Research & Forecast Report HOUSTON | OFFICE Q3 2019

Houston’s office market continues to see expansion in the co-working niche

Lisa Bridges Director of Market Research | Houston

Commentary by Taylor Wright Market Indicators Annual Quarterly Quarterly “Co-working” and, more specifically, WeWork continue to dominate Relative to prior period Change Change Forecast* the CRE news cycle. With billion-dollar annual losses, the recent withdrawal of their initial stock offering, the removal of the founder VACANCY as CEO and seemingly a different executive vacating every day, NET ABSORPTION both your average newsreader and our commercial real estate colleagues are questioning the viability of WeWork specifically and NEW INVENTORY co-working in general. After meeting with different well-known UNDER CONSTRUCTION flex space operators and talking to landlord’s who lease space to various co-working companies (not necessarily WeWork), our *Projected view is a little more positive. The concept of co-working is nothing new, but the way people and companies today are viewing their workspace occupancy has definitely changed.

The total co-working footprint is miniscule in Houston’s overall office occupancy (an estimated 1.3 million square feet out of 230.7 million total square feet). We believe co-working has a place in occupancy solutions, albeit a relatively small one. Summary Statistics Houston Office Market Q3 2018 Q2 2019 Q3 2019

When discussing flex space operators with landlords, we hear Vacancy Rate 19.8% 19.9% 20.2% that they serve as a valuable building amenity. For example, in the instances where tenants face a time crunch between vacating Net Absorption 845,983 -919,041 -135,127 their previous space and when a new space will be ready, co- working space can serve as an effective stop-gap solution. When a New Inventory 52,562 1,143,267 264,433 company has to staff up quickly for a short-term project, but does not want to commit to long term space, co-working can meet those Under Construction 3,485,669 2,397,805 2,619,230 requirements. Co-working space is also an effective solution for employees who cannot justify a commute to the corporate office Class A Vacancy Rate 5 days a week. These are just three examples of how co-working CBD 22.1% 19.6% 19.4% space may be utilized. The concern and focus on WeWork may be Suburban 19.3% 21.4% 20.9% more of financial viability versus the core underlying offering. In a Asking Rents booming economy, this niche should be enjoying financial success. Per Square Foot Per Year The concern has historically been what happens to these operators in a downturn where “flex” space is the first to go. Every co- Houston Class A $35.74 $35.36 $35.07 working operator has filed bankruptcy at some point in their history. CBD Class A $46.04 $46.01 $45.64 WeWork made a huge splash entering the world market; let’s hope Suburban Class A $31.50 $31.99 $31.83 that after the splash – they float.

With regards to the more traditional office market in Houston, we

Share or view online at colliers.com/houston see leasing activity concentrated in “pockets.” The Central Business District Job Growth & Unemployment reported minor positive absorption again in Q3, with 18,544 square feet absorbed. (not seasonally adjusted) Q2 recorded a much healthier 229,836 square feet absorbed Downtown. UNEMPLOYMENT Suburban Office (everything outside of Downtown) posted negative absorption 8/18 8/19 for the second straight quarter with -153,671 square feet following Q2’s negative HOUSTON 4.4% 3.9% absorption of -1,148,877 square feet. The citywide vacancy has increased slightly to 20.2%, as opposed to 19.9% in Q2. Asking rental rates for all classes has TEXAS 4.0% 3.6% remained relatively unchanged. Landlords continue to offer attractive tenant U.S. 3.9% 3.8% improvement allowances and other concessions to maintain face rates.

