Quarterly Market Report JANUARY 2021

HOUSTON OFFICE | Q4 2020 Quarterly Market Report JANUARY 2021

Supply & Demand EXECUTIVE SUMMARY Net Absorption Completions Vacancy 6 24% Vacancy rate ends 2020 at 23.3% 5 21% Millions (SF) The overall vacancy rate in the Houston office market was up 30 basis points quarter-over- 4 18% quarter, and up 220 basis points year-over-year. 3 15% The vacancy rate for Class A properties is at 25.6%, and Class B at 21.7%. In the fourth quarter, overall 2 12% net absorption totaled negative 671,000 sq. ft.— Class A represented negative 717,000 sq. ft. of 1 9% that tally, while Class B registered 86,000 sq. ft. Of the 4.2 million sq. ft. currently under construction, 0 6% 46.0% of that space has been spoken for. Of the -1 3% 21 properties completed in 2020, totaling 1.5 million sq. ft., 45.7% of that space is leased. The -2 0% Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 overall Houston average asking full-service rent is 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 at $29.91 per sq. ft.—up slightly from one year ago at $29.80 per sq. ft.—while Class A space in the Central Business District is averaging $43.52 Market Indicators per sq. ft. Current Prior Quarter Year Ago Q4 2020 Q3 2020 Q4 2019

Vacant Total 23.3% 23.0% 21.1% Houston economic indicators Vacant Direct 22.1% 21.8% 19.8% According to the Federal Reserve Bank of Dallas, earlier estimates for metro Houston’s pandemic Available Total 28.0% 27.3% 25.4% job losses were at 353,600 jobs from February Available Direct 25.2% 24.9% 22.9% to April 2020. However, revised data released Net Absorption (SF) -670,941 -1,639,286 730,281 in November show a net drop of 366,800 jobs. Leasing Activity (SF) 2,334,871 2,489,797 5,050,551

The bulk of the additional job losses occurred in Construction (SF) 4,233,633 4,121,836 3,772,493 professional and business services, which shed Deliveries (SF) 28,800 656,872 73,000 40,900 jobs versus 27,400 in the earlier estimate. Since April, Houston has added back 147,500 jobs, Avg Asking Rent (Gross) $29.91 $29.35 $29.80 as local employment data indicate improvement in Inventory (SF) 241,262,697 241,233,897 239,794,487 October. While considerable uncertainty remains in the outlook for Houston’s energy jobs, the biggest job losses in the sector are likely in the past.

www.naipartners.com HOUSTON OFFICE | Q4 2020 Quarterly Market Report

MARKET OVERVIEW

Availability Rates Decreased negative net absorption in Q4 2020 Direct Sublease During the fourth quarter, Houston’s office market saw 30% a 60% decrease in the amount of space that tenants 28.0% were moving out of compared to the third quarter of 25% 2020, which tallied an aggregate of negative 1,639,286 sq. ft. of net absorption—the highest quarterly total 20% since NAI Partners began recording this data. The aggregate effect of the total net absorption for the entire 15% year of 2020 was negative 4.2 million sq. ft., raising the overall vacancy rate to 23.3%. The amount of total office 10% inventory that is being marketed for lease also increased quarter-over-quarter, lifting the availability rate to 28.0%. 5% The difference between this figure and the vacancy rate reflects expected future move-outs. Space being 0% marketed for sublease represents 7.2 million sq. ft., or Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 10.4% of the 68.8 million-sq.-ft. total availability figure. The Central Business District vacancy rate is at 27.2%, up 60 basis points from this time last quarter at 26.6%, while the Energy Corridor vacancy rate is at 27.4%, up 60 basis points from 26.8% in Q3 2020. Net Absorption

Direct Sublease Total Office development 3.0 2.5 Office construction is at 4.2 million sq. ft across 20 buildings, with 2.3 million sq. ft. (54.0%) available for Millions (SF) 2.0 lease. The Central Business District, Medical Center 1.5 and Katy Freeway East account for 1.8 million sq. ft., 1.0 or 77.6% of the total space available. Hines’ Texas 0.5 Tower is expected to deliver in Q4 2021 and is 40% 0.0 preleased. Outside of downtown, of the 789,000 sq. ft. underway in the Medical Center submarket, the -0.5 512,000-sq.-ft. Horizon Tower life sciences building is -1.0 being built in Texas A&M Innovation Plaza. Other office -1.5 buildings under construction in the Katy Freeway East -2.0 submarket include Marathon Oil’s 440,000-sq.-ft. future Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 headquarters in CityCentre; and Village Tower II, a 150,000-sq.-ft. office building at 9655 Katy Freeway. The Medical Center market has an overall vacancy rate of 8.9%, while the Katy Freeway East market has a vacancy rate of 12.3% compared to the metro’s overall Construction by Submarket average of 23.3%. Total Under Construction: 4,233,633 SF Pre-Leased Space Available Space

