Dallas-Fort Worth Office Market 4Q 2017

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DALLAS/FT. WORTH 3Q17 OFFICE MARKET

Current Conditions

Third quarter 2017 saw 17th consecutive quarter of positive overall absorption in market Overall rental rates up 2.5% year-over-year; and is up nearly The majority of metrics within the Dallas/Fort Worth office market indicate 27% in the past five years a strong but slowing market during the second half of 2017. While both leasing activity decreasing each quarter; nearly 7M SF overall vacancy rates remained flat during the third quarter, total availability behind 2016 mark within the Dallas/Fort Worth market fell to 24.7% as nearly 2.4 million square feet of leasing took place during the quarter. Additionally, the Class A market continues to show strong metrics, as nearly 350,000 square feet of Market Analysis positive absorption and 1.2 million square feet of leasing activity took place. Asking rents remain up 1.5 percent against the second quarter of Asking Rent and Vacancy

2017 as strong tenant demand across the market gives landlords 24% continued leverage. $25 22% $23 20% However, when year-over-year examination is done, signs of slowing office $21 market could be cause for concern during the fourth quarter of 2017. In $19 18% terms of overall market metrics, the vacancy rate and availability rate have $17 16% risen 60 basis points and 70 basis points, respectively, against third-quarter $15 14% 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17

Average Asking Rent (Price/SF) Vacancy (%) New development remains strong within the market, with more than 5.2 million square feet of new construction underway among 23 properties. Of the 5.2 million square feet, more than 60% of the inventory under Net Absorption construction is accounted for in the Uptown and Far North Dallas Square Feet, Millions submarkets. Speculative construction has increased over the past 12 to 2.0 18 months, but the potential impact has been muted as companies like 1.5 Toyota, JP Morgan and others begin to occupy their build-to suit locations in the metro area. 1.0 0.5

Slowing leasing activity and absorption combined with nearly 5.2 million 0.0 square feet of under construction space could spell continued increases in -0.5 vacancy rates for the market as the calendar turns to 2018 and is worth 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17

markets of the major Texas metropolitan areas. Market Summary Dallas Continues to Attract Relocations Headquarters relocations to Dallas/Fort Worth continue to be an indicator of Current Prior Year Ago 12 Month -year cycle, companies in 22 states Quarter Quarter Period Forecast and six countries have relocated their corporate headquarters to the Total Inventory (SF) 230.4 M 229.8 M 227.3M Dallas/Fort Worth metroplex. A combination of incentive packages offered Vacancy Rate 19.2% 19.2% 18.6% by the state and local government, lower business costs and a central Net Absorption (SF) 506,957 38,247 466,800 location has given the region an advantage as companies look to relocate. Average Asking Rent $24.71 $24.65 $24.19 While the Dallas//Fort Worth region owed much of its initial growth to oil, and Under Construction 5,225,818 5,565,877 6,545607 is often still thought of as a major energy hub, the economy for the region is Deliveries 640,059 431,596 454,468 far more diversified and allows for insulation against oil prices that remain near $50/bbl. This strong economy, combined with continued record net DALLAS/FT. WORTH 3Q17 OFFICE MARKET

in-migration growth in such office-intensive industries such as finance In terms of leasing activity, the Dallas metro saw a decrease both in and professional services has the market poised to see additional overall square footage and in lease transaction size during the third demand for office space. quarter to 2.4 million square feet and 4,209 square feet, respectively.

Many companies continue view building a new campus as a more cost- However, large lease transactions were evident in the market, with the effective means of growth and continue to focus their search in the Las Colinas submarket seeing four transactions of greater than 35,000 northern Dallas suburbs. Companies such as State Farm, Toyota, AT&T, square feet during the quarter. Additionally, WeWork recently USAA and Fannie Mae continue to expand their locations in the region. announced their fourth location in the Dallas/Fort Worth region as they Charles Schwab's announcement of nearly 5,000 new jobs coming to the will occupy 44,000 square feet at the Clearfork development within Ft. Westlake region by 2019 is another example of a large scale expansion. Worth. This co-working space is slated to open in 2018, and will join the -square-foot regional headquarters in While not on the same level as suburban demand, the Central Business Thanksgiving Tower as well as their 45,000-square-foot location in District within Dallas has seen a recent uptick in relocations as well. Uptown and nearly 50,000-square-foot location in Legacy West. Omitracs and Active Network have announced nearly 200,000 square feet of take up and AT&T and Goldman Sachs have made recent What to Watch for as 2017 closes and 2018 begins announcements as well highlighting their desire to bring both additional Continued job growth is forecast with nearly 100,000 net new jobs for jobs and office space usage to the CBD within the next 12 to 18 months. the region in 2017; will those new jobs continue to translate to strong

Investment Sales and Leasing Activity Demand continues to be strong across all submarkets in DFW as The third quarter of 2017 saw strong movement in terms of office sales nearly 19 million square feet of tenants are in the market across a transactions across a variety of submarkets within the Dallas/Fort Worth wide variety of industry sectors region. Nearly $770 million dollars of office sales took place in the third Hyperloop One have both quarter totaling 4.2 million square feet for an average price per square foot of $268. Chief among these were the former Encana office sale that forefront. Are these pie-in-the-sky dreams or closer to reality? for $385 per-square-foot and the Raytheon campus sale. Average cap rates have fallen for office transactions to 6.5%, indicating a slight trickle down effect to the DFW region. Could DFW see a further compression in the market. Per Real Capital Analytics, the Dallas office increase in corporate re-locations as a result of the wide-spread market has seen nearly $2.5 billion dollars of transactions take place damage in Houston? year-to-date with an average per square foot sales price of $259. In terms of total dollars, the Dallas market ranks fifth among all U.S. major metros for 2017.

Lease/User Transactions

Tenant Building Submarket Type Square Feet WeWork Clearfork South Ft. Worth Direct/New 44,000 C-III Asset Management Towers at Wiliams Square Las Colinas Direct/Renewal 51,000 Franklin American Mortgage Towers at Williams Square Las Colinas Direct/Renewal 58,000 UWorld 8951 Cypress Waters Las Colinas Direct/Relocation 50,000 Gainsco Insurance 3333 Lee Parkway Uptown/Turtle Creek Direct/Renewal 65,124

Select Sales Transactions

Building Submarket Sale Price Price/SF Square Feet Preston Plaza Far North Dallas $39,500,000 $153 259,009 NorthPark Central Central Expressway $120,500,000 $237 508,102 Raytheon Richardson/Plano $77,000,000** $154 500,000 125 E John Carpenter Freeway Las Colinas $83,400,000 $189 442,039 Encana Oil and Gas Richardson/Plano $123,000,000 $385 319,000 **rumored sales price**

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Submarket Statistics

Total Under Total Qtr YTD Direct Sublet Average Total Reflects Class A/B/C Inventory Construction Vacancy Absorption Absorption Asking Rent Asking Rent Asking Rent (SF) (SF) Rate (SF) (SF) (Price/SF) (Price/SF) (Price/SF)

Dallas CBD Total 28,669,114 261,400 26.1% -111,928 -107,167 $26.48 $12.61 $25.18 Class A 22,321,839 261,400 28.3% -174,608 -35,974 $27.40 $12.13 $25.86 Class B 5,182,560 0 18.0% 78,947 -25,618 $21.01 $19.27 $20.97 Ft. Worth CBD Total 8,324,165 280,489 13.3% -71,870 90,360 $26.69 $19.75 $26.28 Class A 5,684,851 280,489 14.3% -70,618 62,646 $29.73 $20.77 $29.18 Class B 2,445,532 0 12.1% -1,252 27,714 $20.12 $17.34 $19.96 CBD Total 36,993,279 541,889 23.3% -189,460 -22,460 $26.53 $13.21 $25.34 Class A 28,006,690 541,889 25.5% -245,226 26,672 $27.64 $12.68 $26.20 Class B 7,628,092 0 16.1% 77,695 2,096 $20.76 $18.42 $20.68 Central Expressway Total 10,965,642 0 12.5% 9,045 -3,139 $27.91 $22.47 $27.41 Class A 7,070,741 0 12.6% 26,171 58,607 $29.70 $21.32 $28.97 Class B 3,687,227 0 12.8% -18,328 -59,415 $24.60 $24.33 $24.57 East Dallas Total 2,963,549 294,820 11.1% 15,598 -45,567 $26.87 $13.32 $26.65 Class A - 0 ------Class B 1,852,598 0 12.1% 20,289 -56,123 $17.05 $13.32 $16.90 Far North Dallas Total 42,518,804 2,282,657 16.0% 61,711 436,993 $27.30 $24.67 $26.99 Class A 27,028,282 2,282,957 14.6% 27,600 497,180 $31.44 $26.55 $30.70 Class B 15,219,856 0 18.3% 35,297 -50,078 $21.74 $17.95 $21.49 Las Colinas Total 31,926,564 595,000 17.0% 335,814 580,951 $25.83 $22.11 $25.33 Class A 16,834,259 575,000 16.5% 297,143 470,822 $30.18 $22.16 $28.72 Class B 14,416,906 20,000 17.9% 49,295 87,393 $20.88 $21.94 $20.97 LBJ Freeway Total 19,725,651 0 22.6% 256,909 249,996 $22.06 $18.71 $21.71 Class A 10,410,777 0 23.2% 102,803 131,468 $25.38 $19.92 $24.68 Class B 9,004,615 0 22.4% 88,342 56,990 $18.71 $16.79 $18.55 Lewisville/Denton Total 5,159,362 0 10.2% 29,531 -11,532 $21.76 $19.62 $21.65 Class A 324,964 0 0.0% - - $26.55 - $26.55 Class B 4,451,384 0 11.6% 29,531 -15,607 $20.56 $19.62 $20.49 Mid-Cities Total 16,583,130 21,500 23.5% -24,293 -435,651 $21.70 $18.57 $21.63 Class A 4,469,216 0 36.8% 186,074 -360,656 $26.17 $23.14 $26.15 Class B 10,384,362 21,500 18.5% -188,795 -130,380 $18.93 $18.17 $18.90 North Ft. Worth Total 2,082,039 0 18.1% -236,943 -250,426 $20.45 - $20.45 Class A 725,711 0 32.2% -214,443 -208,623 $20.01 - $20.01 Class B 1,247,283 0 11.3% -26,580 -48,891 $21.25 - $21.25

