Houston Metro

HOUSTON SUBMARKET REPORT MID-YEAR 2016

Houston Metro

SNAPSHOT VACANCY RATES In the second quarter, 2.5 million SF of space delivered to the market at 54% preleased. Net absorption for Class A space totaled 813,000 SF, while Class A Overall Class A Direct Class B Overall Class B Direct Class B recorded negative 19,000 SF of absorption. Class A direct vacancy rose to 12.4% and overall was 14.6%, and Class B vacancy grew marginally 16% to 14.2% for direct and 15.2% for overall. Rents for both classes of space 14% increased with Class A reaching $35.13 per SF gross, and Class B rents were $21.53 per SF gross. Rental rates are anticipated to remain flat or fall 12% slightly in the period ahead and concession packages offered by landlords are becoming more prevalent in order to backfill large blocks of vacant 10% space. Over 1.5 million SF of sublease space was put on the market during 8% the second quarter, bringing the total to 10.6 million SF. Sublease levels are likely to reach 11.0 million SF by the end of 2016. Market fundamentals 6% 2013 2014 2015 Q2 2016 in the office sector will continue to see softness for the next 18-36 months, as the economy remains uncertain.

SIGNIFICANT LEASES SIGNED NET ABSORPTION American Bureau of Shipping - 326,800 SF prelease, CityPlace 2, The Woodlands submarket Houston A Houston B 6,000,000 Lockton Companies - 120,000 SF prelease, Lockton Place, Westchase 5,000,000 submarket 4,000,000 Tudor, Pickering, Holt & Co. - 88,874 SF renewal, Heritage Plaza, CBD 3,000,000 submarket 2,000,000 RSM Global - 54,021 SF renewal and expansion, Four Oaks Place, 1,000,000 Galleria submarket 0 Patterson-UTI Energy, Inc. - 35,553 SF new lease, Remington Square -1,000,000 III, West Belt submarket -2,000,000 2013 2014 2015 Q2 2016

NOTABLE INVESTMENT SALES Greenspoint Park - three building portfolio, 352,125 SF total, Class B, acquired by Lincoln Property Co. for approximately $11.8 million, RENTAL RATES (FSG) 6.0% cap rate Houston A Houston B The Atrium Building & The Churchill Building - two building portfolio, $36.00 185,884 SF total, Class B, purchased by Stone Mountain Properties for an estimated $18.75 million, 10.4% cap rate $32.00 16430 Park Ten Place - 110,452 SF, Class B, acquired by First Service Credit Union for approximately $11.6 million $28.00

LARGEST PROJECTS UNDER CONSTRUCTION $24.00 609 Main at Texas - 47 stories, 1,057,000 SF, 27% preleased to United Airlines and Kirkland & Ellis, Q4 2016 delivery $20.00 BHP Billiton Tower - 30 stories, 600,000 SF, 100% preleased to BHP $16.00 2013 2014 2015 Q2 2016 Billiton, Q3 2016 delivery West Memorial Place II - 14 stories, 428,565 SF, 37% preleased to IHI E&C, Q3 2016 delivery

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

Central Business District

SNAPSHOT VACANCY RATES Overall leasing activity in the CBD has slowed significantly with only one

lease signed over 50,000 SF. Tudor, Pickering, Holt & Co. renewed their Class A Overall Class A Direct Class B Overall Class B Direct 88,874 SF lease in Heritage Plaza. Sublease space continues to affect 20% vacancy and now there is nearly 2.0 million SF of sublease space on the market. The is the third consecutive quarter of increasing vacancy for 16% Class A space with direct vacancy reaching 8.7% and 11.0% for overall. Class B vacancy jumped to 17.2% for direct and 18.6% for overall. Rental 12% rates continue to decrease as demand for space remains weak. Class A 8% rents were down 1.8% from year-end to $43.08 per SF gross and Class B rents dropped 1.2% over the same period to $28.33 per SF gross. 4% Continental Airlines, Plains Exploration and BG Group put large blocks of space on the market in the second quarter, leaving 13 large blocks over 0% 2013 2014 2015 Q2 2016 125,000 SF available for lease. Absorption for both Class A and B space remains positive through mid-year, reaching 69,000 SF.