CBD Investment sales trends Medical Center Real Capital Analytics data reports quarterly office sales Katy Freeway volume for Q4 2020 in the Greater Houston area at $344 million. The quarter-over-quarter change in volume is up Woodlands/Conroe close to 40% from $247 million in Q3 2020. The primary Midtown capital composition for buyers in 2020 has been made Galleria/West Loop up of 64.1% private investors and 31.2% institutional. Pearland/South

For sellers, the majority was 36.3% private investors, FM 1960/Hwy 249

31.7% REIT/listed, and 19.4% institutional. Katy/Grand Parkway W

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 Millions (SF) www.naipartners.com 3 HOUSTON OFFICE | Q4 2020 Quarterly Market Report

Houston’s largest life sciences sale NAI Partners arranged the sale of five buildings totaling 260,950 sq. ft. at 8800 Technology Forest Drive, located Cumulative Monthly Sales Volume Houston Office Source: Real Capital Analytics in The Woodlands, TX. The main building on the former Lexicon Pharmaceuticals campus is a 128,400-sq.-ft. Class A office property with laboratory space. Additional 2020 2016 2017 2018 2019 properties on the site include a 1-story flex property 6 with lab and office space, as well as two special-use facilities. This is the single-largest commercial real Billions (SF) 5 estate sales transaction in the Life Sciences sector in 4 the Greater Houston area in 2020. NAI Partners’ Dan

Boyles and Jon Silberman represented the seller, 3 Lexicon Pharmaceuticals. Lexicon will be relocating its corporate headquarters to a new location in The 2 Woodlands. Multiple major life sciences and innovation developments are in the works throughout Houston, 1 including TMC3, which is owned by the Texas Medical 0 Center; Rice University’s The Ion project; Hines and J F M A M J J A S O N D 2ML Real Estate Interests’ Levit Green; and Medistar Corp.’s Innovation Tower, as well as the forthcoming Texas A&M Innovation Plaza development, which will include medical office and lab space within its Horizon Tower. Quarterly Leasing Activity Over 100,000 SF Leasing activity CBD The volume of signed lease transactions during the fourth quarter was 2.3 million sq. ft.—down slightly Galleria/West Loop by about 150,000 sq. ft. from the previous quarter, although down more than 50% from one year ago at 5.1 million sq. ft. The largest leases signed in Q4 2020— Westchase which is comprised of both new leases and renewals— include TC Pipelines renewal/expansion of 320,788 sq. Energy Corridor ft. in TC Energy Center at 700 Louisiana St., and Vroom, an online automobile retailer, leased a new 102,492 sq. Woodlands/Conroe ft. of space at 3600 W. Sam Houston Parkway S. in Westchase Park II. The largest transactions during 2020 Midtown include Occidental renewing 801,967 sq. ft. of space 0 100 200 300 400 500 at 5 Greenway Plaza, and Enterprise Products Partners Thousands (SF) renewing 512,345 sq. ft. in Enterprise Plaza at 1100 Louisiana St. Overall Gross Avg Asking Rent ($PSF)

Average asking rents CBD Midtown The Houston overall full-service average rates are at Greenway Plaza Galleria/West Loop $29.91 per sq. ft., up from last quarter at $29.35, and Katy Freeway Woodlands/Conroe from one year ago at $29.80 per sq. ft. Asking rates Katy/Grand Pkwy W Sugar Land/E Ft Bend for overall Class A space are $35.04 and Class B Pearland/South are $23.12 per sq. ft. Rent growth has varied across Westchase Medical Center Houston’s submarkets. Asking rents in the Midtown West Belt Energy Corridor submarket averaged $37.89 per sq. ft., which is 27% Bellaire North Loop West higher than the metro average as a whole and ranked Kingwood/Humble number two—only behind the CBD—among Houston Gulf Fwy/Pasadena NASA/Clear Lake/SE submarkets as of the end of 2020. FM 1960/Hwy 249 Northeast Greenspoint/North Belt Northwest Southwest $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 www.naipartners.com 4 HOUSTON OFFICE | Q4 2020 Quarterly Market Report

MARKET OVERVIEW Submarket Stats

2020 Q4 2020 Overall Total Total Q4 2020 Net YTD Net Leasing Under Gross Avg Submarket Statistics Total Inventory Vacancy Availability Absorption Absorpiton Activity Construction Asking Rent (Total reflects Class A/B/C) (SF) (%) (%) (SF) (SF) (SF) (SF) ($/PSF)

Houston Market Total 241,262,697 23.3 28.0 -670,941 -4,157,107 2,334,871 4,233,633 29.91