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Submarket Statistics

Northeast Ft. Worth Total 3,080,819 0 54.4% 7,488 117,217 $19.25 - $19.25 Class A 414,859 0 74.0% 2,796 30,882 $21.39 - $21.39 Class B 2,500,655 0 53.7% -15,478 69,122 $18.68 - $18.68 Preston Center Total 4,314,076 171,583 11.4% -17,620 -54,303 $37.98 $32.54 $37.15 Class A 3,349,509 171,583 12.2% -23,498 -91,214 $39.43 $32.54 $38.20 Class B 797,563 0 10.1% 6,247 705 $31.39 - $31.39 Richardson/Plano Total 22,930,792 275,637 20.9% 199,764 54,816 $23.76 $18.75 $23.55 Class A 10,892,839 173,441 23.7% 149,617 67,682 $27.41 $19.47 $27.07 Class B 11,287,743 102,196 18.4% 60,870 10,681 $19.58 $17.94 $19.52 South Ft. Worth Total 6,920,351 0 12.5% 33,968 61,572 $24.59 $20.29 $24.44 Class A 2,137,541 0 20.2% 49,375 -23,404 $30.30 $23.40 $30.10 Class B 3,966,412 0 9.0% -7,633 55,376 $22.30 $18.98 $22.16 Southwest Dallas Total 2,180,220 0 13.6% 58,684 37,288 $18.30 - $18.30 Class A 280,592 0 4.9% 0 1,836 $25.34 - $25.34 Class B 1,326,112 0 20.0% 58,878 32,222 $18.11 - $18.11 Stemmons Freeway Total 10,462,231 0 27.5% -32,090 17,158 $16.71 $9.63 $16.54 Class A 4,692,429 0 19.0% -16,038 34,160 $18.73 $12.15 $18.70 Class B 4,909,457 0 34.1% -33,686 -74,411 $15.58 $9.44 $15.31 Uptown/Turtle Creek Total 11,696,268 1,042,432 12.4% 27,752 -12,048 $38.04 $27.60 $36.60 Class A 9,345,254 1,042,432 11.5% 4,975 60,198 $39.76 $34.30 $39.27 Class B 2,091,680 0 16.7% 20,324 -71,549 $32.91 $21.57 $29.85 Suburban Total 193,451,255 4,683,929 18.4% 690,755 723,738 $24.76 $22.46 $24.56 Class A 97,976,973 4,540,233 18.0% 592,575 668,938 $29.24 $24.25 $28.71 Class B 87,143,853 143,696 19.3% 78,573 -193,965 $20.24 $18.88 $20.16 Dallas Market Total 230,444,534 5,225,818 19.2% 506,957 706,931 $25.09 $20.66 $24.71 Class A 125,983,663 5,082,122 19.6% 347,349 695,610 $28.79 $21.37 $28.01 Class B 94,771,945 143,696 19.0% 156,268 -191,869 $20.28 $18.86 $20.20

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Select Texas Markets Largest Submarkets Employment By Industry

Dallas, July 2017 Top 10 Submarkets by Rentable Square Feet

2.3% Information 3.6% Rank Submarket RSF 5.8% Other Services 1 Far North Dallas 42.6 M 21.2% Mining/Logging/Construction 2 Houston CBD 38.6 M 7.5% 3 DFW CBD 37.0 M Manufacturing 4 DFW Las Colinas 31.9 M 8.2% Financial Activities 5 HOU Galleria/Uptown 23.7 M 16.7% Leisure/Hospitality 6 DFW Richardson/Plano 22.9 M 11.0% Government 7 HOU Energy Corridor 19.7 M 8 DFW LBJ Freeway 19.7 M 12.2% 11.4% Education/Health Services 9 DFW Mid-Cities 16.6 M Professional/Business Services 10 Northwest Austin 16.5 M Trade/Transportation/Utilities

Source: Newmark Grubb Knight Frank Source: U.S. Bureau of Labor Statistics

Unemployment Rate Payroll Employment

Not Seasonally Adjusted Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change

10% 5%

8% 4%

6% 3%

4% 2%

2% 1%

0% 0% Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17

United States Dallas United States Dallas

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics,

Consumer Price Index (CPI) Employment Growth by Industry

All Items, 12-Month % Change, Not Seasonally Adjusted, 1982-84=100 Dallas, July 2017, 12-Month % Change, Not Seasonally Adjusted

6% Leisure/Hospitality Other Services 4% Mining/Logging/Construction Professional/Business Services 2% Financial Activities 0% Trade/Transportation/Utilities Total Nonfarm -2% Education/Health Services Government -4% Information Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Manufacturing United States Dallas 0.0% 1.5% 3.0% 4.5% 6.0% 7.5%

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics

5 Dallas/Fort Worth Office Submarkets Dallas 2515 McKinney Ave. Suite 1300 Dallas, TX 75201 469.467.2000

Graham Hildebrand Director of Research & Marketing - Texas 713.599.5151 [email protected]

Morgan Sturgeon Research Manager 713.599.5123 [email protected]

Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents.

Newmark Knight Frank Research Reports are also available at www.ngkf.com/research

of that decision, including its legal, financial, and tax aspects and implications.

Any recipient of this publication may not, without the prior written approval of NKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains. Research

DALLAS/FT. WORTH 2Q17 OFFICE MARKET

Market Awash with Current Conditions Cautious Optimism • Second quarter 2017 saw 20th of last 22 quarters with positive The Dallas/Fort Worth office market remained the standard-bearer for the overall absorption in market major Texas office markets in the second quarter of 2017. Overall vacancy rates continued to decline from their high water marks of 2009, as • Overall rental rates up 2% year-over-year; and is up nearly the current cycle of growth underway in the market brought vacancy levels 22% in the past four years below 20% for the past 16 consecutive quarters. Rent growth continued in • 2017 on pace to have half the amount of leasing activity of the second quarter and reached $24.52/SF across all property types. 2015 and 2016 Class A rent growth has begun to show signs of flattening, as the second quarter’s $27.58/SF rate represents scant change year-over-year. However, when the same prior 16-quarter timeframe is examined, Class A Market Analysis rents have grown nearly 12%. Asking Rent and Vacancy

New development remains strong within the market, with more than 5.2 24% million square feet of new construction underway among 23 properties. $25 22% The Far North Dallas submarket accounts for one-third of the square $23 20% footage under construction, as multiple large commercial developments $21 and nearby high-quality residential developments are attracting new and $19 18% existing tenants to the submarket. Additionally, the Uptown/Turtle Creek $17 16% submarket has a little over 1.0 million square feet of Class A office space $15 14% under construction. Once completed, the newly constructed stock will 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 boost the overall inventory in the market by 2.2%, with the Class A product Average Asking Rent (Price/SF) Vacancy (%) gaining 4.1% overall. The market has shown the ability to post strong absorption numbers during the current cycle, as an average of 873,000 square feet of new deliveries per quarter has been met by an average of Net Absorption 791,000 square feet of positive net absorption at the same time. Square Feet, Millions

Suburban Demand Continues 2.0 1.5 Dallas/Fort Worth continued to operate from a position of strength due to a 1.0 combination of a business-friendly environment and diverse population. Since the beginning of the current six-year growth cycle, the area has 0.5 created nearly 730,000 net new jobs, averaging slightly more than 120,000 0.0

net new jobs per year. Much of that job growth has stemmed from the -0.5 record number of corporate relocations taking place in the Metroplex’s 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 suburban areas as more than 100 such announcements have taken place since 2015 per the Dallas Chamber of Commerce’s data. Market Summary Major relocations continued into the second quarter, as local, national and Current Prior Year Ago 12 Month international companies made announcements highlighting their choice of Quarter Quarter Period Forecast the Dallas/Fort Worth market for their new office locations. First, D.R. Horton moved into its new six-acre campus at 1341 Horton Circle. The Total Inventory (SF) 229.5 M 229.3 M 219.6 M  four-story building should allow the company to reap long-term cost Vacancy Rate 19.2% 19.2% 19.2% = savings. D.R. Horton was able to secure $5.5 million in city incentives for Net Absorption (SF) 22,630 850,449 525,174  relocating from Fort Worth to Arlington. Average Asking Rent $24.52 $24.48 $24.08  Under Construction 5,218,277 4,867,188 7,272,5436  Deliveries 431,596 1,757,552 555,024  Research

DALLAS/FT. WORTH 2Q17 OFFICE MARKET

Second, Ansira Partners announced it is re-locating one of its co- Turning to leasing activity, both the suburban and Downtown submarkets headquarters to Three Galleria Tower in the LBJ Freeway submarket. saw multiple large transactions. Significant activity occurred in the The property’s recent $19.0 million facelift played a large role in securing Central Business District as Comerica Bank extended its 222,000- Ansira’s 88,000 square-foot lease commitment. Additionally, AECOM square-foot lease at their namesake tower. Additionally, BakerBotts and relocated its regional headquarters from downtown to the complex and WeWork took 104,000-square-feet and 84,000-square-feet, respectively, leased 30,050 square feet in One Galleria Tower. MYCON, a general within the submarket. WeWork’s lease represents another large footprint contractor firm, took occupancy this quarter of its 50,205-square-foot for the co-working company within the Texas marketplace and another corporate headquarters in the Far North Dallas submarket. The firm sign of the Dallas office market’s stability. spent the better part of two years renovating and updating the building following its’ purchase in late 2015. Finally, while much of the talk in Fort What to Watch for in the Second Half Worth remains about Facebook’s long-term commitment to the city through its’ $1.0 billion data center, the second quarter of 2017 saw • Corporations continue to develop and occupy suburban campus corporate relocations as well. The American Paint Horse Association locations; and job gains are expected to again top 100,000 new jobs announced its relocation to nearly 12,000 square feet within the historic by year-end, signaling that a strong and diverse economy remains Fort Worth Stockyards. intact.

