KATY GRAND PARKWAY A 16 1,542,980 172,434 11.2% 2,539 0.2% 174,973 11.3% 11.3% -634 33,866 $27.08 B 16 1,036,076 5,966 0.6% 0 0.0% 5,966 0.6% 1.0% 4,304 8,237 $27.64 C 2 149,262 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 - Total 34 2,728,318 178,400 6.5% 2,539 0.1% 180,939 6.6% 10.1% 3,670 42,103 $27.10 KINGWOOD HUMBLE B 16 1,234,952 61,869 5.0% 0 0.0% 61,869 5.0% 5.9% 11,384 9,148 $21.06 C 5 153,601 3,251 2.1% 0 0.0% 3,251 2.1% 0.2% -3,011 0 $30.64 Total 21 1,388,553 65,120 4.7% 0 0.0% 65,120 4.7% 6.2% 8,373 9,148 $21.54 NASA CLEAR LAKE A 12 1,778,721 170,601 9.6% 2,390 0.1% 172,991 9.7% 8.9% -13,936 65,222 $25.63 B 44 2,998,898 749,056 25.0% 1,565 0.1% 750,621 25.0% 26.0% 27,985 -17,302 $20.27 C 18 582,500 71,683 12.3% 0 0.0% 71,683 12.3% 11.9% -2,271 -2,815 $16.17 Total 74 5,360,119 991,340 18.5% 3,955 0.1% 995,295 18.6% 22.9% 11,778 45,105 $20.90 NORTH BELT GREENSPOINT A 25 5,514,168 3,348,880 60.7% 14,890 0.3% 3,363,770 61.0% 59.8% -69,033 57,745 $21.55 B 53 5,469,582 1,790,492 32.7% 5,951 0.1% 1,796,443 32.8% 32.6% -15,048 -113,927 $15.37 C 22 1,379,034 196,093 14.2% 0 0.0% 196,093 14.2% 12.5% -23,569 18,407 $12.23 Total 100 12,362,784 5,335,465 43.2% 20,841 0.2% 5,356,306 43.3% 44.3% -107,650 -37,775 $19.13 NORTHEAST NEAR AND OUTLIER A 3 642,223 14,025 2.2% 6355 1.0% 20,380 3.2% 4.4% 7,677 -6,355 - B 4 183,158 9,457 5.2% 8,000 4.4% 17,457 9.5% 8.9% -1,075 12,656 $22.08 C 2 56,562 14,398 25.5% 0 0.0% 14,398 25.5% 29.7% 2,380 -935 $15.00 Total 9 881,943 37,880 4.3% 14,355 1.6% 52,235 5.9% 6.3% 8,982 5,366 $18.69