Class A 130,982,061 25.6 31.6 -717,20 3 -2,404,896 1,310,846 3,408,375 35.04

Class B 9 6,317,767 21.7 25.2 86,274 -1,380,831 938,809 825,258 23.12

2020 Q4 2020 Overall Total Total Total Q4 2020 Net YTD Net Leasing Under Gross Avg Submarket Statistics Inventory Vacancy Availability Absorption Absorpiton Activity Construction Asking Rent (Total reflects Class A/B/C) (SF) (%) (%) (SF) (SF) (SF) (SF) ($/PSF)

CBD Total 39,841,491 27.2 32.3 -226,004 -803,266 469,289 1,251,856 41.05

Class A 31,700,199 27.6 33.0 -120,163 -582,732 379,234 1,251,856 43.52

Class B 7,427,9 52 26.9 31.7 -105,841 -242,125 90,055 0 30.59

Bellaire Total 4,581,562 11.6 23.8 263,395 232,632 14,095 0 26.08

Class A 1,655,252 13.8 20.5 -22,892 -52,759 1,376 0 28.94

Class B 2,6 07,8 02 8.5 25.7 284,925 339,197 11,357 0 25.91

Energy Corridor Total 23,139,970 27.4 33.5 -127,581 -302,071 247,547 0 26.56

Class A 14,528,857 26.7 33.8 -127,616 -115,921 71,151 0 32.01

Class B 8,279,607 29.1 33.7 -5,336 -182,023 170,920 0 21.03

FM 1960/Hwy 249 Total 11,121,502 24.6 31.2 -1,341 -90,544 91,580 48,000 21.22

Class A 3,248,588 20.0 35.3 19,510 -3,154 14,776 0 27.9 0

Class B 6,747,421 27.5 30.6 -19,179 12,336 76,310 48,000 19.07

Galleria/West Loop Total 29,150,341 23.9 30.3 -211,145 -1,054,617 371,392 162,839 35.01

Class A 20,495,228 25.6 33.3 -182,464 -888,748 239,840 162,839 37.92

Class B 8,605,113 19.8 23.1 -28,681 -165,998 130,464 0 25.68

Greenspoint/North Belt Total 11,705,263 48.2 50.8 -34,240 168,188 92,639 0 18.52

Class A 5,127,0 56 67.0 68.7 1,450 -32,472 37,0 6 6 0 20.51

Class B 5,355,189 37.6 41.4 -22,697 236,349 49,058 0 15.65

Greenway Plaza Total 10,759,068 21.1 24.4 -249,323 -328,511 69,424 0 35.40

Class A 6,829,744 24.0 27.6 -229,732 -210,149 20,426 0 37.56

Class B 3,492,149 16.9 19.6 -22,847 -116,200 30,284 0 30.61

Gulf Fwy/Pasadena Total 3,717,838 19.4 18.0 5,533 25,786 24,219 0 22.30

Class A 105,782 1.2 1.2 0 0 0 0 32.03

Class B 2,954,381 21.2 21.4 2,277 26,118 24,219 0 21.36

Katy Freeway Total 10,217,015 12.3 18.3 -24,656 -73,683 58,710 780,000 33.92

Class A 6,3 07,0 57 13.5 19.2 -29,772 -1,321 47,3 0 3 780,000 40.33

Class B 2,618,326 11.4 19.6 6,120 -14,554 5,172 0 21.90

Katy/Grand Pkwy W Total 3,562,991 19.0 24.1 19,661 28,500 10,384 20,758 30.84

Class A 2,202,109 27.7 33.2 28,631 36,429 9,274 0 31.47

Class B 1,211,620 5.5 10.6 -8,970 -7,929 1,110 20,758 26.33

Kingwood/Humble Total 1,422,573 13.3 18.5 2,070 -7,742 19,711 0 24.52

Class A 258,342 21.7 22.2 0 14,100 0 0 28.15

Class B 1,081,364 11.8 18.6 3,301 -21,010 19,711 0 24.00 www.naipartners.com 5 HOUSTON OFFICE | Q4 2020 Quarterly Market Report