Investment Sales and Leasing Activity • Total availability within the market across all classes has reached The second quarter saw a slow down in large dollar transactions, 24.8%, up 50 basis points over the prior quarter. With 25 new although the largest public transaction of the year on a price-per-square- projects totaling more than 5 million square feet underway, how will foot basis closed during this time. Liberty Mutual just completed the the new deliveries that are slated to arrive impact availability going purchase of its 1.1 million-square-foot campus at Legacy West from forward? KDC. The purchase price of $325 million, while not as high as those of recent sales, sets a new high water mark for the year at $320/SF. In • Sublease space has begun to rise slowly to nearly 6 million square addition to the already announced corporate headquarters locations, the feet, nearly 1 million square feet more than the 10-year average. Is development saw leasing activity during the quarter, as Boeing recently this an indicator of an over-heated market? announced that they will occupy at least one floor of Legacy West’s office building for a divisional headquarters location. All told, nearly $6.1 billion • The Fed’s June announcement of a third rate hike since December of office transactions closed during the 12 months ending June 2017, 2016, and another hike likely during the second half of 2017 may according to data from Real Capital Analytics. This figure represents a cause investors to pause when looking at the Texas markets. Will the 48.5% increase from the same time period a year ago. uncertainty of market and rate fundamentals lead to fewer sales transactions and sellers looking to refinance existing properties?

Lease/User Transactions

Tenant Building Submarket Type Square Feet Comerica Bank 1717 Main (Comerica Tower) Dallas CBD Direct/Extension 222,000 Baker Botts 2001 Ross Avenue Dallas CBD Direct/Renewal 104,000 Ansira Partners Three Galleria Tower LBJ Freeway Direct/New 88,000 WeWork Thanksgiving Tower Dallas CBD Direct/New 84,000 Altice Granite Park V Richardson/Plano Direct/New 79,000

Select Sales Transactions

Building Submarket Sale Price Price/SF Square Feet Liberty Mutual HQ Far North Dallas $325,000,000 $320 1,100,000 Parkway Office Center Far North Dallas $27,425,000* $60* 454,408 Granite Plaza Mid-Cities $25,000,000 $128 195,684 Forest Green Office Park Richardson/Plano $17,700,000 $102 173,431 200 W John Carpenter Fwy Mid-Cities $14,296,875 $75 189,777 * Tax Assessment

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Submarket Statistics

Dallas CBD Total 28,616,971 261,400 25.8% -34,482 66,649 $26.72 $12.57 $25.43 Class A 22,106,399 261,400 26.8% 153,027 146,165 $27.45 $12.02 $25.90 Class B 5,345,857 0 21.9% -155,312 -49,327 $23.20 $22.49 $23.19 Ft. Worth CBD Total 8,375,301 280,489 13.4% 37,479 69,044 $26.67 $19.91 $26.12 Class A 5,779,611 280,489 14.4% 40,496 44,300 $29.80 $20.57 $28.93 Class B 2,401,908 0 12.3% -3,017 24,744 $20.08 $17.34 $19.94 CBD Total 36,992,272 541,889 23.0% 2,997 135,693 $26.72 $13.44 $25.52 Class A 27,886,010 541,889 24.2% 193,523 190,465 $27.71 $12.90 $26.23 Class B 7,747,765 0 19.1% -166,472 -32,726 $22.30 $20.65 $22.24 Central Expressway Total 10,949,466 0 12.8% 10,088 -29,291 $27.24 $22.25 $26.78 Class A 7,054,442 0 12.9% -13,308 40,033 $28.43 $21.45 $27.82 Class B 3,686,350 0 13.0% 19,462 -63,587 $24.94 $23.58 $24.80 East Dallas Total 3,327,049 291,457 11.9% 405,330 335,338 $26.18 $16.80 $25.88 Class A - 0 ------Class B 2,281,098 0 13.0% 424,336 320,040 $16.85 $16.80 $16.84 Far North Dallas Total 42,558,808 1,748,857 16.1% 220,039 424,472 $27.31 $24.15 $26.97 Class A 27,092,513 1,748,857 14.7% 261,986 489,722 $31.50 $25.84 $30.69 Class B 15,267,763 0 18.3% -38,606 -64,470 $21.78 $18.38 $21.56 Las Colinas Total 31,803,853 736,219 17.5% -103,945 258,266 $24.72 $22.08 $24.30 Class A 16,693,040 716,219 17.5% -208,864 184,980 $28.53 $22.09 $27.11 Class B 14,436,232 20,000 17.8% 85,188 42,256 $20.91 $22.04 $21.00 LBJ Freeway Total 19,723,314 0 24.2% -32,072 -48,958 $21.96 $18.70 $21.65 Class A 10,410,777 0 24.0% 8,086 47,491 $25.16 $19.60 $24.37 Class B 9,002,546 0 24.1% -37,932 -92,223 $18.66 $15.19 $18.52 Lewisville/Denton Total 5,075,379 30,000 10.2% -106,258 -75,812 $21.67 $19.24 $21.56 Class A 324,964 0 0.0% - - $25.33 - $25.33 Class B 4,368,117 30,000 11.5% -101,430 -77,187 $20.47 $19.24 $20.38 Mid-Cities Total 16,252,652 135,340 22.7% -308,257 -362,422 $21.94 $15.75 $21.83 Class A 4,365,073 113,840 38.6% -483,869 -506,506 $26.27 $19.52 $26.24 Class B 10,189,509 21,500 16.8% 155,309 64,309 $18.92 $15.30 $18.80 North Ft. Worth Total 2,082,039 0 7.7% -11,101 -33,985 $19.89 $17.56 $18.90 Class A 725,711 0 2.6% 0 5,811 $19.20 $16.95 $18.08 Class B 1,247,283 0 10.8% -8,601 -42,804 $21.31 $23.81 $21.73

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DALLAS/FT. WORTH 2Q17 OFFICE MARKET www.ngkf.com

Submarket Statistics

Northeast Ft. Worth Total 3,080,819 0 54.4% 1,261 114,869 $19.11 - $19.11 Class A 414,859 0 61.3% 0 83,723 $21.27 - $21.27 Class B 2,500,655 0 55.5% 1,261 22,722 $18.61 - $18.61 Preston Center Total 4,313,194 171,583 10.9% -171 -30,764 $37.64 $31.83 $36.80 Class A 3,348,627 171,583 11.1% -33,437 -56,512 $39.24 $31.96 $38.01 Class B 797,563 0 10.9% 3,422 -5,542 $30.47 $26.81 $30.38 Richardson/Plano Total 22,346,775 465,500 20.1% 77,111 -173,439 $23.42 $18.89 $23.25 Class A 10,675,335 425,000 20.9% 28,027 8,902 $27.14 $19.74 $26.78 Class B 10,867,244 40,500 19.8% -11,404 -75,202 $19.70 $17.79 $19.63 South Ft. Worth Total 6,915,217 0 13.0% -64,709 24,248 $24.49 $20.42 $24.35 Class A 2,136,942 0 22.7% -114,826 -75,708 $30.33 $23.28 $30.13 Class B 3,966,412 0 8.8% 48,811 62,582 $22.14 $19.34 $22.01 Southwest Dallas Total 2,057,299 55,000 14.3% -29,397 -24,188 $18.13 $12.55 $18.85 Class A 280,592 0 4.9% 1,836 1,836 $25.34 - $25.34 Class B 1,275,191 55,000 21.2% -29,465 -27,680 $17.86 $12.55 $17.81 Stemmons Freeway Total 10,467,293 0 28.9% -52,391 -120,684 $16.69 $10.03 $16.52 Class A 4,792,429 0 20.2% 42,765 -45,915 $18.52 $14.57 $18.49 Class B 4,814,519 0 35.4% -115,641 -94,661 $15.67 $9.26 $15.41 Uptown/Turtle Creek Total 11,653,378 1,042,432 12.5% 830 -24,356 $37.93 $30.08 $36.84 Class A 9,328,550 1,042,432 11.4% 96,473 65,914 $39.97 $32.14 $39.15 Class B 2,044,791 0 17.8% -95,643 -87,120 $32.06 $29.22 $31.29 Suburban Total 192,572109 4,676,388 18.5% 46,847 278,378 $24.47 $22.21 $24.27 Class A 97,663,414 4,509,388 17.8% -338,292 161,437 $28.80 $23.13 $28.11 Class B 86,748,927 167,000 19.5% 326,421 -97,961 $20.22 $19.92 $20.21 Dallas Market Total 229,561,444 5,218,277 19.2% 22,630 386,857 $24.92 $20.51 $24.52 Class A 125,549,494 5,051,277 19.2% -157,040 339,631 $28.49 $20.71 $27.58 Class B 94,549,678 167,000 19.5% 141,201 -149,435 $20.38 $19.93 $20.36