The strategy that most of the Class A landlords have embraced is to upgrade Annual # of Jobs JOB GROWTH Change Added the older Class A product in order to slow the “flight to quality” that has tenants embracing new construction and moving to the newer assets. This massive HOUSTON 2.7% 81.9K capital investment should result in better occupancy, but we believe that there will TEXAS 2.3% 292.2K be very little upward pressure on lease rates in most submarkets. The Woodlands and Sugar Land are the outliers in terms of market occupancy with vacancy U.S. 1.4% 2.1M rates in the low teens. Tenants in those markets will see slightly less aggressive positions from the landlord community, but in all markets, the tenant has the near- term leverage. CBD vs. Suburban Of the 1,672 existing office buildings in our survey, 80 buildings have 100,000 SF or more contiguous space available for lease or sublease. Citywide, 6.8 million SF CLASS A OFFICE VACANCY 25.0% HISTORICAL AVAILABLE SUBLEASE SPACE

12,000,000 20.0%

10,000,000

8,000,000 15.0%

6,000,000

4,000,000 10.0%

2,000,000

0 5.0% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019

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 Greenway Plaza Oxy Greenway Plaza 746,070 $50.00 Energy Tower II KTI Corporation (Technip) Katy Freeway 297,919 $45.00 Hess Tower Hess Corporation CBD 215,887 $40.00 Four WestLake Park BP Katy Freeway 212,626 $35.00

Noble Energy Center II Noble Energy FM 1960 204,480 $30.00

1500 Post Oak Blvd BHP Billiton Petroleum West Loop 204,417 $25.00

Twelve Greenway Plaza CPL Energy Greenway Plaza 201,554 $20.00

GreenStreet Tower Reliant Energy Retail CBD 194,768 $15.00

1100 Louisiana Enbridge CBD 179,694 $10.00

One Shell Plaza Shell Oil CBD 167,211 $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 | Q3 2019 | Office | Colliers International of sublease space is listed and 3.6 million SF of the space is vacant. The largest available sublease space currently occupied by Occidental Petroleum Corporation may be withdrawn soon as their previous plans to relocate to the Energy Corridor have changed according to a statement by CFO Cedric Burgher. 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.

Absorption & Demand

Houston’s office market posted negative net absorption of 135,127 SF in the third quarter, a huge improvement from the 919,041 SF of negative net absorption posted in the second quarter. Year-to-date net absorption stands at negative 549,519 SF. Suburban Class A space recorded the largest loss, posting 213,110 SF of negative net absorption, while CBD Class A space reported the largest gain posting 76,454 SF of positive net absorption. The majority of negative absorption was caused by Southwestern Energy placing the South Tower of it’s corporate offices located in Springwoods Village in The Woodlands submarket on the market. Looking forward, our forecast shows positive absorption in the fourth quarter as tenants take possession of spaces leased earlier in the year.

Rental Rates

Houston’s average asking rental rate decreased over the quarter from $29.64 per SF to $29.55 per SF. The average asking rental rate for Class A space decreased over the quarter from $35.36 per SF to $35.07 per SF, and the average CBD Class A rental rate fell from $46.01 to $45.64 per SF. The Suburban average asking rental rate for Class A dropped from $31.99 to $31.83 per SF.

Leasing Activity

Houston’s office leasing activity decreased over the quarter from 4.2M SF to 3.3M 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 listed in the table below.

Q3 2019 Select Office Lease Transactions BUILDING NAME/ADDRESS SUBMARKET SF TENANT LEASE DATE Energy Center I Katy Freeway 156,828 Kiewitt Engineering1 Jul-19 BHP Billiton Tower West Loop/Galleria 109,667 Engie1 Jul-19 4800 Fournace Place Bellaire 100,812 Houston Methodist Hospital1,3 Aug-19 BHP Petroleum West Loop/Galleria 68,139 Sumitomo Corp2 Aug-19 910 Louisiana CBD 32,000 Ontellus2 Aug-19

1New/Direct 2Sublease 3Colliers International Transaction

Sales Activity

Houston’s office investment sales volume decreased over the quarter from $730.9M in Q2 2019 to $274.1M in Q3 2019. The average sales price per square foot trended up from $147 to $162 per SF over the quarter. Houston’s average cap rate of 7.8% lags the average U.S. cap rate of 6.7%.