SIGNIFICANT LEASES SIGNED NET ABSORPTION Tudor, Pickering, Holt & Co. - 88,874 SF renewal, Heritage Plaza CBD A CBD B Castex - 23,441 SF renewal, Three Allen Center 400,000 CSL Capital Management - 12,708 SF sublease, Wells Fargo Plaza 0 CONSTRUCTION ACTIVITY 609 Main at Texas - 47 stories, 1,057,000 SF, 27% preleased to United -400,000 Airlines and Kirkland & Ellis, Q1 2017 delivery -800,000 LARGE BLOCKS OF SPACE BEING MARKETED (125,000 SF+) -1,200,000 800 Bell, Floors 1-46, 1,314,350 SF (Exxon) 609 Main at Texas, Floors 12-46, 756,873 SF (new construction) -1,600,000 2013 2014 2015 Q2 2016 One Shell Plaza, 350,000 SF sublease, term through 12/2025 (Shell) 1600 Smith, Floors 5-16, 280,593 SF (Continental Airlines) RENTAL RATES (FSG) 2 Houston Center, Floors 4-10, 280,181 SF (Shell) CBD A CBD B 600 Jefferson, Floors 11-19, 192,984 SF (United Airlines) $45.00 811 Louisiana, Floors 10-15, 188,695 SF (Shell) 717 Texas, Floors 23-28, 165,246 SF sublease, term through 08/2018 $40.00 (Freeport McMoRan) $35.00 BG Group Place, Floors 29-34, 164,051 SF sublease, term through 12/2026 (BG Group) $30.00 811 Louisiana, Floors 18-22, 159,665 SF (Shell) $25.00 Total Plaza, Floors 10-15, 145,352 SF (Hilcorp)

Pennzoil Place, Floors 6-12 and 14, 140,270 SF (Cheniere Energy) $20.00 2013 2014 2015 Q2 2016 BG Group Place, Floors 22-26, 135,206 SF sublease, term through 12/2026 (BG Group)

Energy Corridor

SNAPSHOT VACANCY RATES With the majority of tenants tied to the energy sector, the Energy Corridor experienced another slow quarter. Class A direct vacancy increased to Class A Overall Class A Direct Class B Overall Class B Direct 12.3%, and overall was 16.8%, while Class B vacancy rose to 15.0% for 20% direct and 17.0% for overall at second quarter. Class A vacancy saw a large jump due to BP and Conoco putting over 1.0 million SF of sublease 16% space on the market. Conoco’s space has a term through May 2028 and 12% BP’s space has a term through June 2023. Rental rates for Class A space fell to $36.54 per SF gross and Class B dropped to $22.60 per SF gross 8% from year-end 2015. There were three smaller leases signed in the second 4% quarter as large transaction activity has weakened. The only delivery was Energy Center Five, a 525,000 SF speculative building. The construction 0% 2013 2014 2015 Q2 2016 pipeline in the Energy Corridor is shrinking with only two projects under construction totaling 655,000 SF. The Energy Corridor will remain weak as the energy downturn continues to have an affect on overall market fundamentals. NET ABSORPTION SIGNIFICANT LEASES SIGNED Energy Corridor A Energy Corridor B Texas Mutual - 23,451 SF new lease, Air Liquide Center South 3,500,000 Audimation Services - 17,859 SF sublease, 1250 Woodbranch Park 3,000,000 2,500,000 Kimley-Horn and Associates - 15,837 SF new lease, 11700 Katy Frwy

2,000,000 INVESTMENT SALES 1,500,000 16430 Park Ten Place - 110,452 SF, Class B, acquired by First Service 1,000,000 Credit Union for approximately $11.6 million 500,000 LARGE BLOCKS OF SPACE BEING MARKETED (200,000 SF+) 0 -500,000 2013 2014 2015 Q2 2016 Energy Center IV, Floors 1-22, 597,628 SF sublease, term through 05/2028 (Conoco) Four WestLake, Floors 1-20, 559,094 SF sublease, term through 06/2023 (BP) RENTAL RATES (FSG) Energy Center V, Floors 1-18, 524,474 SF (new construction) Energy Corridor A Energy Corridor B 13501 Katy Frwy, Floors 1-3, 320,000 SF (Exxon) $40.00 Enclave Place, Floors 1-11, 300,907 SF (new) $35.00 Energy Center II, Floors 1-12, 257,659 SF sublease, negotiable term $30.00 (Worley Parsons)

$25.00 Three Westlake, Floors 3-9 & 14-17, 242,052 SF sublease, term through 02/2019 (Conoco) $20.00 Two Westlake, Floors 7-15, 205,304 SF (Conoco) $15.00 West Memorial Place II, Floors 2, 9-14, 199,997 SF (new construction)

$10.00 2013 2014 2015 Q2 2016 CONSTRUCTION ACTIVITY 10100 Katy Frwy - Six stories, 226,511 SF, 35% preleased to Cemex, Q2 2017 delivery West Memorial Place II - 14 stories, 428,565 SF, 37% preleased to IHI E&C, Q3 2016 delivery

