Houston Office May 2016

MARKET WATCH HOUSTON OFFICE MAY 2016

RECENT OFFICE LEASES Westchase :: Lockton Office Market Indicators - All Space DIRECT OVERALL ASKING RENTAL Companies TOTAL SF AVAILABLE SF UNDER Q1 2016 NET SUBMARKET INVENTORY VACANCY VACANCY RATES (FSG) BLDGS IMMEDIATELY CONSTRUCTION ABSORPTION 120,000 SF prelease at Lockton RATE RATE CLASS A CLASS B

Place Downtown (CBD & Midtown) 120 53,679,318 6,477,048 12.1% 13.8% 1,056,658 149,000 $41.82 $28.59

FM 1960 (FM 1960/I-45 N, FM 1960/ 77 8,527,532 1,275,646 15.0% 16.6% 165,754 (11,000) $26.92 $15.98 Westchase :: Neighbors Champions & FM 1960/Hwy 249) Health System Greenspoint/North Belt (North Belt West/Greenspoint & Greenspoint/IAH) 97 13,181,407 3,616,140 27.4% 30.1% - (34,000) $27.05 $14.31 100,000 SF new lease at 10800 Greenway Plaza 50 11,064,288 1,349,843 12.2% 12.3% 398,696 121,000 $35.90 $25.83 Richmond Gulf Freeway/Pasadena 34 2,597,502 400,015 15.4% 15.4% 102,000 (36,000) - $21.49

Galleria :: Citigroup Katy 43 3,259,094 514,937 15.8% 15.9% 124,017 3,000 $32.65 $24.28 49,730 SF new lease at Galleria Katy Frwy/Energy Corridor 205 36,110,960 3,963,361 11.0% 13.2% 1,179,475 (95,000) $37.00 $22.97 Tower I (Katy Freeway East & Katy Freeway West) Kingwood/Humble 9 1,025,047 84,054 8.2% 8.2% - 11,000 $32.00 $18.75

RECENT OFFICE SALES NASA/Clear Lake 63 7,051,599 849,013 12.0% 12.4% - 96,000 $25.04 $18.03 Greenspoint/N Belt West :: Northeast 16 1,665,562 206,530 12.4% 12.4% - 510,000 - $17.46 Greenspoint Park Northwest 73 8,883,138 1,436,160 16.2% 16.7% - (33,000) $22.37 $17.88 352,125 SF, three building (North Loop West, Northwest Near & Northwest Far) portfolio, Class B South Main/Medical Center 49 10,469,072 975,718 9.3% 9.3% - (13,000) $29.38 $25.21 Southwest Frwy/Sugar Land 123 16,266,671 2,015,539 12.4% 12.7% - 115,000 $25.20 $16.16 Buyer: Lincoln Property Co (SW/Hillcroft, SW Beltway 8 & E Ft Bend Co/Sugar Land) Seller: NorthStar Realty Finance West Belt 37 4,902,573 808,925 16.5% 17.8% - - $32.02 $23.89

West Loop (Bellaire, Post Oak Park, Galleria, 173 33,203,145 3,478,482 10.5% 11.2% 1,285,000 (134,000) $36.12 $24.40 FM 1960/Champions :: Riverway, Richmond/Fountainview & San Felipe/Voss) Northwoods Park Westchase 88 16,367,349 1,734,939 10.6% 13.0% 1,100,000 178,000 $38.86 $21.35 104,786 SF, Class B The Woodlands 92 15,348,455 1,335,316 8.7% 9.3% 511,913 169,000 $40.80 $25.44

Buyer: Harry N. Shani Conroe 13 903,345 79,494 8.8% 8.8% - - $29.40 $24.77 Seller: BH Properties, LLC Total - Houston 1,362 244,506,057 30,601,159 12.5% 13.8% 5,923,513 996,000 $35.09 $21.30

Source: Transwestern analysis of CoStar data, includes buildings 50,000 SF RBA and greater, excluding government owned buildings

OFFICE LEASE STATISTICS Office Sales Statistics HOUSTON MSA UNITED STATES Overall Vacancy Rates Asking Rental Rates (FSG) LAST LAST QUARTER TRAILING 12 TRAILING 12 QUARTER QUARTER 14% $29.00 TO DATE MONTHS MONTHS (Q1 2016) (Q1 2016) Volume $23.5 $240.5 $2,235.4 $30,544.8 $143,049.2 13% $28.00 ($ Mil)

No. of 4 18 129 1,209 5,840 12% $27.00 Properties

11% $26.00 Total SF 183,339 2,122,890 14,629,153 121,838,318 634,349,167

Average 10% $25.00 N/A $152 $220 $263 $245 Price/SF Average 9% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 $24.00 Cap Rate N/A N/A 7.3% 6.6% 6.7% 13 13 13 13 14 14 14 14 15 15 15 15 16 (Yield) Source: Transwestern analysis of CoStar data, includes buildings 50,000 SF RBA and greater, excluding government owned buildings Source: Real Capital Analytics HOUSTON OFFICE MARKET WATCH MAY 2016