AVERAGE OFFICE SALES PRICE PER SF AVERAGE OFFICE CAP RATE

United States Houston United States Houston $350 8.5% $300 8.0% $250 7.5%

$200 7.0%

$150 6.5%

$100 6.0%

$50 5.5%

$0 5.0%

Sources: CoStar and Real Capital Analytics

3 Houston Research & Forecast Report | Q3 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) Q3-2019 Q2-2019 Q3-2019 Q2-2019 BLDGS. (%) (%) (SF) ($/SF) CBD A 36 33,862,459 5,792,269 17.1% 783,432 2.3% 6,575,701 19.4% 19.6% 76,454 305,322 $45.64 B 30 8,541,395 2,881,796 33.7% 108,297 1.3% 2,990,093 35.0% 34.3% -57,910 -75,486 $30.95 C 10 684,903 76,500 11.2% 0 0.0% 76,500 11.2% 11.2% 0 0 $17.61 Total 76 43,088,757 8,750,565 20.3% 891,729 2.1% 9,642,294 22.4% 22.4% 18,544 229,836 $40.56 SUBURBAN A 399 98,124,892 18,949,694 19.3% 2,009,645 2.0% 20,959,339 21.4% 20.9% -213,110 -33,362 $31.83 B 921 76,451,207 13,825,442 18.1% 428,903 0.6% 14,254,345 18.6% 18.6% 22,576 -832,467 $20.48 C 276 13,025,557 1,604,593 12.3% 24,625 0.2% 1,629,218 12.5% 11.7% 36,863 -283,048 $20.68 Total 1596 187,601,656 34,379,729 18.3% 2,463,173 1.3% 36,842,902 19.6% 19.4% -153,671 -1,148,877 $26.75 OVERALL A 435 131,987,351 24,741,963 18.7% 2,793,077 2.1% 27,535,040 20.9% 20.6% -136,656 271,960 $35.07 B 951 84,992,602 16,707,238 19.7% 537,200 0.6% 17,244,438 20.3% 20.2% -35,334 -907,953 $22.29 C 286 13,710,460 1,681,093 12.3% 24,625 0.2% 1,705,718 12.4% 11.7% 36,863 -283,048 $20.54 Total 1672 230,690,413 43,130,294 18.7% 3,354,902 1.5% 46,485,196 20.2% 19.9% -135,127 -919,041 $29.55

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) Q3-2019 Q2-2019 Q3-2019 Q2-2019 BLDGS. (%) (%) (SF) ($/SF) ALLEN PARKWAY (MIDTOWN) A 9 2,319,982 363,595 15.7% 2,459 0.1% 366,054 15.8% 15.7% 28,042 20,389 $34.13 B 34 2,694,497 319,453 11.9% 20,254 0.8% 339,707 12.6% 14.0% 38,081 -50,054 $26.26 C 12 385,055 102,953 26.7% 0 0.0% 102,953 26.7% 27.5% 2,981 -11,000 $29.54 Total 55 5,399,534 786,001 14.6% 22,713 0.4% 808,714 15.0% 12.8% 69,104 -40,665 $30.33 BAYTOWN B 2 114,474 11,668 10.2% 0 0.0% 11,668 10.2% 6.0% -4,827 -980 $21.45 C 2 41,208 10,513 25.5% 0 0.0% 10,513 25.5% 25.5% 0 0 - Total 4 155,682 22,181 14.2% 0 0.0% 22,181 14.2% 4.1% -4,827 -980 $21.45 BELLAIRE A 6 1,173,781 114,154 9.7% 38,889 3.3% 153,043 13.0% 10.2% -33,826 9,733 $29.09 B 15 1,712,113 61,989 3.6% 0 0.0% 61,989 3.6% 4.1% 7,451 17,156 $23.16 C 5 283,569 28,304 10.0% 0 0.0% 28,304 10.0% 10.0% -72 -480 $18.09 Total 26 3,169,463 204,447 6.5% 38,889 1.2% 243,336 7.7% 8.4% -26,447 26,409 $25.77 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 9 364,423 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 $18.00 C 6 247,634 5,295 2.1% 0 0.0% 5,295 2.1% 2.5% 840 2,407 $21.60 Total 17 719,218 33,744 4.7% 0 0.0% 33,744 4.7% 1.8% 840 2,407 $23.23 E. FORT BEND CO SUGAR LAND A 17 3,404,208 308,286 9.1% 59,091 1.7% 367,377 10.8% 11.6% 26,598 -96,568 $31.47 B 36 2,123,524 293,783 13.8% 17,157 0.8% 310,940 14.6% 14.3% -7,081 18,989 $24.87 C 3 69,411 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 - Total 56 5,597,143 602,069 10.8% 76,248 1.4% 678,317 12.1% 10.3% 19,517 -77,579 $28.25