4 Research

DALLAS/FT. WORTH 2Q17 OFFICE MARKET

Economic and Submarket Size Analysis

Select Texas Markets – Largest Submarkets Employment By Industry

Dallas, April 2017 Top 10 Submarkets by Rentable Square Feet

2.2% Information Rank Submarket 3.5% RSF Other Services 21.2% 5.7% 1 Far North Dallas 42.6 M Mining/Logging/Construction 2 Houston CBD 38.6 M 7.5% 3 DFW CBD 37.0 M Manufacturing 8.1% 4 DFW Las Colinas 31.8 M Financial Activities 5 HOU Galleria/Uptown 23.6 M 16.6% Leisure/Hospitality 6 DFW Richardson/Plano 22.3 M 10.7% Government 7 HOU Energy Corridor 19.8 M 8 DFW LBJ Freeway 19.7 M 12.3% 12.2% Education/Health Services 9 DFW Mid-Cities 16.2 M Professional/Business Services 10 Northwest Austin 16.2 M Trade/Transportation/Utilities

Source: Newmark Knight Frank Source: U.S. Bureau of Labor Statistics

Unemployment Rate Payroll Employment

Not Seasonally Adjusted Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change

10% 5%

8% 4%

6% 3%

4% 2%

2% 1%

0% 0% Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17

United States Dallas United States Dallas

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics,

Consumer Price Index (CPI) Employment Growth by Industry

All Items, 12-Month % Change, Not Seasonally Adjusted, 1982-84=100 Dallas, April 2017, 12-Month % Change, Not Seasonally Adjusted

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics

5 Research

Newmark Knight Frank United States Office Locations Dallas 2515 McKinney Ave. Suite 1300 Dallas, TX 75201 469.467.2000

Graham Hildebrand Director of Research & Marketing - Texas 713.599.5151 [email protected]

Newmark Knight Frank Research Reports are also available at www.ngkf.com/research

All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Knight Frank (NKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications.

Current Conditions

2017 is off to a good start as the market absorbed 850,449 square feet in first quarter 2017. The Dallas/Fort Worth office market has been on a tear in recent years, There were 18 projects underway at the end of first-quarter recording six consecutive years of positive absorption. Driving this trend 2017, representing 4.9 million square feet. has been a steady wave of corporate expansions and relocations that in The overall vacancy rate stood at 19.2%, which is slightly turn have led to robust leasing activity, particularly in the suburban lower than the 10-year average of 19.8%. submarkets. The same market forces provided a lift in the first quarter of 2017. The suburban submarkets absorbed more than 1.1 million square feet, which was more than enough to offset the 342,545 square feet of Market Analysis contraction that occurred in the CBD. As a result, the market recorded more than 850,000 square feet of positive absorption in first-quarter 2017. Asking Rent and Vacancy

Despite healthy absorption figures, deliveries of eight new properties 24% representing 1.7 million square feet pushed the overall vacancy rate up to $25 22% 19.2% from 19.1% in fourth-quarter 2016. While overall vacancy is $23 20% expected to tighten in 2017, the above-average construction pipeline will $21 limit the progress. $19 18%

$17 16% Turning to supply, there are 18 properties underway, representing nearly 4.9 million square feet of non-owner-occupied office space. Once $15 14% 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 completed, they will expand the existing inventory base by 2.1%. For perspective, the construction pipeline remains elevated by historical Average Asking Rent (Price/SF) Vacancy (%) standards, slightly above its five-year average of 4.8 million square feet and well above its 10-year average of 3.5 million square feet. The bulk of the construction activity is taking place where demand is the strongest, Net Absorption namely the suburban submarkets of Far North Dallas, Las Colinas and Square Feet, Millions Richardson/Plano, which combined account for 62.0% of new 2.0 development. In addition, Uptown/Turtle Creek has more than 1.0 million 1.5 square feet under construction, representing 22.0% of total activity, with the final large chunk of 634,126 square feet underway in the CBD. 1.0 0.5

Corporate Relocation Mecca 0.0 Dallas/Fort Worth is a corporate magnet with a central location, vast -0.5 transportation infrastructure, business-friendly atmosphere and attractive 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 workforce. The Dallas metro is home to 21 Fortune 500 companies, a number exceeded only by New York, Chicago and Houston. In addition, recent corporate migration patterns have created a renewed sense of Market Summary optimism. From 2010 to 2016, 72 companies have relocated their corporate headquarters to Dallas, of which 36 relocated to Dallas from Current Prior Year Ago 12 Month Quarter Quarter Period Forecast 2016 State of the City address. More recently, Houston-based Quorum Business Total Inventory (SF) 229.3 M 227.5 M 225.1 M Solutions has decided to move its regional office to downtown Dallas. The Vacancy Rate 19.2% 19.1% 19.0% energy software company has leased 17,000 square feet at 717 Harwood Net Absorption (SF) 850,449 116,786 -98,053 Street. Average Asking Rent $24.48 $24.27 $23.93

Five other significant transactions involving corporate headquarters Under Construction 4,867,188 6,503,734 6,887,620 occurred during the first quarter of 2017. First, Brinker International will Deliveries 1,757,552 454,468 1,404,143 move its corporate headquarters to Cypress Waters from its longtime

headquarters will consist of a four-story, 216,300-square-foot building situated near Signet Jewelers new Dallas headquarters. DALLAS/FT. WORTH 1Q17 OFFICE MARKET

The developer is the Billingsley Company, and the property is set to Turning to leasing activity, there were several notable recent deliver in early 2019. Second, Japanese-based IT giant NTT signed a - 126,715-square-foot lease at One Legacy West located at 7950 Legacy square-foot lease for a new corporate headquarters represented the Drive. The property, which is currently under construction, will serve as largest lease in first-quarter 2017. In addition, Goldman Sachs, as

ground on its $47 million, 140,000-square-foot corporate headquarters in square feet at Trammel Crow Center in downtown Dallas. The company Allen. Fourth, PowerSecure Lighting inked a 76,000-square-foot lease for is expected to move into its new space in the first quarter of 2018. its North Texas corporate headquarters. The company will be the anchor tenant in a 152,000-square-foot office development within Frisco Park 25. Moving Forward Fifth, Service King Collision Repair decided on a location for a new With corporate migration patterns favoring Dallas/Fort Worth and robust headquarters after signing a lease for 64,916 square feet at Galatyn employment growth, expect leasing activity to remain strong in coming Commons in Richardson. quarters. This story has also played out in the sublease market. As The Texas Office Market: Through Investment Sales and Leasing Activity the Eyes of the Sublease Market The Dallas office market continues to see a wave of large transactions. space is a helpful forward-looking indicator of the health of the market. For example, J.C. Penney completed the sale-leaseback of its corporate By that measure, Dallas/Fort Worth has established itself as a leader headquarters in West Plano for $453.0 million, or $253/SF. The relative to other large Texas metros. corporate campus is located at 6501 Legacy Drive, close to corporate campuses currently under construction that will eventually house Toyota North America, JPMorgan Chase and Liberty Mutual. In addition to the existing campus, the new owners will look to develop the surrounding 40 acres of land. This transaction followed the massive, $822 million sale-

told, nearly $6.4 billion of office transactions closed during the 12 months ending January 2017, according to data from Real Capital Analytics. This figure represents a 58.7% increase from the same time period a year ago.

Lease/User Transactions

Tenant Building Submarket Type Square Feet Brinker International 3000 Olympus Blvd Las Colinas Direct/New 216,300 Goldman Sachs Trammell Crow Center Dallas CBD Direct/New 175,000 NTT One Legacy West Far North Dallas Direct/New 126,715 Amazon Galleria Towers LBJ Freeway Direct/Expansion 88,084 Akin Gump The Union Uptown/Turtle Creek Direct/New 68,000

Select Sales Transactions

Building Submarket Sale Price Price/SF Square Feet The Campus at Legacy West Far North Dallas $453,000,000 $253 1,789,053 3500 Maple Ave Uptown/Turtle Creek $112,000,000 $303 369,109 2525 McKinnon Uptown/Turtle Creek $46,800,000 $419 111,742 Three Forest Plaza LBJ Freeway $35,655,000 $97 366,549 The Madison Far North Dallas $27,715,000* $96 288,920 * Tax Assessment

2 DALLAS/FT. WORTH 1Q17 OFFICE MARKET www.ngkf.com

Submarket Statistics

Dallas CBD Total 28,298,655 353,637 27.0% -391,032 -391,032 $26.09 $14.96 $25.45 Class A 22,014,162 353,637 28.9% -286,328 -286,328 $27.02 $14.44 $26.25 Class B 5,119,778 0 19.9% -107,629 -107,629 $20.00 $21.62 $20.06 Ft. Worth CBD Total 8,367,402 280,489 13.7% 48,487 48,487 $25.99 $19.67 $25.39 Class A 5,779,611 280,489 15.1% 796 796 $29.26 $20.63 $28.39 Class B 2,394,009 0 11.4% 47,691 47,691 $20.00 $17.54 $19.80 CBD Total 36,666,057 634,126 24.0% -342,545 -342,545 $26.07 $15.84 $25.44 Class A 27,793,773 634,126 26.1% -285,532 -285,532 $27.22 $15.34 $26.45 Class B 7,513,787 0 17.2% -59,938 -59,938 $20.00 $19.60 $19.99 Central Expressway Total 10,930,504 0 12.5% -12,155 -12,155 $27.34 $22.10 $26.83 Class A 7,054,442 0 12.6% 59,875 59,875 $28.56 $21.53 $27.95 Class B 3,688,388 0 12.6% -73,382 -73,382 $24.58 $22.96 $24.38 East Dallas Total 3,360,546 0 21.1% 26,748 26,748 $15.55 $16.09 $15.58 Class A - 0 ------Class B 2,314,595 0 27.1% -7,556 -7,556 $15.93 $16.09 $15.95 Far North Dallas Total 42,302,599 1,748,000 16.6% 637,869 637,869 $27.62 $23.43 $27.17 Class A 26,854,419 1,748,000 15.6% 297,804 297,804 $31.64 $25.52 $31.07 Class B 15,288,064 0 18.0% 338,065 338,065 $21.86 $18.31 $21.57 Las Colinas Total 31,670,185 805,578 16.1% 142,596 142,596 $24.44 $21.56 $24.04 Class A 16,699,215 466,219 16.2% 142,548 142,548 $28.28 $21.48 $26.94 Class B 14,296,389 339,359 16.3% -11,251 -11,251 $20.85 $21.74 $20.96 LBJ Freeway Total 19,722,498 0 22.9% 54,322 54,322 $21.95 $18.05 $21.80 Class A 10,408,036 0 22.4% 59,925 59,925 $25.39 $19.36 $24.75 Class B 9,004,471 0 23.1% -3,603 -3,603 $18.46 $14.50 $18.33 Lewisville/Denton Total 5,073,809 0 8.4% 26,457 26,457 $21.39 $21.09 $21.40 Class A 324,964 0 0.0% - - $25.33 - $25.33 Class B 4,366,547 0 9.4% 28,602 28,602 $20.03 $21.08 $20.10 Mid-Cities Total 16,133,392 0 20.8% -52,055 -52,055 $21.91 $17.08 $21.76 Class A 4,365,073 0 27.4% -16,878 -16,878 $25.97 $17.45 $25.62 Class B 10,021,433 0 18.3% -82,780 -82,780 $19.06 $16.60 $18.99 North Fort Worth Total 2,079,727 0 7.7% -33,479 -33,479 $19.85 $17.69 $18.96 Class A 723,399 0 2.7% 5,811 5,811 $19.29 $17.04 $18.17 Class B 1,247,283 0 11.0% -44,798 -44,798 $21.00 $23.93 $21.49