5 Houston Research & Forecast Report | Q2 2019 | 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) Q2-2019 Q1-2019 Q2-2019 Q1-2019 BLDGS. (SF) (%) (%) (SF) ($/SF) NORTHWEST AND NORTHWEST OUTLIER A 9 1,985,781 812,380 40.9% 1,203 0.1% 813,583 41.0% 40.1% -17,579 43,343 $23.43 B 74 5,598,459 1,053,712 18.8% 4,308 0.1% 1,058,020 18.9% 17.6% -27,453 -72,005 $18.85 C 33 1,656,677 77,701 4.7% 6600 0.4% 84,301 5.1% 4.1% -16,633 5,316 $15.81 Total 116 9,240,917 1,943,793 21.0% 12,111 0.1% 1,955,904 21.2% 20.0% -61,665 -23,346 $20.64 RICHMOND FOUNTAINVIEW B 13 773,830 113,545 14.7% 0 0.0% 113,545 14.7% 12.0% -20,686 -6,485 $16.73 C 10 392,300 4,164 1.1% 0 0.0% 4,164 1.1% 5.8% 18,755 3,936 $16.63 Total 23 1,166,130 117,709 10.1% 0 0.0% 117,709 10.1% 12.7% -1,931 -2,549 $16.73 SAN FELIPE VOSS A 3 1,720,793 397,109 23.1% 19,133 1.1% 416,242 24.2% 24.2% 475 11,782 $36.95 B 33 3,389,460 653,617 19.3% 26,760 0.8% 680,377 20.1% 18.7% -47,143 -49,951 $24.65 Total 36 5,110,253 1,050,726 20.6% 45,893 0.9% 1,096,619 21.5% 22.0% -46,668 -38,169 $29.30 SOUTH B 12 358,303 34,794 9.7% 0 0.0% 34,794 9.7% 8.2% -5,382 -5,108 $25.21 C 5 195,387 23,550 12.1% 0 0.0% 23,550 12.1% 16.2% 8,100 -5,550 $28.16 Total 17 553,690 58,344 10.5% 0 0.0% 58,344 10.5% 8.0% 2,718 -10,658 $27.26 SOUTH MAIN MEDICAL CENTER A 1 485,000 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 - B 10 788,871 141,214 17.9% 1,500 0.2% 142,714 18.1% 15.6% -19,270 -9,602 $20.09 C 7 364,008 47,063 12.9% 0 0.0% 47,063 12.9% 15.4% 8,961 -2,580 $19.74 Total 18 1,637,879 188,277 11.5% 1,500 0.1% 189,777 11.6% 9.7% -10,309 -12,182 $16.65 SOUTHEAST B 15 1,181,144 33,726 2.9% 0 0.0% 33,726 2.9% 2.8% -1,133 -2,139 $17.65 C 2 118,209 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 - Total 17 1,299,353 33,726 2.6% 0 0.0% 33,726 2.6% 8.1% -1,133 -2,139 $15.91 SOUTHWEST A 6 1,580,642 444,079 28.1% 0 0.0% 444,079 28.1% 28.5% 6,309 -23,217 $17.65 B 62 6,158,002 1,340,320 21.8% 60,462 1.0% 1,400,782 22.7% 22.4% -20,021 24,935 $16.29 C 29 1,406,665 88,435 6.3% 0 0.0% 88,435 6.3% 6.1% -2,332 -17,850 $14.00 Total 97 9,145,309 1,872,834 20.5% 60,462 0.7% 1,933,296 21.1% 19.3% -16,044 -16,132 $16.50 SOUTHWEST FAR AND OUTLIER A 2 158,720 19,737 12.4% 0 0.0% 19,737 12.4% 12.4% 0 0 - B 11 849,340 209,564 24.7% 0 0.0% 209,564 24.7% 24.6% -814 3,631 $12.00 C 2 63,661 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 - Total 15 1,071,721 229,301 21.4% 0 0.0% 229,301 21.4% 22.9% -814 3,631 $26.23 THE WOODLANDS A 55 13,003,452 903,775 7.0% 37,956 0.3% 941,731 7.2% 7.0% 108,763 422,119 $37.30 B 63 4,073,904 402,560 9.9% 16,141 0.4% 418,701 10.3% 10.8% 19,401 -10,805 $25.31 C 5 131,696 0 0.0% 0 0.0% 0 0.0% 0.0% 0 3,150 $18.25 Total 123 17,209,052 1,306,335 7.6% 54,097 0.3% 1,360,432 7.9% 9.2% 128,164 414,464 $33.61 WEST BELT A 29 3,738,419 693,697 18.6% 43,321 1.2% 737,018 19.7% 21.2% 56,195 56,146 $28.67 B 36 2,021,674 324,279 16.0% 75,954 3.8% 400,233 19.8% 21.1% 26,788 -4,902 $22.07 C 4 112,629 0 0.0% 20000 17.8% 20,000 17.8% 17.8% 0 -10,000 - Total 69 5,872,722 1,017,976 17.3% 139,275 2.4% 1,157,251 19.7% 28.8% 82,983 41,244 $26.57