4 Houston Research & Forecast Report | Q3 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) Q3-2019 Q2-2019 Q3-2019 Q2-2019 BLDGS. (SF) (%) (%) (SF) ($/SF) FM 1960 A 14 3,086,896 534,130 17.3% 34,889 1.1% 569,019 18.4% 11.4% -79,581 12,107 $27.73 B 69 4,422,927 1,118,466 25.3% 38,653 0.9% 1,157,119 26.2% 26.6% 19,272 -386,079 $17.04 C 31 2,413,518 711,680 29.5% 0 0.0% 711,680 29.5% 25.0% 8,760 -271,868 $23.04 Total 114 9,923,341 2,364,276 23.8% 73,542 0.7% 2,437,818 24.6% 16.8% -51,549 -645,840 $21.26 GREENWAY PLAZA A 19 6,684,126 1,049,993 15.7% 65,711 1.0% 1,115,704 16.7% 17.5% 55,127 -1,869 $36.97 B 31 3,163,146 325,529 10.3% 19,734 0.6% 345,263 10.9% 11.1% 6,005 -30,191 $28.16 C 11 376,606 38,217 10.1% 0 0.0% 38,217 10.1% 10.1% -205 -1,877 $22.90 Total 61 10,223,878 1,413,739 13.8% 85,445 0.8% 1,499,184 14.7% 17.5% 60,927 -33,937 $34.56 GULF FREEWAY PASADENA A 2 105,782 1,295 1.2% 0 0.0% 1,295 1.2% 1.2% 0 -1,295 $33.09 B 41 2,307,853 216,527 9.4% 2,233 0.1% 218,760 9.5% 9.1% -8,226 9,710 $21.40 C 22 789,888 129,570 16.4% 0 0.0% 129,570 16.4% 15.3% -8,700 1,100 $25.37 Total 65 3,203,523 347,392 10.8% 2,233 0.1% 349,625 10.9% 14.6% -16,926 9,515 $21.21 I-10 EAST B 6 427,851 61,257 14.3% 0 0.0% 61,257 14.3% 12.2% -8,978 -1,197 $18.22 C 4 150,124 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 - Total 10 577,975 61,257 10.6% 0 0.0% 61,257 10.6% 16.3% -8,978 -1,197 $18.22 KATY FREEWAY A 85 21,952,773 4,048,794 18.4% 870,282 4.0% 4,919,076 22.4% 23.6% 255,984 -158,157 $36.68 B 106 9,770,747 2,418,167 24.7% 36,981 0.4% 2,455,148 25.1% 25.5% 40,553 -206,894 $22.68 C 28 1,242,343 52,255 4.2% 1,654 0.1% 53,909 4.3% 6.1% 22,244 12,793 $20.14 Total 219 32,965,863 6,519,216 19.8% 908,917 2.8% 7,428,133 22.5% 22.0% 318,781 -352,258 $31.35 KATY GRAND PARKWAY A 16 1,542,980 218,087 14.1% 2,539 0.2% 220,626 14.3% 11.3% -45,653 -634 $28.88 B 16 1,036,076 7,228 0.7% 0 0.0% 7,228 0.7% 0.6% -1,262 4,304 $26.43 C 2 149,262 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 - Total 34 2,728,318 225,315 8.3% 2,539 0.1% 227,854 8.4% 10.1% -46,915 3,670 $28.80 KINGWOOD HUMBLE B 16 1,235,229 72,457 5.9% 0 0.0% 72,457 5.9% 5.0% -10,588 11,384 $22.81 C 5 153,601 3,393 2.2% 0 0.0% 3,393 2.2% 2.1% -142 -3,011 $33.68 Total 21 1,388,830 75,850 5.5% 0 0.0% 75,850 5.5% 6.2% -10,730 8,373 $23.30 NASA CLEAR LAKE A 12 1,773,539 201,672 11.4% 0 0.0% 201,672 11.4% 9.8% -28,681 -13,936 $25.79 B 45 3,026,139 678,881 22.4% 2,365 0.1% 681,246 22.5% 23.5% 29,504 24,781 $20.20 C 16 534,498 63,668 11.9% 0 0.0% 63,668 11.9% 11.5% -2,192 933 $16.57 Total 73 5,334,176 944,221 17.7% 2,365 0.0% 946,586 17.7% 22.9% -1,369 11,778 $21.15 NORTH BELT GREENSPOINT A 25 5,514,168 3,327,181 60.3% 14,890 0.3% 3,342,071 60.6% 61.1% 27,389 -69,033 $21.36 B 53 5,523,042 1,743,964 31.6% 1,327 0.0% 1,745,291 31.6% 32.1% 27,620 -20,118 $15.38 C 22 1,379,034 187,530 13.6% 0 0.0% 187,530 13.6% 14.2% 8,563 -23,569 $12.28 Total 100 12,416,244 5,258,675 42.4% 16,217 0.1% 5,274,892 42.5% 44.3% 63,572 -112,720 $19.05 NORTHEAST NEAR AND OUTLIER A 3 642,223 14,025 2.2% 6355 1.0% 20,380 3.2% 3.2% 0 7,677 - B 4 183,158 18,593 10.2% 4,000 2.2% 22,593 12.3% 9.5% -5,136 -1,075 $22.05 C 2 56,562 15,950 28.2% 0 0.0% 15,950 28.2% 25.5% -1,552 2,380 $15.00 Total 9 881,943 48,568 5.5% 10,355 1.2% 58,923 6.7% 6.3% -6,688 8,982 $13.37