3 DALLAS/FT. WORTH 1Q17 OFFICE MARKET www.ngkf.com

Submarket Statistics

Northeast Fort Worth Total 3,054,770 0 53.9% 141,006 141,006 $20.43 - $20.43 Class A 414,859 0 61.3% 83,723 83,723 $21.27 - $21.27 Class B 2,474,606 0 55.0% 46,355 46,355 $20.33 - $20.33 Preston Center Total 4,221,837 171,583 11.0% -31,760 -31,760 $37.14 $32.18 $36.42 Class A 3,348,627 171,583 10.4% -30,796 -30,796 $38.56 $32.34 $37.56 Class B 706,206 0 11.2% -2,410 -2,410 $29.37 $27.78 $29.30 Richardson/Plano Total 23,098,988 443,646 21.9% -34,948 -34,948 $24.15 $18.95 $23.99 Class A 10,670,566 420,976 20.3% -19,992 -19,992 $27.28 $20.03 $26.91 Class B 11,692,754 22,670 23.9% -19,976 -19,976 $21.87 $16.25 $21.79 South Fort Worth Total 6,872,661 0 11.4% 116,447 116,447 $24.29 $20.35 $24.11 Class A 2,132,446 0 17.0% 46,468 46,468 $30.35 $23.10 $30.18 Class B 3,928,352 0 9.0% 33,931 33,931 $22.07 $19.82 $21.92 Southwest Dallas Total 2,054,382 0 14.0% -16,960 -16,960 $16.89 $12.00 $16.86 Class A 280,729 0 5.5% - - $21.34 - $21.34 Class B 1,272,137 0 20.7% -20,384 -20,384 $16.64 $12.00 $16.62 Stemmons Freeway Total 10,105,683 0 28.5% 41,216 41,216 $15.56 $10.05 $15.42 Class A 4,430,819 0 19.3% 87,161 87,161 $16.21 $14.20 $16.19 Class B 4,814,519 0 34.3% -43,498 -43,498 $15.57 $9.26 $15.33 Uptown/Turtle Creek Total 11,844,742 1,064,255 12.2% 187,690 187,690 $37.52 $30.08 $36.82 Class A 9,519,243 1,064,225 12.1% 176,920 176,920 $39.52 $31.21 $38.64 Class B 2,045,472 0 13.0% 10,770 10,770 $32.15 $23.83 $31.63 Suburban Total 192,526,323 4,233,062 18.3% 1,192,994 1,192,994 $24.48 $21.62 $24.26 Class A 97,226,837 3,871,003 17.0% 892,569 892,569 $28.67 $22.84 $28.02 Class B 87,161,216 362,029 20.0% 148,085 148,085 $20.60 $18.84 $20.54 Dallas Market Total 229,268,371 4,867,188 19.2% 850,449 850,449 $24.78 $20.81 $24.48 Class A 125,020,610 4,505,129 19.0% 607,037 607,037 $28.26 $21.55 $27.60 Class B 94,675,003 362,029 19.8% 88,147 88,147 $20.56 $18.89 $20.50

4 DALLAS/FT. WORTH 1Q17 OFFICE MARKET

Select Texas Markets Largest Submarkets Employment By Industry

Dallas, February 2017 Top 10 Submarkets by Rentable Square Feet

2.3% Information 3.5% Rank Submarket RSF 5.8% Other Services 1 Far North Dallas 42.3 M 21.3% Mining/Logging/Construction 2 HoustonCBD 38.9M 7.4% 3 DFW Las Colinas 31.7 M Manufacturing 4 DallasCBD 28.3M 8.1% Financial Activities 5 HOU Galleria/Uptown 23.6 M 16.6% Leisure/Hospitality 6 DFW Richardson/Plano 23.1 M 10.5% Government 7 HOU Energy Corridor 19.8 M 8 DFW LBJ Freeway 19.7 M 12.3% 12.2% Education/Health Services 9 DFW Mid-Cities 16.1 M Professional/Business Services 10 Northwest Austin 16.0 M Trade/Transportation/Utilities

Source: Newmark Grubb Knight Frank Source: U.S. Bureau of Labor Statistics

Unemployment Rate Payroll Employment

Not Seasonally Adjusted Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change

10% 5%

8% 4%

6% 3%

4% 2%

2% 1%

0% 0% Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17

United States Dallas United States Dallas

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics,

Consumer Price Index (CPI) Employment Growth by Industry

All Items, 12-Month % Change, Not Seasonally Adjusted, 1982-84=100 Dallas, February 2017, 12-Month % Change, Not Seasonally Adjusted

6% Leisure/Hospitality Other Services 4% Mining/Logging/Construction Professional/Business Services 2% Financial Activities 0% Trade/Transportation/Utilities Total Nonfarm -2% Education/Health Services Government -4% Information Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Manufacturing United States Dallas 0.0% 1.5% 3.0% 4.5% 6.0% 7.5%

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics

5 Newmark Grubb Knight Frank United States Office Locations Dallas 2515 McKinney Ave. Suite 1300 Dallas, TX 75201 469.467.2000

David Wegman, CFA Director of Research - Texas 713.599.5151 [email protected]

Newmark Grubb Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents.

Newmark Grubb Knight Frank Research Reports are also available at www.ngkf.com/research

All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Grubb Knight Frank (NGKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NGKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient

to all aspects of that decision, including its legal, financial, and tax aspects and implications.

Any recipient of this publication may not, without the prior written approval of NGKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains. DALLAS/FT. WORTH 4Q16 OFFICE MARKET

Current Conditions

2016 marked the sixth consecutive year of positive Marked by above-average demand and supply, the Dallas/Fort Worth absorption. office market enjoyed another winning year, as 2016 marked the sixth consecutive year of positive absorption. Net absorption totaled nearly 2.2 There were 24 projects underway at the end of third-quarter million square feet, and the overall vacancy rate ended the year at 19.1%. 2016, representing 6.2 million square feet. While demand in 2016 was healthy, it was slower in terms of net The overall vacancy rate stood at 19.1%, which is slightly absorption and leasing velocity compared with the near-record year that lower than the five-year average of 19.5%. was 2015.

Turning to supply, there are 24 properties underway representing 6.2 Market Analysis million square feet of non-owner-occupied office space, nearly double the 10-year average. Once completed, the current construction pipeline will Asking Rent and Vacancy expand the existing inventory base by 2.8%. Furthermore, the fourth 24% quarter of 2016 marked the 13th consecutive quarter in which the $25 22% construction pipeline exceeded 5 million square feet, and early starts are $23 20% quickly translating into deliveries. In 2016, 3.8 million square feet of new $21

supply came online on top of the 5.4 million square feet that was delivered $19 18% in 2015. $17 16%

$15 14% Corporate Relocations and Office Construction 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 Overall, the metro continued to do what it does best, namely attract Average Asking Rent (Price/SF) Vacancy (%) business and real estate development. On the business front, corporate relocations and expansions, regional headquarters and corporate campuses remain in focus. For example, during 2016, Jacobs Engineering Group announced plans to move its corporate headquarters from Net Absorption Square Feet, Millions Pasadena, California, to downtown Dallas, continuing a long-term trend of corporate migration patterns from California to Texas. Earlier this year, 2.0

California-based Jamba Juice also announced plans to relocate its 1.5 headquarters to Frisco, TX; meanwhile, San Francisco-based McKesson 1.0 announced expansion plans that will bring 975 new jobs to Irving. 0.5 Corporate office campuses might have lost favor in some markets, but not 0.0