6 Houston Research & Forecast Report | Q2 2019 | 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) Q2-2019 Q1-2019 Q2-2019 Q1-2019 BLDGS. (SF) (%) (%) (SF) ($/SF) WEST LOOP A 50 18,006,832 3,234,798 18.0% 175,135 1.0% 3,409,933 18.9% 19.3% 66,393 -48,191 $38.35 B 50 5,651,516 745,501 13.2% 67,542 1.2% 813,043 14.4% 12.4% -114,771 -13,048 $27.73 C 4 216,268 11,004 5.1% 0 0.0% 11,004 5.1% 5.5% 893 -4,379 $23.00 Total 104 23,874,616 3,991,303 16.7% 242,677 1.0% 4,233,980 17.7% 18.9% -47,485 -65,618 $36.32 WESTCHASE A 32 9,360,948 1,907,771 20.4% 507,601 5.4% 2,415,372 25.8% 26.2% 38,558 -82,856 $33.38 B 63 7,650,016 1,459,969 19.1% 23,115 0.3% 1,483,084 19.4% 19.7% 23,759 52,080 $22.09 C 4 147,000 10,193 6.9% 0 0.0% 10,193 6.9% 6.9% 0 0 $15.00 Total 99 17,157,964 3,377,933 19.7% 530,716 3.1% 3,908,649 22.8% 19.8% 62,317 -30,776 $28.65

Office Development Pipeline

2.0 million SF of office space is under construction, all but one being spec development. Approximately 32.4% of the spec development is pre-leased. Below is a summary of some of the office buildings under construction.

PRE- EST. BUILDING NAME ADDRESS SUBMARKET SF DEVELOPER/CONTRACTOR LEASED DELIVERY Texas Tower 845 Texas Ave CBD 1,106,581 32.8% Hines Securities, Inc. Oct-21 Park Place | River Oaks 4200 Westheimer West Loop 207,202 13.8% Stonelake Capital Partners Mar-20 The Woodlands Development Alight Solutions 8770 New Trails Dr The Woodlands 180,000 100% Feb-20 Company LP Chasewood Crossing Three 19350 State Highway 249 FM 1960 156,000 3.8% Greenwood Properties Aug-19 CityPlace 1401 Lake Plaza Dr The Woodlands 48,840 45.2% Patrinely Group, LLC Jul-19 Buffalo Heights 3663 Washington Ave Midtown 35,363 0% SG Interests Sep-19 Cross Creek Ranch Office Cross Creek Ranch Blvd Southwest Outlier 27,000 57.3% The Marcel Group Mar-20

Skylines | Now Available Online at colliers.com/houston

A skyline view of available space for nine of Houston’s Class A office submarkets including the CBD, Galleria, Energy Corridor, Greenway Plaza, NASA/Clear Lake, North Belt, Sugar Land, The Woodlands 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 APRIL 2019 65 65 APRIL 2019 AVAILABLE* SUBLEASE* AVAILABLE* SUBLEASE* 60 60

55 55

50 50

45 45 2 40 40 19 3 6 35 35 1 7 8 20 4 5 30 30 21 25 22 9 25 25 18 23 26 17 14 10 11 12 30 24 16 20 20 32 33 15 15 15 31 Available June 2019 27 147,986 SF 13 10 10 29 5 5 28