5 Houston Research & Forecast Report | Q3 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) Q3-2019 Q2-2019 Q3-2019 Q2-2019 BLDGS. (SF) (%) (%) (SF) ($/SF) NORTHWEST AND NORTHWEST OUTLIER A 9 1,985,781 750,930 37.8% 1,203 0.1% 752,133 37.9% 40.1% 45,017 -17,579 $24.48 B 74 5,632,104 1,021,963 18.1% 0 0.0% 1,021,963 18.1% 18.0% -7,183 -27,453 $19.11 C 33 1,656,677 76,521 4.6% 0 0.0% 76,521 4.6% 5.1% 7,780 -16,633 $15.25 Total 116 9,274,562 1,849,414 19.9% 1,203 0.0% 1,850,617 20.0% 20.0% 45,614 -61,665 $21.13 RICHMOND FOUNTAINVIEW B 13 773,830 120,037 15.5% 0 0.0% 120,037 15.5% 14.7% -6,492 -20,686 $17.06 C 10 392,300 9,224 2.4% 0 0.0% 9,224 2.4% 1.1% -5,060 18,755 $17.61 Total 23 1,166,130 129,261 11.1% 0 0.0% 129,261 11.1% 12.7% -11,552 -1,931 $17.10 SAN FELIPE VOSS A 3 1,720,793 396,382 23.0% 0 0.0% 396,382 23.0% 23.3% 4,028 475 $36.73 B 33 3,389,485 631,320 18.6% 33,453 1.0% 664,773 19.6% 20.1% 15,604 -47,143 $25.18 Total 36 5,110,278 1,027,702 20.1% 33,453 0.7% 1,061,155 20.8% 22.0% 19,632 -46,668 $29.63 SOUTH B 11 331,493 29,534 8.9% 0 0.0% 29,534 8.9% 8.1% 19,490 4,618 $27.12 C 4 165,387 23,550 14.2% 0 0.0% 23,550 14.2% 14.2% 0 0 $28.16 Total 15 496,880 53,084 10.7% 0 0.0% 53,084 10.7% 8.0% 19,490 4,618 $27.26 SOUTH MAIN MEDICAL CENTER B 10 786,887 151,380 19.2% 1,500 0.2% 152,880 19.4% 18.1% -10,166 -19,270 $20.38 C 7 364,008 46,782 12.9% 0 0.0% 46,782 12.9% 12.9% 281 8,961 $19.68 Total 17 1,150,895 198,162 17.2% 1,500 0.1% 199,662 17.3% 9.7% -9,885 -10,309 $16.65 SOUTHEAST B 14 1,142,804 29,799 2.6% 0 0.0% 29,799 2.6% 0.5% -23,785 -1,133 $19.91 C 1 22,220 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 $0.00 Total 15 1,165,024 29,799 2.6% 0 0.0% 29,799 2.6% 8.1% -23,785 -1,133 $15.91 SOUTHWEST A 6 1,586,913 494,445 31.2% 0 