West Loop

SNAPSHOT VACANCY RATES In the second quarter, the West Loop experienced rising vacancy and negative absorption as demand for space remains weak. Class A vacancy Class A Overall Class A Direct Class B Overall Class B Direct was 12.2% for direct and 13.2% for overall, and Class B vacancy was 10.4% for direct and 11.0% for overall. Net absorption was negative 13% for both classes of space as Class A recorded negative 88,000 SF and 12% Class B fell to negative 49,000 SF. Class A rents dropped to $36.04 per SF gross, while Class B rents increased to $24.48 per SF gross. The only 11% delivery in the second quarter was 1885 Saint James Place, a 165,000 SF development, at 0% preleased. Sublease space continues to affect 10% the market as the Galleria exceeded 1.0 million SF at mid-year, and is 9% expected to increase through 2016. Leasing activity was highlighted by the 54,021 SF renewal and expansion of RSM Global in Four Oaks Place. 8% 2013 2014 2015 Q2 2016 However, overall leasing activity has been limited as tenants delay long- term leasing decisions. Currently, the West Loop submarket has three projects under construction that are 97% preleased. NET ABSORPTION SIGNIFICANT LEASES SIGNED

RSM Global - 54,021 SF renewal and expansion, Four Oaks Place West Loop A West Loop B 800,000 CONSTRUCTION ACTIVITY The Post Oak - 36 stories, 140,000 SF, 100% preleased, Q4 2017 600,000 delivery 400,000 Amegy Bank Headquarters - 22 stories, 380,000 SF, 90% owner 200,000 occupied, Q1 2017 delivery 0 BHP Billiton Tower - 30 stories, 600,000 SF, 100% preleased to BHP -200,000 Billiton, Q3 2016 delivery -400,000 -600,000 2013 2014 2015 Q2 2016 LARGE BLOCKS OF SPACE BEING MARKETED (100,000 SF+) 1360 Post Oak Blvd, 320,349 SF sublease, term through 03/2025 (BHP) 1885 St James Place, Floors 7-15, 158,585 SF (new construction) RENTAL RATES (FSG) Galleria Place I, Floors 1-8, 153,603 SF (Telecheck) West Loop A West Loop B Five Post Oak Park, Floors 2-8, 142,665 SF (Amegy Bank) $38.00 Galleria Tower I, Floors 17-23, 129,125 SF (Air Liquide) $34.00 Park Towers North, Floors 13-17, 111,250 SF (NetIQ) Park Towers South, Floors 7-11, 111,250 SF (GE) $30.00 Marathon Oil Tower, 108,204 SF sublease, term through 12/2021 $26.00 (Marathon Oil) $22.00 5718 Westheimer, Floors 3-7, 105,047 SF (Capital One) $18.00 1330 Post Oak Blvd, 101,130 SF sublease, term through 11/2019 (BHP) $14.00 2013 2014 2015 Q2 2016

Westchase

SNAPSHOT VACANCY RATES The Westchase submarket continues to feel the effects of the weakened economy, with only one significant lease signed and no investments sales Class A Overall Class A Direct Class B Overall Class B Direct occurring in the second quarter. With the delivery of the 1.1 million SF 20% Phillips 66 campus, absorption for Class A space reached 1.0 million SF and Class B absorption was 93,000 SF. Class A vacancy decreased to 16% 11.9% for direct and 15.4% for overall, and Class B vacancy fell to 8.0% for direct and 8.3% for overall. Rental rates for both Class A and B fell 12% during the second quarter. Class A rents dropped to $38.37 per SF gross, and Class B fell to $21.08 per SF gross. Bucking the trend, Triten Real 8% Estate Partners broke ground on Lockton Place, a 186,000 SF project. Its namesake, Lockton Companies, signed a 120,000 SF prelease in the 4% 2013 2014 2015 Q2 2016 building and the project expected to deliver by the end of 2017. There are currently seven large blocks of space over 75,000 SF available for tenants looking to enter into the market.

NET ABSORPTION SIGNIFICANT LEASES SIGNED Lockton Companies - 120,000 SF prelease, Lockton Place Westchase A Westchase B 1,100,000 CONSTRUCTION ACTIVITY 900,000 Lockton Place - Eight stories, 186,000 SF, 65% preleased to Lockton Companies, Q4 2017 delivery 700,000 BUILDINGS ON THE MARKET 500,000 11111 Richmond - 96,212 SF, Class B 300,000 CLASS A LARGE BLOCKS OF SPACE BEING MARKETED (75,000 SF+) 100,000 CityWestPlace 1, Floors 1-6, 305,827 SF (BMC) -100,000 2013 2014 2015 Q2 2016 Pinnacle Westchase, 160,356 SF sublease, term through 07/2019 (Phillips 66) RENTAL RATES (FSG) Westchase Park II, Floors 1 and 5-6, 140,000 SF (new) Two BriarLake, Floors 10-13, 107,088 SF (new) Westchase A Westchase B $42.00 CityWestPlace 4, 103,018 SF (Statoil) $38.00 CityWestPlace 2, 103,018 SF sublease, 7-15 year term (Statoil) $34.00 CityWestPlace 2, 87,196 SF sublease, term through 08/2032 $30.00 CLASS B LARGE BLOCKS OF SPACE BEING MARKETED (75,000 SF+) 10000 Richmond, 127,674 SF sublease, 3 to 10 year term (National $26.00 Oilwell Varco) $22.00 10500 Richmond, 93,785 SF sublease, term through 06/2018 $18.00