1 2 3 4 PLACE 5 6 7 8 9 10 11 12 13 27 28 29 30 31 32 33 BUILDING NAME 717 TEXAS 600 TRAVIS BANK OF AMERICA CENTER NORTH BLDG SOUTH BLDG 811 LOUISIANA 609 MAIN at TEXAS 811 MAIN STREET 2 LYONDELLBASELL TOWER FULBRIGHT TOWER 5 HOUSTON CENTER BUILDING NAME HESS TOWER GreenStreet 1301 FANNIN OFFICE TOWER 1400 SMITH WEDGE INT’L TOWER 1600 SMITH 1500 LOUISIANA ADDRESS 717 Texas Avenue 600 Travis Street 700 Louisiana Street 700 Milam Street 711 Louisiana Street 811 Louisiana Street 910 Louisiana Street 609 Main Street 811 Main Street 909 Fannin Street 1221 McKinney Street 1301 McKinney Street 1401 McKinney Street ADDRESS 1501 McKinney Street 1201 Fannin Street 1301 Fannin Street 1415 Louisiana Street RBA / AVG FLOOR / # OF FLOORS 696,228 / 27,500 / 33 1,656,529 / 22,575 / 75 1,268,480 / 25,000 / 56 679,337 / 20,523 / 36 664,940 / 20,000 / 34 588,423 / 31,500 / 26 1,228,923 / 24,572 / 50 1,056,658 / 28,000 / 48 972,474 / 27,000 / 46 1,024,956 / 25,624 / 40 1,065,215 / 24,000 / 46 1,247,061 / 24,452 / 51 580,875 / 29,649 / 27 RBA / AVG FLOOR / # OF FLOORS 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 52.7% 83.7% 87.9% 64.7% 79.3% 52.9% 88.3% 78.8% 94.5% 75.1% 91.0% 75.0% 93.0% % LEASED 100% 100% 90.3% 100% 47.1% 53.8% 100% TOTAL AVAILABLE SF 321,149 584,772 394,629 232,193 298,812 274,524 403,085 217,385 136,329 286,503 192,016 467,167 198,764 TOTAL AVAILABLE SF 215,887 249,997 115,233 0 290,666 508,039 0 MAX CONTIGUOUS SF 300,969 192,461 86,435 142,954 204,281 220,529 158,813 142,410 133,441 70,144 94,080 75,376 147,986 MAX CONTIGUOUS SF 215,887 249,997 52,544 0 119,708 351,741 0 QUOTED RATE** $45.75 $43.40 $44.49 $44.95 $44.95 $41.93 $45.24 $52.00 $51.91 $43.93 $45.20 $45.19 $50.00 QUOTED RATE** N/A N/A $38.63 N/A $32.74 $37.97 N/A 3.0 3.0 2.0 0.3 1.7 1.2 1.0 1.0 1.0 2.0 PARKING RATIO 1.3 1.0 2.0 PARKING RATIO 1.7 1.5 1.0 N/A 2.7 1.0 1.1 Metropolis Investment Metropolis Investment Busycon Properties LLC Busycon Properties LLC Hines Invesco Advisers, Inc. Brook˜eld Asset Brook˜eld Asset Brook˜eld Asset Spear Street Capital OWNER Hines Texas Tower Ltd M-M Properties OWNER H&R REIT Midway Companies/ Netrality Properties Chevron Corporation Wedge Commercial Oracle Corporation ChevronTexaco Corp. Holdings Inc. Holdings Inc. Management Inc. Management Inc. Management Inc. Lionstone Investments Properties 75

70

65

60

55

50 Available Sublease Space Available Direct Space Cass Renta Rate an aan erentae aabe Subease Sae Q1 2019 aabe Dret Sae Q1 2019 45 Centra Busness Dstrt Centra Busness Dstrt ustn Centra Busness Dstrt Class A: 1,488,042 SF or 4.3% Class A: 8,671,738 SF or 25.0% CBD Cass Rents CBD Cass aan Class B: 260,538 SF or 2.7% Class B: 2,944,898 SF or 30.3% $4.00 22.0 40 Cass Cass B Cass Cass B $4.00 2,500,000 20.0 9,000,000 $44.00 35 $42.00 8,000,000 1.0 $40.00 393,634 SF 2,000,000 7,000,000 $3.00 1.0 30 $3.00 Available 6,000,000 14.0 1,500,000 $34.00 5,000,000 25 Nov 2021 $32.00 12.0 4,000,000 $30.00 1,000,000 $2.00 10.0 3,000,000 20 $2.00 .0 2,000,000 $24.00 500,000 $22.00 .0 15 1,000,000 0 0 10 187,693 SF aan erentae nues ret an subease sae. 5 Available Jan 2021