0.0% 494,445 31.2% 28.0% -50,366 6,309 $17.35 B 62 6,053,095 1,332,951 22.0% 59,748 1.0% 1,392,699 23.0% 22.8% -13,425 -11,020 $15.95 C 29 1,415,536 69,723 4.9% 2,971 0.2% 72,694 5.1% 5.4% 4,105 -2,332 $12.68 Total 97 9,055,544 1,897,119 20.9% 62,719 0.7% 1,959,838 21.6% 19.3% -59,686 -7,043 $16.19 SOUTHWEST FAR AND OUTLIER A 2 158,720 19,737 12.4% 0 0.0% 19,737 12.4% 12.4% 0 0 $0.00 B 11 849,340 209,564 24.7% 0 0.0% 209,564 24.7% 24.7% 0 -814 $0.00 C 3 91,661 7,000 7.6% 0 0.0% 7,000 7.6% 7.6% 0 0 $0.00 Total 16 1,099,721 236,301 21.5% 0 0.0% 236,301 21.5% 22.9% 0 -814 $26.23 THE WOODLANDS A 57 13,164,376 1,094,444 8.3% 121,508 0.9% 1,215,952 9.2% 7.1% -235,863 90,598 $37.10 B 63 4,292,601 424,375 9.9% 39,183 0.9% 463,558 10.8% 9.6% -49,557 19,901 $28.52 C 6 169,558 500 0.3% 0 0.0% 500 0.3% 0.3% 0 -500 $18.61 Total 126 17,626,535 1,519,319 8.6% 160,691 0.9% 1,680,010 9.5% 9.2% -285,420 109,999 $34.70 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 | Q3 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) Q3-2019 Q2-2019 Q3-2019 Q2-2019 BLDGS. (SF) (%) (%) (SF) ($/SF) WEST LOOP A 51 18,186,304 3,364,429 18.5% 318,678 1.8% 3,683,107 20.3% 19.0% -221,718 83,668 $37.90 B 49 5,472,044 695,912 12.7% 57,613 1.1% 753,525 13.8% 13.2% -32,332 -169,750 $26.54 C 4 216,268 13,163 6.1% 0 0.0% 13,163 6.1% 5.1% -2,159 893 $19.50 Total 104 23,874,616 4,073,504 17.1% 376,291 1.6% 4,449,795 18.6% 18.9% -256,209 -85,189 $35.90 WESTCHASE A 32 9,277,659 1,965,285 21.2% 416,954 4.5% 2,382,239 25.7% 26.2% 50,458 38,558 $32.91 B 62 7,600,151 1,522,356 20.0% 18,748 0.2% 1,541,104 20.3% 20.2% -7,956 23,759 $22.05 C 4 147,000 8,802 6.0% 0 0.0% 8,802 6.0% 6.9% 1,391 0 $15.00 Total 98 17,024,810 3,496,443 20.5% 435,702 2.6% 3,932,145 23.1% 19.8% 43,893 62,317 $28.65