$14.00 2013 2014 2015 Q2 2016

The Woodlands

SNAPSHOT VACANCY RATES The Woodlands had the largest deal signed in the Houston metro during the second quarter. American Bureau of Shipping signed a 326,800 SF Class A Overall Class A Direct Class B Overall Class B Direct prelease in CityPlace 2, occupying the entire building, but the project 14% has yet to break ground. Class A vacancy continued to climb, reaching 12% 10.6% for direct and 11.7% for overall, and Class B direct vacancy remained unchanged at 9.7% for direct and overall vacancy increased to 10% 11.0%. Net absorption for Class A space totaled 10,000 SF, while Class 8% B recorded negative 1,000 SF of absorption. Rental rates decreased 6% slightly for both classes of space with Class A at $40.37 per SF gross, and 4% Class B at $25.09 per SF gross. Havenwood Office Park, a 240,000 SF project, delivered at 0% preleased in the second quarter. There is only 2% one building left under construction, Wildwood Corporate Centre II, at 0% 2013 2014 2015 Q2 2016 200,000 SF. Currently, it has no preleased tenants and is expected to deliver in the third quarter. The Woodlands submarket has eight blocks NET ABSORPTION of space available over 50,000 SF for large tenants looking to enter the submarket. The Woodlands A The Woodlands B

SIGNIFICANT LEASES SIGNED 3,000,000 American Bureau of Shipping - 326,800 SF prelease, CityPlace 2 2,500,000 Veriforce - 33,543 SF new lease, Sierra Pines II 2,000,000 1,500,000 BUILDINGS ON THE MARKET 1,000,000 8800 Technology Forest Dr - 260,000 SF, Class B 500,000 610 Sawdust - 116,000 SF, Class B 0 CONSTRUCTION ACTIVITY -500,000 2013 2014 2015 Q2 2016 Wildwood Corporate Centre II - Eight stories, 200,000 SF, 0% preleased, Q3 2016 delivery RENTAL RATES (FSG) CLASS A LARGE BLOCKS OF SPACE BEING MARKETED (50,000 SF+) Three Hughes Landing, Floors 3-12, 266,428 SF (new construction) The Woodlands A The Woodlands B $42.00 Wildwood Corporate Centre II, Floors 1-8, 201,651 SF (new construction) Havenwood Office Park, Floors 1-4, 197,000 SF (new construction) $38.00

1725 Hughes Landing, Floors 8-14, 161,159 SF (new construction) $34.00 Research Forest Lakeside 4, 149,988 SF sublease, term through $30.00 08/2025 (Talisman Energy) Sierra Pines II, Floors 1-5, 98,277 SF (new) $26.00 $22.00 CLASS B LARGE BLOCKS OF SPACE/ BEING MARKETED (50,000 SF+)

8800 Technology Forest Dr, Floors 13, 260,000 SF (Lexicon Pharmaceuticals) $18.00 2013 2014 2015 Q2 2016 2001 Timberloch Place, Floors 3-5, 90,539 SF (Repsol)

Greenway Plaza

SNAPSHOT VACANCY RATES Greenway Plaza has been quiet through mid-year 2016 as overall leasing Class A Overall Class A Direct Class B Overall Class B Direct activity has slowed and vacancy continues to increase. Class A vacancy increased to 14.1% for direct and 14.2% for overall. Vacancy for Class B 14% rose as well to 7.2% for direct and 7.4% for overall. Both Class A and B 12% recorded negative absorption in the second quarter. Absorption for Class A space was negative 18,000 SF and Class B space recorded negative 10% 58,000 SF of absorption. Class A rents increased slightly to $35.93 per SF gross from $35.90 per SF gross in the first quarter. Class B rents 8% decreased to 25.61 per SF gross from $25.83 per SF gross over the same 6% period. Potts Law Firm signed the largest lease in Greenway Plaza, inking 19,319 SF at 3737 Buffalo Speedway. There are 10 large blocks of space 4% 2013 2014 2015 Q2 2016 over 25,000 SF available for lease in the Greenway Plaza submarket. Overall market fundamentals will likely remain weak through the rest of 2016 as the economy tries to rebound from the oil downturn. NET ABSORPTION SIGNIFICANT LEASES SIGNED Greenway Plaza A Greenway Plaza B Potts Law Firm - 19,319 SF new lease, 3737 Buffalo Speedway