Dallas. In fact, large suburban corporate campuses appear to be -0.5 becoming the norm in Dallas, with more companies following the lead of 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 FedEx, Liberty Mutual, State Farm and Toyota. More recently, Pioneer Natural Resources announced the company is moving forward with a 900,000-square-foot campus, which will be a part of the larger, $1.5 billion Market Summary mixed-use development at Hidden Ridge in Irvine. Construction of the Current Prior Year Ago 12 Month Pioneer project is expected to begin by mid-2017. Similarly, Charles Quarter Quarter Period Forecast Schwab is expected to break ground in the second half of 2017 on its $100 million regional campus in Westlake. AmerisourceBergen Specialty Group Total Inventory (SF) 224.5 M 224.1 M 220.7 M has signed a 12.5-year lease with Billingsley for a new, 300,000-square- Vacancy Rate 19.1% 18.8% 18.7% foot regional built-to-suit campus at Austin Ranch in Carrollton. Finally, the Net Absorption (SF) 116,786 1,690,175 901,142 JP Morgan Chase campus in Legacy West is scheduled to wrap up Average Asking Rent $24.27 $24.16 $23.55 construction in fourth-quarter 2017. Upon completion, the new campus will Under Construction 6,230,054 6,415,455 5,813,603 house 6,000 employees. Deliveries 413,401 1,228,034 1,327,462

DALLAS/FT. WORTH 4Q16 OFFICE MARKET

Downtown Dallas Update regional campus in Richardson. A partnership between Transwestern The report for third-quarter 2016 highlighted the contrasting Investment Group and Mirae Asset Global Investment Company paid performances of the downtown Dallas and Uptown office markets. Since $822.4 million for the four-building, 2.2 million-square-foot complex. This then, the Dallas Central Business District submarket, which has trade represents roughly a 5.5% cap rate and values the deal at significantly lagged Uptown/Turtle Creek both in terms of vacancy rates $363/SF. In another notable transaction, Dallas based-Gaedeke Group and asking rents, has shown sparks of life. First, in connection with the purchased 17Seventeen McKinney, a 19-story, 361,524-square-foot relocation of its global headquarters to downtown Dallas, Jacobs Class AA office building with 7,493 square feet of retail space for $188.0 Engineering Group leased an additional 17,000 square feet in the million. On a per-square-foot basis, that translates into $509/SF (5.1% Harwood Center tower. Second, Goldman Sachs is discussing the cap rate), making it one of the most expensive deals ever to occur in possibility of leasing up to 150,000 square feet in the Trammell Crow Dallas. Similarly, Boston-based Intercontinental Real Estate Corporation Center, which would backfill vacant space following purchased Legacy Tower, a 13-story, 342,000-square-foot Class AA PricewaterhouseCoopers' and Vinson & Elkins' moves to Uptown. Finally, office building for nearly $140 million. The property, located at Legacy following an extensive real estate search, AT&T, the largest tenant in Drive and the Dallas Parkway, set a new high-water mark for the downtown Dallas, is working with the city on a plan to keep the northern suburbs at more than $400/SF.

AT&T employees work in a four-building complex located at the 2017 Outlook intersection of Akard and Commerce streets. The company plans to add Although the supply pipeline is slowing some of the momentum in an additional 1,000 workers downtown in coming years. All told, the delta Dallas/Fort Worth, 2017 is set up to be another good year. In fact, between the Dallas CBD submarket and Uptown/Turtle Creek is expected to narrow, but it will take some time. PricewaterhouseCoopers. While Dallas/Fort Worth lost the top spot from Investment Sales a year ago, the report points out favorable attributes, including an The success enjoyed across the metro has renewed investor interest, attractive cost of doing business, an adequate and well-educated which in turn is translating into increased transaction volume. Year-to- workforce and access to world- date through October, investment sales volume has totaled more than business-friendly environment will likely translate into a 50-basis-point $4.9 billion, according to Real Capital Analytics. That total was 47.0% reduction in its overall vacancy rate and a 4.5% increase in asking rents higher at the same time period a year ago. By far the largest transaction by year-end 2017. of the year was the sale-leaseback of State Farm Insurance's newly built

Lease/User Transactions

Tenant Building Submarket Type Square Feet State Farm State Farm Regional Campus Richardson/Plano Direct/New 2,262,902 Shelton School 17301 Preston Rd Far North Dallas Direct/New 317,270 AmerisourceBergen Specialty Group Plano Pky @ Parker Road Far North Dallas Direct/New 300,000 Watermark Church 7616 LBJ Freeway LBJ Freeway Direct/New 127,913 Occidental Petroleum (Chemical Div) 14555 N Dallas Pky Far North Dallas Direct/New 120,000

Select Sales Transactions

Building Submarket Sale Price Price/SF Square Feet State Farm Regional Campus Richardson/Plano $822,438,750 $363 2,262,902 Campbell Centre Central Expressway $125,000,000* $144 870,000 Legacy Tower Far North Dallas $136,875,000 $400 342,000 1717 McKinney Ave. Uptown/Turtle Creek $188,000,000 $509 369,017 8080 NCX Central Expressway $59,00,000* $208 283,707 * Estimate

2 DALLAS/FT. WORTH 4Q16 OFFICE MARKET www.ngkf.com

Submarket Statistics

Dallas CBD Total 28,310,046 342,879 26.3% -74,574 -685,719 $26.09 $15.03 $25.48 Class A 21,996,245 342,879 28.1% -123,700 -801,577 $26.98 $14.66 $26.26 Class B 5,144,086 0 19.4% 35,426 100,669 $19.97 $20.81 $20.00 Ft. Worth CBD Total 8,367,402 280,489 14.4% -25,596 -170,673 $25.97 $20.70 $25.46 Class A 5,779,611 280,489 15.3% -13,362 -113,933 $29.21 $22.18 $28.51 Class B 2,394,009 0 13.6% -12,234 -56,740 $19.76 $17.69 $19.56 CBD Total 36,677,448 623,368 23.6% -100,170 -856,392 $26.08 $16.11 $25.48 Class A 27,775,856 623,368 25.4% -137,062 -915,510 $27.17 $15.75 $26.47 Class B 7,538,095 0 17.6% 23,192 43,929 $19.91 $19.02 $19.87 Central Expressway Total 10,903,191 0 12.1% 87,254 438,746 $27.09 $21.01 $26.65 Class A 7,052,735 0 13.4% 78,220 389,924 $28.66 $21.48 $28.10 Class B 3,662,782 0 9.9% 10,892 35,499 $23.75 $20.08 $23.48 East Dallas Total 3,395,114 0 23.7% 82,525 -350,857 $16.41 $19.16 $16.50 Class A - 0 ------Class B 2,349,163 0 27.9% 95,121 -351,133 $16.82 $19.16 $16.93 Far North Dallas Total 38,972,581 2,403,265 16.5% 55,519 617,905 $27.46 $23.59 $26.93 Class A 23,744,315 2,403,265 16.0% 134,989 722,330 $31.76 $26.12 $30.95 Class B 15,146,519 0 17.4% -61,470 -87,225 $21.42 $18.03 $21.12 Las Colinas Total 31,112,754 1,124,761 15.3% 283,569 899,836 $24.26 $21.07 $23.94 Class A 16,161,988 785,402 14.2% 417,287 774,896 $28.27 $21.33 $27.11 Class B 14,274,692 339,359 16.6% -133,865 114,020 $20.73 $18.82 $20.68 LBJ Freeway Total 19,927,855 0 24.0% 233,053 445,009 $21.33 $17.06 $21.05 Class A 10,408,036 0 24.4% -31,290 196,428 $25.06 $18.40 $24.44 Class B 9,209,828 0 23.3% 263,065 247,544 $17.77 $13.61 $17.63 Lewisville/Denton Total 5,149,409 0 8.1% 33,488 227,219 $21.17 $20.81 $21.14 Class A 324,964 0 0.0% - 80,964 $25.33 - $25.33 Class B 4,442,147 0 9.1% 32,511 145,276 $19.04 $20.81 $19.21 Mid-Cities Total 15,875,101 160,000 20.2% 3,073 221,662 $21.76 $17.79 $21.60 Class A 4,197,151 160,000 25.2% 10,262 108,983 $25.84 $17.37 $25.46 Class B 9,930,731 0 17.8% 11,571 100,764 $18.56 $18.23 $18.55 North Fort Worth Total 1,866,701 0 7.8% 27,758 122,224 $19.98 $23.81 $20.56 Class A 511,277 0 4.9% 46,234 108,799 - - - Class B 1,246,379 0 8.9% -18,476 9,645 $20.13 $23.81 $20.74

3 DALLAS/FT. WORTH 4Q16 OFFICE MARKET www.ngkf.com

Submarket Statistics

Northeast Fort Worth Total 3,054,770 0 58.2% -420,896 -457,570 $20.14 $12.88 $20.11 Class A 414,859 0 81.5% 9,565 -7,407 $21.29 - $21.29 Class B 2,474,606 0 56.0% -410,495 -419,724 $19.89 $12.88 $19.85 Preston Center Total 4,237,471 171,583 9.2% -3,389 13,201 $36.75 $28.36 $35.80 Class A 3,395,194 171,583 9.0% -15,802 1,951 $38.40 $28.41 $37.10 Class B 706,206 0 10.8% -3,095 9,952 $29.44 $26.81 $29.36 Richardson/Plano Total 22,819,408 322,670 21.0% -413,603 513,984 $23.62 $19.54 $23.46 Class A 10,332,701 300,000 17.2% -263,540 801,197 $26.70 $20.81 $26.26 Class B 11,751,039 22,670 24.8% -152,308 -333,634 $21.77 $15.52 $21.66 South Fort Worth Total 6,802,554 160,182 11.0% -66,696 9,366 $23.98 $20.29 $23.85 Class A 1,966,453 160,182 12.9% -17,095 61,836 $30.20 $24.55 $30.13 Class B 4,030,737 0 9.7% -49,601 -68,362 $21.45 $19.77 $21.36 Southwest Dallas Total 2,077,654 0 16.0% -7,967 -15,327 $16.31 - $16.31 Class A 304,001 0 5.1% - - $21.84 - $21.84 Class B 1,272,137 0 19.1% -10,569 -41,827 $15.88 - $15.88 Stemmons Freeway Total 10,142,478 0 29.0% 135,873 -151,607 $15.52 $10.10 $15.38 Class A 4,430,819 0 19.6% 7,710 -36,598 $16.52 $14.45 $16.49 Class B 4,814,519 0 35.4% 89,059 18,986 $15.27 $9.26 $15.02 Uptown/Turtle Creek Total 11,556,973 1,264,225 12.3% 197,250 520,295 $38.17 $31.72 $37.53 Class A 9,137,221 1,264,225 12.3% 198,023 554,590 $39.94 $32.92 $39.23 Class B 2,139,715 0 12.8% 4,219 -17,082 $33.15 $25.30 $32.46 Suburban Total 187,894,014 5,606,686 18.3% 219,956 3,044,204 $24.20 $21.66 $23.99 Class A 92,381,714 5,244,657 16.6% 574,563 3,747,893 $28.64 $23.27 $28.06 Class B 87,451,200 362,029 19.9% -333,441 -637,301 $20.21 $17.68 $20.10 Dallas Market Total 224,571,462 6,230,054 19.1% 116,786 2,187,812 $24.56 $20.77 $24.27 Class A 120,157,570 5,868,025 18.7% 437,501 2,832,383 $28.21 $21.83 $27.61 Class B 94,989,295 362,029 19.8% -310,249 -593,372 $20.19 $17.77 $20.08