14 15 16 17 18 19 20 21 22 23 24 25 26 BUILDING NAME 1001 FANNIN HILCORP ENERGY TOWER KINDER MORGAN BLDG. WELLS FARGO PLAZA 1100 LOUISIANA CENTERPOINT ENERGY ONE THREE ALLEN CENTER TWO ALLEN CENTER ADDRESS 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 1201 Louisiana Street 333 Clay Street 1200 Smith Street RBA / AVG FLOOR / # OF FLOORS 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 / 25,000 / 71 1,212,895 / 26,652 / 51 1,327,882 / 23,060 / 55 1,081,251 / 22,968 / 47 993,297 / 29,214 / 34 843,533 / 24,600 / 35 1,194,719 / 25,000 /50 995,623 / 26,613 / 36 % LEASED 95.3% 77.0% 95.7% 80.2% 100% 75.7% 100% 99.7% 100% 84.6% 98.5% 92.4% 92.2% TOTAL AVAILABLE SF 617,826 416,580 0 204,952 124,600 531,048 29,295 324,527 0 160,617 36,898 297,843 435,122 *Gold and white indicators are approximate only at the time of printing and are presented to show approximate percentage of available MAX CONTIGUOUS SF 393,634 187,693 0 144,394 124,600 101,773 29,295 225,487 0 70,171 8,867 25,303 171,358 space by oor/building. All indicators are left-to-right and are not meant to show location of available space. COLLIERS INTERNATIONAL QUOTED RATE** $44.51 $30.09 N/A $52.06 N/A $49.65 $52.76 $43.36 N/A $46.53 $41.80 $46.17 $44.97 PARKING RATIO 1.0 2.3 N/A 2.0 1.0 1.7 2.4 1.8 2.5 1.0 1.0 1.0 1.0 **Rental rates listed are net + operating expenses. 1233 West Loop South, Suite 900 OWNER JMB Financial Advisors Accesso Partners, LLC Hilcorp Ventures Inc. Union Investment EPEC Property Holdings New York State Common Brook˜eld Ošce Enterprise Products CenterPoint Energy, Inc. Brook˜eld Ošce Brook˜eld Ošce Brook˜eld Ošce Brook˜eld Ošce Houston, TX 77027 Real Estate Retirement Fund Properties, Inc. Partners L.P. Properties, Inc. Properties, Inc. Properties, Inc. Properties, Inc. www.colliers.com/texas

7 Houston Research & Forecast Report | Q2 2019 | 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) Heritage Plaza 1111 Bagby CBD 1,212,895 1986 100% 29,295 $52.76 AEW Capital Management 811 Main 811 Main St CBD 972,474 2011 94.5% 133,441 $52.41 Invesco Advisers, Inc. 3737 Buffalo Speedway 3737 Buffalo Speedway Greenway Plaza 386,205 2016 78.7% 113,661 $45.00 Madison Marquette CityCentre Five 825 Town & Country Blvd Katy Freeway 227,063 2015 94.1% 12,776 $47.58 Midway Companies Town Centre One 750 Town & Country Blvd Katy Freeway 253,714 2015 97.8% 5,559 $44.59 Moody Rambin 2800 Post Oak Blvd West Loop/Galleria 1,476,973 1983 91.2% 411,647 $47.98 Invesco Advisers, Inc. BBVA Compass Plaza 2200 Post Oak Blvd West Loop/Galleria 326,200 2013 96.6% 51,266 $50.84 Corporacion Masaveu S. A. CityWestPlace 4 2103 CityWest Blvd Westchase 518,907 2000 92.8% 85,115 $45.48 Parkway Realty Management LLC Three Hughes Landing 1780 Hughes Landing Blvd The Woodlands 320,772 2015 81.8% 58,339 $42.46- The Woodlands Development $42.96 Company, L.P.

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

Q2 2019 Houston Office Highlights

FOR MORE INFORMATION Lisa Bridges, CPRC Beth Staggs CPRC, CPMC Colliers statistical criteria Director of Market Research | Houston Senior Research Coordinator | Houston includes all general purpose multi +1 713 830 2125 +1 713 830 2130 and single tenant office buildings [email protected] [email protected] 20,000 SF or greater.

Colliers International | MarketHouston 0001233 Address,West Loop Suite South, # Suite 900 000Houston, Address, Texas Suite 77027 # +1 000713 222 000 2111 0000 Copyright © 20152019 Colliers International. The information contained herein has been obtained from sources deemed reliable. While colliers.com/<>colliers.com/houston every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional8 advisorsNorth priorAmerican to acting onResearch any of the material & Forecast contained Report in this report. | Q4 2014 | Office Market Outlook | Colliers International ADVANTAGE

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