Office Development Pipeline

2.6 million SF of office space is under construction and approximately 40.4% is pre-leased. 2.1 million SF is spec development of which 23.1% is pre-leased. Below is a summary of the office buildings under construction with a GBA of 100,000 SF or greater.

PRE- EST. BUILDING NAME ADDRESS SUBMARKET SF DEVELOPER/CONTRACTOR LEASED DELIVERY Texas Tower 845 Texas Ave CBD 1,123,699 34.5% Hines Securities, Inc. Oct-21 Insperity Campus Building 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 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 Katy Ranch Phase II 24279 Katy Fwy Katy/Grand Pkwy West 150,900 0% Freeway Properties Aug-20 Village Plaza I 9655 Katy Freeway Katy Freeway 150,000 7.3% Moody National Companies Jul-20 Post Houston 401 Franklin St CBD 150,000 19.3% Lovett Commercial Aug-20 Research Forest Lakeside 9 9709 Lakeside Blvd The Woodlands 134,938 0% Warmack Investments Aug-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 AUGUST 2019 65 65 AUGUST 2019 AVAILABLE* SUBLEASE* AVAILABLE* SUBLEASE* 60 60

55 55

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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 15 33 31 15 15 27 13 10 10 29 5 5 28

1 2 3 4 PENNZOIL 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 ONE SHELL PLAZA 609 MAIN at TEXAS 811 MAIN STREET 2 HOUSTON CENTER 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 1400 Smith Street 1415 Louisiana Street 1600 Smith Street 1500 Louisiana Street RBA / AVG FLOOR / # OF FLOORS 697,195 / 21,127 / 33 1,656,529 / 22,575 / 75 1,268,480 / 25,000 / 56 694,021 / 20,523 / 36 666,762 / 20,000 / 34 588,423 / 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 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 53.5% 85.3% 75.8% 65.5% 74.7% 59.9% 88.8% 92.6% 100% 74.9% 90.7% 71.2% 67.5% % LEASED 100% 100% 75.8% 100% 48.6% 52.9% 100% TOTAL AVAILABLE SF 315,532 569,106 318,420 232,193 306,546 232,739 364,830 81,961 80,006 275,527 193,009 439,475 198,806 TOTAL AVAILABLE SF 215,887 194,768 131,334 0 281,910 517,327 0 MAX CONTIGUOUS SF 273,174 192,461 83,381 142,954 207,758 114,504 125,887 28,337 80,006 70,144 94,080 75,376 124,756 MAX CONTIGUOUS SF 215,887 194,768 67,544 0 119,708 351,741 0 QUOTED RATE** $45.75 $43.40 $45.81 $44.95 $44.95 $41.38 $45.24 $52.00 $51.91 $43.93 $45.20 $44.32 $50.00 QUOTED RATE** N/A N/A $38.63 N/A $32.11 $37.44 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 Group, Inc. Brook˜eld Ošce Properties, Inc. ChevronTexaco Corp. Holdings Inc. Holdings Inc. Management Inc. Management Inc. Management Inc. Lionstone Investments 75