150,000 BUILDINGS ON THE MARKET 100,000 3120 Buffalo Speedway - 350,000 SF, Class B 50,000 3100 Richmond - 56,000 SF, Class B

0 CONSTRUCTION ACTIVITY -50,000 Kirby Collection - 13 stories, 188,696 SF, 0% preleased, Q4 2017 delivery -100,000 Regions Financial Center - 11 stories, 210,000 SF, 37% preleased to -150,000 2013 2014 2015 Q2 2016 Regions Bank, Q3 2016 delivery

LARGE BLOCKS OF SPACE BEING MARKETED (25,000 SF+) Kirby Collection, Floors 1-2,4,6-13, 188,696 SF (new construction) RENTAL RATES (FSG) Three Greenway Plaza, Floors 4-10, 161,343 SF (ExxonMobil) Greenway Plaza A Greenway Plaza B 3737 Buffalo Speedway, Floors 14-19, 113,904 SF (new) $36.00 Regions Financial Center, Floors 2-8, 86,309 SF (new construction) $32.00 Phoenix Tower, 77,977 SF sublease, term through 02/2018 (NALCO Champion) $28.00 3737 Buffalo Speedway, Floors 2-6, 51,649 SF (new) $24.00 Phoenix Tower, Floors 16-17, 50,568 SF (WorleyParsons) One Grove Street, Floors 15-16, 37,157 SF (new construction) $20.00 2401 Portsmouth, Floor 2, 36,261 SF (Child Advocates) $16.00 2013 2014 2015 Q2 2016 Twelve Greenway Plaza, Floors 9-10, 26,266 SF (CPL Retail Energy)

Greenspoint/North Belt

SNAPSHOT VACANCY RATES The Greenspoint/North Belt submarket was slow through mid-year with no significant leases signed and one investment sale. Greenspoint Park, Class A Overall Class A Direct Class B Overall Class B Direct a three building portfolio, was purchased by Lincoln Property Co from 44% NRFC Greenspoint Holdings for approximately $11.8 million. This is the ninth consecutive quarter that Greenspoint/North Belt has experienced 36% negative absorption and an increase in vacancy in the Class A market. Class A vacancy jumped to 37.5% for direct and 41.6% for overall, while 28% Class B direct vacancy remained unchanged at 23.3% and overall vacancy 20% decreased to 24.9%. Net absorption for Class A space was negative 165,000 SF, and Class B was negative 2,000 SF. Class A rents dropped to 12% $26.99 per SF gross, from $27.05 per SF gross at first quarter, and Class B rents were down to $14.14 per SF gross, compared to $14.31 per SF 4% 2013 2014 2015 Q2 2016 gross over the same period. The submarket has 872,000 SF of sublease space on the market, 80% of which has a remaining term of three years or less. NET ABSORPTION INVESTMENT SALES Greenspoint Park - three building portfolio, 352,125 SF total, Class Greenspoint/North Belt A Greenspoint/North Belt B B, acquired by Lincoln Property Co. for approximately $11.8 million, 200,000 6.0% cap rate 0 CLASS A BLOCKS OF SPACE BEING MARKETED (75,000 SF+) Six Greenspoint Place, 356,468 SF, available 11/2016 (ExxonMobil) -200,000

Five Greenspoint Place, 336,443 SF, vacant (ExxonMobil) -400,000 Two Greenspoint Place, 276,617 SF, vacant (ExxonMobil) -600,000 Three Greenspoint Place, 253,562 SF, available 07/2018 (ExxonMobil) -800,000 2013 2014 2015 Q2 2016 Northborough Tower, 204,198 SF, vacant (Noble Energy) Eight Greenspoint Plaza, 198,256 SF sublease, term through 04/2018 (ExxonMobil) RENTAL RATES (FSG) Four Greenspoint Place, 173,480 SF, vacant (ExxonMobil)

13401 North Fwy, 143,410 SF, vacant (ExxonMobil) Greenspoint/North Belt A Greenspoint/North Belt B 363 North Belt, 137,313 SF, vacant (Newfield Exploration) $30.00 $28.00 Northbelt Office Center V, 135,030 SF, available 02/2018 (FMC) $26.00 10700 North Frwy, 125,141 SF, vacant $24.00 2350 North Belt Tower, 116,746 SF, vacant (Southwestern Energy) $22.00 16676 Northchase Dr, 101,111 SF, vacant $20.00 $18.00 World Houston Plaza, 84,280 SF, vacant (Weatherford International) $16.00 CLASS B BLOCKS OF SPACE BEING MARKETED (75,000 SF+) $14.00 396 W Greens Rd, 189,853 SF, vacant (ExxonMobil) $12.00 2013 2014 2015 Q2 2016 Three Northborough, 154,454 SF, vacant (Noble Energy/FMC) Belchase Building, 87,612 SF, vacant (Exterran)