4 DALLAS/FT. WORTH 4Q16 OFFICE MARKET

Texas Top Submarkets Employment By Industry

Top 10 Submarkets by 2016 Net Absorption Dallas, November 2016

2.3% Information 3.4% RSF 5.7% Other Services Rank Submarket 21.8% Mining/Logging/Construction 1 DFW Las Colinas 899,836 7.3% 2 Far North Dallas 617,905 Manufacturing 8.2% 3 DFW Uptown/Turtle Creek 520,295 Financial Activities 4 DFW Richardson/Plano 513,984 16.7% Leisure/Hospitality 5 DFW LBJ Freeway 445,009 10.3% 6 DFW Central Expressway 438,746 Government 7 HOU Greenway Plaza 257,686 12.3% 12.0% Education/Health Services 8 Northwest Austin 232,742 Professional/Business Services 9 Central/West Central Austin 232,632 Trade/Transportation/Utilities 10 DFW Lewisville/Denton 227,219

Source: Newmark Grubb Knight Frank Source: U.S. Bureau of Labor Statistics

Unemployment Rate Payroll Employment

Not Seasonally Adjusted Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change

10% 5%

8% 4%

6% 3%

4% 2%

2% 1%

0% 0% Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16

United States Dallas United States Dallas

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics,

Consumer Price Index (CPI) Employment Growth by Industry

All Items, 12-Month % Change, Not Seasonally Adjusted, 1982-84=100 Dallas, November 2016, 12-Month % Change, Not Seasonally Adjusted

6% Total Nonfarm Mining/Logging/Construction 4% Manufacturing Trade/Transportation/Utilities 2% Information 0% Financial Activities Professional/Business Services -2% Education/Health Services Leisure/Hospitality -4% Other Services Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Government United States Dallas -2% 0% 2% 4% 6% 8%

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics

5 Newmark Grubb Knight Frank United States Office Locations Dallas 2515 McKinney Ave. Suite 1300 Dallas, TX 75201 469.467.2000

David Wegman, CFA Director of Research - Texas 713.599.5151 [email protected]

Leta Wauson Research Manager - Texas 713.599.5108 [email protected]

Newmark Grubb Knight Frank Research Reports are also available at www.ngkf.com/research

to all aspects of that decision, including its legal, financial, and tax aspects and implications.

Current Conditions

Third-quarter 2016 represents the 13th consecutive The third quarter of 2016 marks the 13th consecutive quarter of positive net quarter of positive net absorption. absorption, as 2,070,673 square feet was absorbed, the highest quarterly There were 29 projects underway at the end of third- tally since second-quarter 2000. As a result, vacancy dropped to 18.8% quarter 2016, representing 7.0 million square feet. from 19.2% in the previous quarter. In response to declining vacancy, asking rents moved higher, albeit at a slower place. The average asking The overall vacancy rate stood at 18.8%. rent in Dallas/Fort Worth stood at $24.16/SF at the end of third-quarter 2016, which represents a 5.0% increase year-over-year. For perspective, asking rents increased by 7.2% and 7.4% in 2014 and 2015, respectively.

Despite the slowing pace of rent growth, expect office market conditions to Market Analysis remain in a steady and upward trend in the coming quarters. (See the Asking Rent and Vacancy recent report ) $26 26% $24 Downtown Dallas Versus Uptown 24% Corporate relocations and expansions, 115,000 new jobs, low $22 $20 22% unemployment and healthy fundamentals dominate the headlines, yet the $18 downtown Dallas office market continues to suffer from elevated vacancy. 20% $16 Part of the problem is tied to the big blocks of vacant space. Currently, the 18% $14 Dallas Central Business District (CBD) is home to 22 blocks of contiguous $12 16% space with 100,000-plus rentable square feet, including 18 blocks 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16

associated with Class A product. The largest block of contiguous space Average Asking Rent (Price/SF) Vacancy (%) resides in Thanksgiving Tower, with 436,674 rentable square feet available

Olive in Uptown. In addition, Bank of America Plaza, 1700 Pacific, Fountain Net Absorption which is expected to deliver in late 2017 Square Feet, Millions all have over 200,000 square feet of contiguous space. Overall, vacancy in downtown Dallas is running at 25.2%, which is slightly above the five-year 2.5 average of 24.5%. 2.0 1.5 Turning to the Uptown/Turtle Creek submarket, vacancies remain low and 1.0 recent deliveries including 2950 North Harwood Street, 1717 McKinney 0.5 Avenue and 2021 McKinney Avenue have all leased up very quickly. 0.0 Overall vacancy in Uptown/Turtle Creek stood at 12.9% in third-quarter -0.5 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 rate below 13.0%. The wide disparity in occupancy between downtown and Uptown/Turtle Creek also extends to asking rents. The average asking rent in Uptown/Turtle Creek is $37.42/SF, compared with $25.49/SF downtown. Market Summary The difference was even greater for Class A properties, with rents Current Prior Year Ago 12 Month $12.64/SF higher in Uptown/Turtle Creek than downtown. With a plethora of Quarter Quarter Period Forecast downtown assets trading hands in recent years, new owners are investing Total Inventory (SF) 222.3 M 220.9 M 217.6 M millions of dollars updating their properties to compete against newer buildings in Uptown. While the spread between the CBD and Uptown/Turtle Vacancy Rate 18.8% 19.2% 18.6% Creek submarket will likely narrow over time, the recent lease signed by the Net Absorption (SF) 2,070,673 525,174 882,685 U.S. Environmental Protection Agency highlights a sizable challenge: Average Asking Rent $24.16 $24.08 $23.01 Downtown tenants are trading one building for another, creating a zero-sum Under Construction 7,019,343 7,272,543 6,897,857 - Deliveries 1,425,080 1,403,924 1,614,921 square-foot lease transaction, that means a 2019 move from Fountain Place to Renaissance Tower.

DALLAS/FT. WORTH 3Q16 OFFICE MARKET

Year-to-Date Absorption Tells a Compelling Story Investment Sales With so many possible storylines corporate relocation, volume of In what turned out to be a busy quarter for investment sales transactions, investment sales activity, the progress at the Las Colinas Music Factory Mesirow Realty purchased Verizon Hidden Ridge campus for $344.0 and success of Cypress Waters trying to capture everything going on is million. As part of the transaction, Verizon Communications signed a tough. However, the year-to-date absorption figures across Austin, new, 20-year lease making this transaction both the largest sale and Dallas/Fort Worth and Houston tell a compelling story, with Dallas/Fort largest lease transaction of third-quarter 2016. In another deal, New-York Worth submarkets taking the top five spots: Richardson/Plano (1,057,676 based Fortis Property Group purchased Chase Tower in downtown square feet), Las Colinas (691,801 square feet), Far North Dallas Dallas. The $273.0 million price tag represents the second-largest (609,629 square feet), Uptown/Turtle Creek (442,205 square feet) and transaction and highlights a trend of heavy activity in the CBD. Turning to Central Expressway (342,295 square feet). This illustrates both the the priciest deal on a per-square-foot basis, Metzler Real Estate bought underlying strength and depth of the current cycle. 2000 McKinney Avenue, located in the Uptown/Turtle Creek submarket

Construction Zone newest towers are topping $50.00/SF, 2000 McKinney Avenue marks To say that developers are busy in Dallas/Fort Worth is an one of the highest price per-square-foot transactions the city of Dallas understatement. There are currently 29 properties underway, has even seen. representing more than 7.0 million rentable square feet. Once completed, this will expand the existing inventory by 3.2%. The most active Overall, $2.2 billion of office transactions took place in Dallas during the submarket is Far North Dallas with 2,768,091 square feet underway. The first seven months of 2016. That result is up 14.1%, compared with the Las Colinas submarket is a distant second with 1,339,761 square feet same time period in 2015, according to data from Real Capital Analytics. that has broken ground. The Uptown/Turtle Creek submarket ranks third One factor helping to drive transaction volume higher is foreign capital. with 1,264,225 square feet underway. Combined, these three Dallas has been identified as a top U.S. market for Chinese investors. submarkets accounted for nearly 77% of all construction activity in the Furthermore, Chinese investment in U.S. real estate will reach new highs metro. With 48.0% of the new supply pre-leased, the construction in the 2017 and 2018. This additional tailwind should help propel pipeline should have a minor impact on overall fundamentals. transaction volume and pricing in coming quarters. Finally, cap rates have mostly trended down, with most institutional-quality deals trading between a 6.3% and 6.7% cap rate.