70

65

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50 Cass Renta Rate an aan erentae aabe Dret Sae Available Direct Space Available Sublease Space Q2 2019 aabe0 Subease Sae Q2 2019 Centra Busness Dstrt ustn Centra Busness Dstrt Centra Busness Dstrt 45 CBD Cass Rents CBD Cass aan Class A: 8,240,382 SF or 24.2% Class A: 1,330,515 SF or 3.9% $4.00 22.0 Class B: 3,073,073 SF or 32.6% Class B: 198,885 SF or 2.1% $4.00 Cass Cass B Cass Cass B 40 20.0 2,500,000 $44.00 9,000,000 $42.00 1.0 $40.00 8,000,000 35 2,000,000 $3.00 1.0 7,000,000 393,634 SF $3.00 14.0 6,000,000 $34.00 30 1,500,000 Available $32.00 12.0 5,000,000 $30.00 4,000,000 Nov 2021 10.0 25 $2.00 1,000,000 3,000,000 $2.00 .0 $24.00 2,000,000 20 $22.00 .0 500,000 1,000,000 0 15 0

aan erentae nues ret an subease sae. 10 187,693 SF 5 Available Jan 2021

14 15 16 17 18 19 20 21 22 23 24 25 26 BUILDING NAME 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 TOTAL PLAZA 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 95.1% 77.3% 95.7% 80.2% 100% 76.6% 100% 99.7% 100% 84.7% 97.7% 92.1% 91.7% TOTAL AVAILABLE SF 629,424 424,260 0 204,952 124,600 491,257 29,295 330,604 0 192,701 28,426 308,606 454,401 *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 29,295 300,947 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** $44.97 $30.61 N/A $52.06 N/A $49.65 $52.76 $42.36 N/A $46.51 $43.80 $46.74 $45.62 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 Kinder Morgan, Inc. 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 | Q3 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) 609 Main at Texas 609 Main St CBD 1,057,237 2017 94.4% 68,243 $56.00 Hins Securities, Inc. 1000 Main 1000 Main St CBD 837,161 2003 80.2% 204,952 $51.72 HRO International, Ltd. Kirby Grove 2925 Richmond Ave Greenway Plaza 248,275 2015 96.2% 72,782 $47.33 Midway Companies 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 98.9% 11,450 $45.59 Moody Rambin Blvd Place 1800 Post Oak Blvd West Loop/Galleria 70,131 2009 93.9% 9,479 $45.55 Wulfe & Co BBVA Plaza 2200 Post Oak Blvd West Loop/Galleria 326,200 2013 94.4% 58,497 $50.84 Corporacion Masaveu S. A. Lockton Place 3657 Briarpark Dr Westchase 186,000 2017 92.8% 31,311 $41.00 Triten Corporation Hughes Landing 1725 Hughes Landing Blvd The Woodlands 332,000 2015 96.9% 10,212 $39.62- The Howard Hughes $40.12 Corporation Note: Available SF includes direct and sublet space as well as any future available space currently listed. Source: CoStar Property

Q3 2019 Houston Office Highlights

TOTAL OFFICE QUARTERLY 114.7% -120.3% INVENTORY 230.7M SF ABSORPTION QUARTERLY ANNUALLY

-135,127 SF Q3 2019 132.0M SF 85.0M SF -919,041 SF Q2 2019 Q1 2019 504,650 SF Q4 2018 1,564,908 SF 13.7M SF Q3 2018 664,934 SF TOTAL INVENTORY BY CLASS CLASS A: 57% CLASS B: 37% CLASS C: 6%

21.4% LEASING8.0M SFQUARTERLY3.3M SF 20.2% -135,127 SF ACTIVITY -21.4% VACANCY NET ABSORPTION QUARTERLY CURRENT 3.3M SF

FOR MORE INFORMATION Lisa Bridges, CPRC Taylor Wright Colliers statistical criteria Director of Market Research | Houston Vice President | Houston includes all general purpose multi +1 713 830 2125 +1 713 830 2179 and single tenant office buildings [email protected] [email protected] 20,000 SF or greater.

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