FM 1960

SNAPSHOT VACANCY RATES The FM 1960 submarket has remained slow through the first half of the Class A Overall Class A Direct Class B Overall Class B Direct year. Class A vacancy increased in the second quarter recording 12.8% 26% for direct and 13.7% for overall, from 11.5% and 12.2% for direct and overall at the close of the first quarter. Class B vacancy saw an uptick to 22% 20.2% for direct and 22.7% for overall, compared to 19.4% for direct and 22.0% for overall over the same time period. Class A rents rose to $27.13 per SF gross, and Class B rents fell slightly to $15.97 per SF gross. Net 18% absorption for Class A space totaled 89,000 SF, and Class B absorbed negative 32,000 SF. The sale of Copperfield Professional Plaza was the 14% only investment activity in the second quarter. DBI Investments purchased the property for approximately $3.7 million. There are currently two 10% 2013 2014 2015 Q2 2016 proposed developments in the 1960 submarket, but they are unlikely to break ground without a significant prelease.

INVESTMENT SALES NET ABSORPTION Copperfield Professional Plaza - 25,480 SF, Class B, acquired by DBI Investments for approximately $3.7 million, 7.5% cap rate FM 1960 A FM 1960 B 600,000 BUILDINGS ON THE MARKET 500,000 9720 Cypresswood Dr - 85,290 SF, Class A 400,000 Willowchase Office Bldg - 62,001 SF, Class B 300,000 11301 Fallbrook Dr - 61,867 SF, Class B 200,000 3648 W FM 1960 - 61,000 SF, Class B 100,000 LARGE BLOCKS OF SPACE BEING MARKETED (25,000 SF+) 0 11450 Compaq Center West, Floors 7-8, 104,896 SF -100,000 2013 2014 2015 Q2 2016 Willowchase Office Bldg, 62,001 SF sublease, term through 09/2017 (Canrig Drilling) 8300 Cypress Creek, Floors 1-3, 45,103 SF (Onesource Building Tech) RENTAL RATES (FSG) Centre at Cypress Creek, 40,278 SF sublease, term through 03/2017 FM 1960 A FM 1960 B $28.00 Mill Creek Building, Floors 1-2, 39,956 SF Centre at Cypress Creek, Floors 2-3, 39,663 SF $24.00 11450 Compaq Center West, Floor 5, 36,000 SF

$20.00 Plaza at Commerce Park North, Floor 3, 36,000 SF Torrey Chase 2, Floors 1-4, 33,871 SF $16.00 Two Kuykendahl Place, Floors 1-3, 32,330 SF $12.00 Cypress Court, Floor 2, 32,136 SF $8.00 2013 2014 2015 Q2 2016 11450 Compaq Center West, Floor 2, 26,000 SF

PROPOSED DEVELOPMENTS Five Chasewood - 236,880 SF, GenCap Partners development Offices at Vintage Marketplace - 125,000 SF, Read King development

Northwest

SNAPSHOT VACANCY RATES The investment market remained active in the Northwest submarket, with two large sales occurring. Class A vacancy increased to 21.4% for direct, Class A Overall Class A Direct Class B Overall Class B Direct from 21.3% at first quarter, and overall vacancy rose to 23.0%, from 22.8% 26% over the same period. Conversely, Class B vacancy fell to 15.9% for direct, from 16.1% in the first quarter, and to 16.0% for overall, from 16.3% 22% during the same period. Asking rents continued to decline in the second quarter as leasing activity remains slow across the Houston metro. Rental 18% rates for Class A space dropped to $21.83 per SF gross, and Class B rates dipped to $17.84 per SF gross. Net absorption for Class A was negative 3,000 SF, and Class B absorbed positive 10,000 SF. The Northwest 14% submarket has six buildings for sale, giving investors plenty of opportunity to invest in a slower economy. 10% 2013 2014 2015 Q2 2016