Medical Center Total 9,334,758 8.9 16.6 -21,458 -182,793 44,215 788,780 26.72

Class A 3,376,141 10.7 27.0 7,412 -170,958 18,464 672,280 30.83

Class B 4,856,349 6.9 8.7 -27,231 30,249 25,751 116,500 24.70

Midtown Total 6,134,260 16.6 22.5 -30,841 -194,092 123,603 493,400 37.89

Class A 2,284,367 16.1 24.9 -7,76 4 8,404 97,414 493,400 40.32

Class B 3,228,976 16.4 20.8 -11,073 -195,782 21,234 0 36.11

NASA/Clear Lake/SE Total 7,616,259 16.0 18.6 -11,404 48,488 45,627 0 21.50

Class A 2,224,352 15.6 20.7 -1,905 22,908 0 0 26.04

Class B 4,756,609 16.7 18.5 8,365 38,527 42,122 0 19.46

North Loop West Total 4,634,692 20.7 23.1 17,347 87,586 70,525 0 24.59

Class A 1,428,893 30.0 33.7 25,528 94,812 32,966 0 27.74

Class B 2,717,9 52 16.7 18.7 -8,686 12,403 33,547 0 22.31

Northeast Total 2,379,242 12.4 13.0 6,061 -60,731 12,086 0 19.40

Class A 184,834 14.1 17.9 -1,334 2,555 0 0 26.03

Class B 1,438,847 13.8 12.5 9,327 -60,292 11,498 0 21.09

Northwest Total 4,054,093 19.2 19.7 -4,422 54,218 23,089 0 17.21

Class A 797,877 30.0 35.6 0 36,785 4,216 0 19.48

Class B 2,408,229 20.2 18.1 -4,422 2,881 18,873 0 16.22

Pearland/South Total 1,783,407 12.6 13.1 -2,950 -21,696 15,634 48,000 28.95

Class A 672,270 3.7 5.3 -2,020 2,544 0 48,000 29.42

Class B 860,530 19.3 21.1 -930 -13,313 970 0 28.99

Southwest Total 11,788,915 20.3 23.0 -6,627 -24,515 67,926 0 17.21

Class A 1,586,913 27.0 27.5 1,497 51,695 1,300 0 17.6 5

Class B 8,080,814 21.9 25.6 677 -32,684 55,996 0 17.61

Sugar Land/E Ft Bend 6,823,307 15.4 20.9 -68,940 -167,424 40,359 0 30.48

Class A 3,870,419 14.3 21.7 -85,048 -103,418 24,531 0 35.35

Class B 2,870,518 17.1 20.0 16,108 -63,546 15,828 0 24.25

West Belt Total 5,379,385 28.1 31.9 14,391 -400,198 27,162 0 26.60

Class A 3,511,386 28.5 33.9 -20,309 -265,206 24,139 0 27.51

Class B 1,755,370 29.2 28.6 34,700 -134,992 3,023 0 24.54

Westchase Total 15,537,109 29.2 32.6 -51,130 -341,164 266,811 0 28.02

Class A 8,553,507 30.0 33.0 -55,560 -59,877 227,8 47 0 34.88

Class B 6,806,692 28.9 32.7 -2,548 -281,092 31,986 0 21.68

Woodlands/Conroe Total 16,577,656 19.5 23.0 72,663 -749,458 128,844 640,000 31.53

Class A 10,032,888 18.6 23.4 85,348 -188,413 59,523 0 33.13

Class B 6,155,957 21.1 22.6 -11,085 - 547,351 69,321 640,000 30.64

Suburban Total 201,421,206 22.5 27.1 -444,937 -3,353,841 1,865,582 2,981,777 27.27

Class A 99,281,862 25.0 31.1 - 597,0 40 -1,822,164 931,612 2,156,519 31.95

Class B 88,889,815 21.3 24.6 192,115 -1,138,706 848,754 825,258 22.36

www.naipartners.com 6 HOUSTON OFFICE | Q4 2020 Quarterly Market Report

MARKET OVERVIEW Houston Office Submarkets

1. CBD 2. Bellaire 3. Energy Corridor 4. FM 1960/ Hwy 249 5. Galleria/West Loop 6. Greenspoint/North Belt 7. Greenway Plaza 8. Gulf Fwy/Pasadena 99 9. Katy Freeway

99 10. Katy/Grand Pkwy W

6 59 11. Kingwood/Humble 12. Medical Center 6

99 13. Midtown 290 90 14. NASA/Clear Lake/SE 90

59 290 90 15. North Loop West 10 10 16. Northeast 10 Sam Houston Tollway

Westheimer 99 17. N o r thwe s t

West Park Houston Tollway 225 18. Pearland/South

45 19. Southwest F 288

59 o r

90 B e 20. Sugar Land/E Ft Bend n

a y 21. West Belt 22. Westchase 23. Woodlands/Conroe

Information and data within this report were obtained from sources deemed to be reliable. No warranty or representation is made to guarantee its accuracy. www.naipartners.com 7 HOUSTON OFFICE | Q4 2020 Quarterly Market Report JANUARY 2021

NAI Partners Houston Office 1360 Post Oak Blvd., Suite 1900 Houston, TX 77056 Leta Wauson Director of Research tel 713 629 0500 [email protected] www.naipartners.com tel 713 275 9618