Lease/User Transactions

Tenant Building Submarket Type Square Feet Verizon Verizon Hidden Ridge Campus Las Colinas Direct/Renewal 576,138 U.S. EPA Renaissance Tower Dallas CBD Direct/New 229,000 FM Global The Star 1 Cowboys Way Far North Dallas Direct/New 79,428 Bank of America The Star 1 Cowboys Way Far North Dallas Direct/New 63,325 Convergys Corporation 930 E Campbell Road Richardson Direct/New 57,327

Select Sales Transactions

Building Submarket Sale Price Price/SF Square Feet Verizon Hidden Ridge Campus Las Colinas $344,000,000 $299.13 1,150,000 2200 Ross Ave. Chase Tower Dallas CBD $273,000,000 $217.45 1,255,473 Las Colinas Towers I & II Las Colinas $83,300,000 $171.00 486,757 2000 McKinney Ave. Uptown/Turtle Creek $225,800,000 $504.47 447,595 2323 Victory Ave. One Victory Park Uptown/Turtle Creek $183,000,000 $419.48 436,253

2 DALLAS/FT. WORTH 3Q16 OFFICE MARKET www.ngkf.com

Submarket Statistics

Dallas CBD Total 28,224,512 401,937 25.2% -66,898 -625,228 $25.72 $17.86 $25.49 Class A 21,910,711 401,937 26.3% -86,257 -648,389 $26.59 $17.66 $26.32 Class B 5,144,086 0 21.5% 13,288 8,576 $20.00 $22.16 $20.03 Ft. Worth CBD Total 8,352,037 280,489 14.6% -36,154 -146,266 $25.84 $19.88 $25.19 Class A 5,709,246 280,489 15.3% -12,236 -101,760 $29.12 $22.29 $28.46 Class B 2,394,009 0 13.1% -23,918 -44,506 $19.95 $16.70 $19.50 CBD Total 36,576,549 682,426 22.8% -103,052 -771,494 $25.74 $18.51 $25.46 Class A 27,619,957 682,426 24.0% -98,493 -750,149 $26.80 $18.74 $26.51 Class B 7,538,095 0 18.8% -10,630 -35,930 $19.98 $18.00 $19.89 Central Expressway Total 10,839,675 0 12.9% 29,727 342,295 $26.69 $22.02 $26.41 Class A 7,051,915 0 14.7% 32,932 300,686 $28.38 $22.65 $27.98 Class B 3,600,086 0 9.9% -305 26,428 $23.31 $19.99 $23.19 East Dallas Total 3,246,695 99,500 24.5% -1,123 -442,553 $16.29 $16.31 $16.29 Class A - 0 ------Class B 2,250,664 99,500 29.3% 844 -454,425 $16.98 $16.31 $16.97 Far North Dallas Total 38,847,273 2,768,091 16.8% 39,901 609,629 $27.45 $23.74 $27.01 Class A 23,778,332 2,728,091 16.6% 56,705 661,382 $31.87 $26.14 $31.05 Class B 14,987,194 40,000 17.2% -16,804 -52,553 $21.28 $18.20 $21.02 Las Colinas Total 30,858,215 1,339,761 15.4% 216,790 691,801 $23.77 $20.54 $23.46 Class A 15,939,484 1,000,402 15.4% 132,209 405,641 $27.67 $20.95 $26.55 Class B 14,243,786 339,359 15.5% 82,394 275,387 $20.75 $18.26 $20.70 LBJ Freeway Total 19,930,820 0 25.1% 109,412 265,807 $21.19 $16.90 $20.95 Class A 10,410,777 0 24.2% 12,262 218,418 $24.67 $18.14 $24.11 Class B 9,210,052 0 25.9% 97,518 47,630 $17.85 $12.78 $17.74 Lewisville/Denton Total 5,131,924 0 8.6% 84,810 193,098 $21.64 $21.43 $21.62 Class A 324,964 0 0.0% - 80,964 $26.05 - $26.05 Class B 4,405,257 0 9.9% 82,160 112,132 $19.53 $21.43 $19.76 Mid-Cities Total 15,800,482 160,000 19.8% 31,072 193,758 $22.11 $18.02 $21.94 Class A 4,196,056 160,000 25.2% 42,501 108,845 $25.91 $17.16 $25.60 Class B 9,814,421 0 17.1% -26,638 74,786 $18.86 $19.13 $18.80 North Fort Worth Total 1,866,701 0 8.9% 45,798 101,554 $19.73 $20.58 $19.83 Class A 511,277 0 13.9% 48,283 62,565 - - - Class B 1,246,379 0 7.0% -7,485 33,129 $19.86 $20.58 $19.94

3 DALLAS/FT. WORTH 3Q16 OFFICE MARKET www.ngkf.com

Submarket Statistics

Northeast Fort Worth Total 2,612,270 0 50.4% -10,481 -28,948 $17.30 $13.21 $16.97 Class A 403,938 0 84.0% - -8,631 $21.30 - $21.30 Class B 2,043,027 0 46.2% 19 -9,817 $14.32 $13.21 $14.17 Preston Center Total 4,179,868 186,257 9.2% 65,317 21,288 $36.09 $28.33 $35.25 Class A 3,337,591 186,257 8.6% 65,118 20,587 $37.65 $28.33 $36.46 Class B 706,206 0 10.1% 199 14,911 $28.98 - $28.98 Richardson/Plano Total 22,163,107 358,901 18.2% 1,215,288 1,057,676 $22.46 $18.68 $22.32 Class A 10,333,549 300,000 15.0% 1,212,595 998,681 $26.29 $20.03 $25.94 Class B 11,063,178 58,901 21.4% -5,907 8,785 $19.73 $15.05 $19.64 South Fort Worth Total 6,832,859 160,182 9.9% 71,356 78,914 $23.80 $20.19 $23.66 Class A 1,966,453 160,182 12.0% 53,090 78,931 $30.10 $24.55 $30.03 Class B 4,061,042 0 8.3% 11,618 -15,909 $21.33 $19.74 $21.23 Southwest Dallas Total 2,018,945 0 16.4% -13,126 -13,788 $16.13 - $16.13 Class A 304,001 0 5.1% - - $21.84 - $21.84 Class B 1,339,977 0 17.1% -13,126 -27,151 $15.64 - $15.64 Stemmons Freeway Total 9,928,527 0 29.9% -21,544 -235,894 $15.81 $10.86 $15.67 Class A 4,133,522 0 20.5% -26,870 -29,372 $16.73 $13.32 $16.71 Class B 4,837,387 0 35.7% 7,749 -45,074 $15.63 $10.67 $15.39 Uptown/Turtle Creek Total 11,491,824 1,264,225 12.9% 310,528 442,205 $38.11 $30.94 $37.42 Class A 9,094,731 1,264,225 13.3% 370,445 464,949 $39.54 $33.05 $38.96 Class B 2,139,494 0 12.9% -61,705 -20,523 $33.06 $25.39 $32.05 Suburban Total 185,749,185 6,336,917 18.0% 2,173,725 3,276,842 $24.03 $21.58 $23.85 Class A 91,786,954 5,799,157 17.0% 1,999,270 3,363,646 $28.52 $23.43 $28.03 Class B 85,948,150 537,760 19.0% 150,531 -32,264 $19.76 $17.58 $19.65 Dallas Market Total 222,325,734 7,019,343 18.8% 2,070,673 2,505,348 $24.36 $21.24 $24.16 Class A 119,406,911 6,481,583 18.6% 1,900,777 2,613,497 $28.02 $22.83 $27.61 Class B 93,486,245 537,760 19.0% 139,901 -68,194 $19.78 $17.61 $19.67

4 DALLAS/FT. WORTH 3Q16 OFFICE MARKET

Texas Most Expensive Submarkets Employment By Industry

Top 10 Submarkets by Average Asking Rent Dallas, July 2016

2.3% Information 3.4%

5.8% Other Services Rank Submarket Asking Rent P/SF 21.6% Mining/Logging/Construction 1 Austin CBD $48.10 7.5% 2 Houston CBD $40.80 Manufacturing 3 DFW Uptown/Turtle Creek $37.42 8.3% Financial Activities 4 Southwest Austin $35.37 16.4% Leisure/Hospitality 5 DFW Preston Center $35.25 10.8% 5 HOU Galleria/Uptown $35.08 Government 7 HOU Greenway Plaza $34.41 12.2% 11.5% Education/Health Services 8 North Austin $33.32 Professional/Business Services 9 HOU Allen Pkwy/Montrose $31.48 Trade/Transportation/Utilities 10 HOU The Woodlands $31.35

Source: Newmark Grubb Knight Frank Source: U.S. Bureau of Labor Statistics

Unemployment Rate Payroll Employment

Not Seasonally Adjusted Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change

10% 5%

8% 4%

6% 3%

4% 2%

2% 1%

0% 0% Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16

United States Dallas United States Dallas

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics,

Consumer Price Index (CPI) Employment Growth by Industry

All Items, 12-Month % Change, Not Seasonally Adjusted, 1982-84=100 Dallas, July 2016, 12-Month % Change, Not Seasonally Adjusted

6% Total Nonfarm Mining, Logging and Construction 4% Manufacturing Trade, Transportation, and Utilities 2% Information 0% Financial Activities Professional and Business Services -2% Education and Health Services Leisure and Hospitality -4% Other Services Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Government United States Dallas -2% 0% 2% 4% 6% 8%

Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics

5 Newmark Grubb Knight Frank United States Office Locations Dallas 2515 McKinney Ave. Suite 1300 Dallas, TX 75201 469.467.2000

David Wegman, CFA Director of Research - Texas 713.599.5151 [email protected]

Leta Wauson Research Manager - Texas 713.599.5108 [email protected]

Newmark Grubb Knight Frank Research Reports are also available at www.ngkf.com/research

to all aspects of that decision, including its legal, financial, and tax aspects and implications.