INVESTMENT SALES ExxonMobil Brookhollow Campus- three building portfolio, 486,937 NET ABSORPTION SF total, purchased by Williamsburg Enterprises & Fidelis Realty Northwest A Northwest B Partners joint for an estimated $11.0 million 200,000 Northwest Central Plaza - 73,401 SF, Class B, purchased by Tint Houston, Inc for approximately $2.0 million 100,000 BUILDINGS ON THE MARKET 2707 North Loop W - 181,586 SF, Class A 2600 North Loop W - 135,407 SF, Class B 0 2727 North Loop W - 123,103 SF, Class B 7000 Hollister Rd - 105,900 SF, Class B -100,000 2013 2014 2015 Q2 2016 9800 Northwest Frwy - 99,871 SF, Class B RENTAL RATES (FSG) 2855 Mangum - 72,059 SF, Class B Northwest A Northwest B CLASS A BLOCKS OF SPACE BEING MARKETED (25,000 SF+) $24.00 Brookhollow Central I, Floors 1-8 & 10, 128,945 SF Brookhollow Central III, Floors 2-4, 56,084 SF $22.00 Air Liquide Bldg, Floors 1-4, 41,000 SF (Air Liquide) $20.00 Northwest Crossing, Floors 2-3, 38,358 SF Northwest Crossing III, Floor 4, 27,889 SF (Solar Turbines) $18.00 Northwest Crossing III, Floor 10, 26,594 SF (Solar Turbines) $16.00 2707 North Loop W, Floors 1-2, 25,299 SF (Christus Health) $14.00 2013 2014 2015 Q2 2016 CLASS B BLOCKS OF SPACE BEING MARKETED (25,000 SF+) 2727 North Loop W, Floors 1-7, 123,103 SF 7000 Hollister, Floors 1-3, 105,900 SF (Baker Hughes) Northwest Central Plaza, Floors 1-4, 54,602 SF 11251 Northwest Frwy, Floors 1-4, 26,411 SF (Digital Air Control)

E Ft Bend Co/Sugar Land

SNAPSHOT VACANCY RATES The Sugar Land saw one significant lease signed and one investment sale Class A Overall Class A Direct Class B Overall Class B Direct in the second quarter. Vacancy rates in Class A space closed the quarter 20% at 6.9% for direct and 7.2% for overall, compared to 6.8% and 7.1% for direct and overall in the first quarter. Class B vacancy recorded 6.5% for direct and 7.4% for overall, up from 6.2% for direct and 7.1% for overall 15% during the same period. Net absorption for both classes of space were negative. Class A absorbed negative 4,000 SF and Class B absorbed negative 7,000 SF. Class A rental rates have increased 1.7% since year- 10% end to $28.49 per SF gross. Contrastingly, Class B rents declined 1.7% to $21.13 per SF gross over the same period. Aetna signed the only significant lease in Sugar Land, with a 26,000 lease renewal in 3 Sugar 5% 2013 2014 2015 Q2 2016 Creek. In the period ahead, Sugar Land will remain steady, as compared to other submarkets in the metro that are continuing to struggle through a weakened economy. NET ABSORPTION SIGNIFICANT LEASES SIGNED

E Ft Bend Co/Sugar Land A E Ft Bend Co/Sugar Land B Aetna - 26,000 SF renewal, 3 Sugar Creek

400,000 INVESTMENT SALES The Atrium Building & The Churchill Building - two building portfolio, 300,000 185,884 SF total, Class B, purchased by Stone Mountain Properties for an estimated $18.75 million, 10.4% cap rate 200,000 BUILDINGS ON THE MARKET 100,000 12603 Southwest Fwy - 141,779 SF, Class B 13927 Gessner - 87,720 SF, Class B 0 2013 2014 2015 Q2 2016 2440 Texas Pkwy - 64,768 SF, Class B 7616 Branford Place - 56,595 SF, Class A

RENTAL RATES (FSG) 5819 Hwy 6 - 51,179 SF, Class B

E Ft Bend Co/Sugar Land A E Ft Bend Co/Sugar Land B LARGE BLOCKS OF SPACE BEING MARKETED (25,000 SF+) $30.00 Sugar Creek on the Lake, Floor 4, 62,457 SF $28.00 One Fluor Daniel, 54,774 SF sublease, negotiable term (Fluor Enterprises) $26.00 Sugar Creek Place I, Floors 3-4, 41,093 SF $24.00 13016 University Blvd, Floors 1-2, 40,000 SF $22.00 Sugar Creek II, Floors 7, 26,492 SF $20.00 $18.00

$16.00 2013 2014 2015 Q2 2016

West Belt

SNAPSHOT VACANCY RATES Large sublease blocks put on the market caused Class B vacancy to jump quarter-over-quarter with Class B overall vacancy recording 26.1% Class A Overall Class A Direct Class B Overall Class B Direct at the close of the second quarter and direct vacancy was 15.6% at the 30% close of the second quarter. Contrastingly, Class A vacancy decreased to 16.4% for direct and 17.4% for overall. The 35,000 SF new lease inked 25% by Patterson-UTI Energy helped boost Class A absorption to 35,000 SF. 20% Class B remained quiet with 0 SF of absorption. Class A rents increased to 15% $32.29 per SF gross, while Class B asking rents dropped to $23.66 per SF gross. With additional sublease space added in 11000 Corporate Center, 10% there are currently 14 large blocks of space over 30,000 SF available 5% for lease. A large majority of the Class A space available is from newly developed projects that have yet to sign any tenants. Following a huge 0% 2013 2014 2015 Q2 2016 development cycle in 2014 and 2015, there are currently no projects under construction in the West Belt submarket. NET ABSORPTION SIGNIFICANT LEASES SIGNED Patterson-UTI Energy, Inc. - 35,553 SF new lease, Remington Square III West Belt A West Belt B 800,000 CLASS A BLOCKS OF SPACE BEING MARKETED (30,000 SF+) Beltway Lakes III, Floors 1-9, 244,226 SF (new) 600,000

Remington Square II, Floors 1-8, 164,999 SF (new) 400,000 Legacy at Fallbrook, Floors 3-5, 129,767 SF (new) 200,000 Westway II, Floors 6-8, 75,033 SF sublease, term through 01/2019 (GE Oil & Gas) 0

Legacy at Fallbrook, Floor 1, 35,459 SF (new) -200,000 2013 2014 2015 Q2 2016 Sam Houston Crossing I, 35,454 SF sublease, term through 02/2019 (GE Oil & Gas)

(FSG) CLASS B BLOCKS OF SPACE BEING MARKETED (30,000 SF+) RENTAL RATES

10900 Corporate Centre, Floors 1-2, 98,451 SF (Cameron) West Belt A West Belt B 6677 N Gessner Dr, Floors 1-2, 96,000 SF (FMC Technologies) $34.00

11302 Tanner, Floors 1-2, 57,798 SF $30.00 11000 Corporate Centre, Floor 2, 51,941 SF sublease, term through $26.00 09/2020 4700 W Sam Houston Pkwy N, Floor 1, 39,420 SF (Stewart Title) $22.00 11000 Corporate Centre, Floor 1, 35,696 SF sublease, through $18.00 09/2020 $14.00 10900 Corporate Centre, 32,589 sublease, term through 11/2016 $10.00 2013 2014 2015 Q2 2016 10235 W Little York, Floor 3, 30,767 SF

Katy

SNAPSHOT VACANCY RATES In the second quarter, the Katy submarket had one building deliver, Class A Overall Class A Direct Class B Overall Class B Direct leaving the construction pipeline empty. Class A vacancy increased to 35% 32.5% for both direct and overall vacancy in the second quarter. Class B vacancy remains extremely tight at 1.7% and 1.8% for direct and 30% overall, respectively. Net absorption for Class A space was 23,000 SF 25% and Class B absorption was negative 4,000 SF. Class A rental rates 20% increased marginally to $32.67 per SF gross, from $32.65 per SF gross in 15% the first quarter. Conversely, Class B decreased to $24.15 per SF gross, compared to $24.28 per SF gross over the same period. Grandway West 10% II, a 124,295 SF development, delivered at 17% preleased in the second 5% quarter. There are several proposed developments in Katy, but these are 0% 2013 2014 2015 Q2 2016 unlikely to break ground without a large preleased tenant. All the large blocks of space available come from recently delivered projects. Katy is poised for a quick recovery when the oil begins to rebound due to the NET ABSORPTION small amount of sublease space on the market.

BUILDINGS ON THE MARKET Katy A Katy B The Offices at Greenhouse - 203,149 SF, Class A 250,000 Mason Creek Office Center II - 127,955 SF, Class A 200,000 LARGE BLOCKS OF SPACE BEING MARKETED (15,000 SF+) 150,000 Mason Creek Center II, Floors 1-3, 127,953 SF (new) 100,000 Katy Ranch Crossing I, Floors 2-6, 107,895 SF (new) 50,000 Grandway West II, Floors 1-3, 39,584 SF (new) 0 PROPOSED DEVELOPMENTS -50,000 2013 2014 2015 Q2 2016 Grandway West III, IV, V - 460,200 SF total, Insite Realty & Urban Cos development

RENTAL RATES (FSG) Grand Crossing I & II - 394,465 SF total, Trammell Crow development Katy Ranch Crossing II - 156,330 SF, Freeway Properties development Katy A Katy B $34.00 West Ten Grand Center - 139,000 SF, NewQuest Properties development $32.00 LaCenterra at Cinco Ranch IV - 25,000 SF, Vista Cos & Amstar $30.00 development $28.00 $26.00 $24.00 $22.00

$20.00 2013 2014 2015 Q2 2016