1 4 7 5 1

6 3 5 8 249 2 4 2 290 2

4 3 90 3

6 2

1 5

10 10

4 6 1 See 3 2 Inner Loop 610 1 6 Map 8 99 1 2

3 2

59 45

288 35 4

INNER LOOP SOUTHEAST NORTH SOUTHWEST 1. CBD 1. Gulf Frwy/Pasadena 1. The Woodlands 1. Southwest/Hillcroft 2. South Main/Medical Center 2. NASA/Clear Lake 2. FM 1960/ I-45 North 2. Southwest Beltway 8 3. Galleria 3. Southeast Outlier 3. North Belt West/Greenspoint 3. E Fort Bend Co/Sugar Land

4. Riverway NORTHWEST WEST 4. Southwest Outlier 5. Midtown 1. Northwest Near 1. San Felipe/Voss NORTHEAST 6. Greenway Plaza 2. Northwest Far 2. Richmond/Fountainview 1. Northeast Near 7. Post Oak Park 3. FM 1960/Hwy 249 3. Westchase 2. Greenspoint/IAH 8. Bellaire 4. FM 1960/Champions 4. Katy Freeway East 3. Kingwood/Humble 9. North Loop West 5. Northwest Outlier 5. Katy Freeway West 4. Northeast Outlier 6. West Belt 6. Katy

MARKET WATCH HOUSTON OFFICE MARKET MAY 2016 HOUSTON OFFICE MARKET WATCH MAY 2016

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Transwestern was founded in Houston, Texas in 1978, and Houston remains the corporate headquarters today. As one of the preeminent commercial real estate firms in Houston, we offer a comprehensive menu of real estate services designed to provide owners, tenants and investors with the optimum solutions for their unique requirements. Transwestern has seasoned veterans in every area of expertise with the integrity, experience and creativity to be the best partner for its clients. Transwestern’s Houston office currently employs over 400 team members and has been an innovator in the Houston market for 38 years.

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HOUSTON CONTACTS Eric Anderson Michelle Wogan Monte Calvert Justin Leighton Margaret Ann Cook Executive Vice President - Office Executive Vice President - Office Senior Vice President - Office Managing Director - Tenant Advisory Vice President - Tenant Advisory 713.407.8704 713.270.3348 713.272.1234 713.272.1227 713.272.1223 [email protected] [email protected] [email protected] [email protected] [email protected] Doug Little David Lee Greg Tilton Ken Page Michael Snodgrass Senior Managing Director - Office Senior Vice President - Office Vice President - Office Managing Director - Tenant Advisory Managing Director - Structured Finance 713.272.1284 713.270.3335 713.270.3386 713.270.3361 713.270.3342 [email protected] [email protected] [email protected] [email protected] [email protected] David Baker Paul Wittorf Louann Pereira Bobbie Bozarth Jan Sparks Executive Vice President - Office Senior Vice President - Office Vice President - Office Senior Vice President - Tenant Advisory Managing Director - Structured Finance 713.407.8701 713.407.8709 713.272.1267 713.272.1221 713.270.3398 [email protected] [email protected] [email protected] [email protected] [email protected]

CONTACT METHODOLOGY Rachel Alexander Kevin Roberts The information in this report is the result of a compilation of publicly available Director of Market Research President, Southwest data from a variety of commercial and government sources. 713.270.3344 713.270.3347 [email protected] [email protected]

1900 West Loop South, Suite 1300 T 713.270.7700 F 713.270.6285 Houston, Texas 77027 www.transwestern.net/houston

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

Central Business District

SNAPSHOT VACANCY RATES Absorption in the CBD finally returned to the positive in 2016 after four

quarters of negative in 2015. This positive swing is due to the delivery of Class A Overall Class A Direct Class B Overall Class B Direct the 100% occupied Hilcorp Energy Tower, however, and is not a reflection of new leasing activity. Sublease space grew sharply at Q1 with Shell’s 20% addition of 350,000 SF of long-term space in One Shell Plaza. This brings 16% total available sublet in the submarket up to 1.8 million SF. Class A direct vacancy increased to 8.5% at first quarter, and overall vacancy was 9.7%. 12% Class B vacancy jumped to 17.1% for direct and 18.5% overall. Rental rates are beginning to dip as Class A space showed a 1.1% decrease 8% from year-end, while Class B rents remain unchanged. In the first quarter, 4% the largest deal signed in Houston was a 225,000 SF prelease by United Airlines in 609 Main at Texas. Following the delivery of Hilcorp Energy 0% 2013 2014 2015 Q1 2016 Tower, 609 Main at Texas is the only office project under construction in the CBD, and it is currently 27% preleased.

SIGNIFICANT LEASES SIGNED NET ABSORPTION United Airlines - 225,000 SF prelease, 609 Main at Texas CBD A CBD B Pattern Energy - 34,901 SF new lease, Total Plaza 400,000 Mitsubishi Motors - 22,920 SF new lease, LyondellBasell Tower 0 INVESTMENT SALES 723 Main - 92,883 SF, Class B, acquired by NewcrestImage for an -400,000 undisclosed price -800,000 CONSTRUCTION ACTIVITY -1,200,000 609 Main at Texas - 47 stories, 1,057,000 SF, 27% preleased to United Airlines and Kirkland & Ellis, Q4 2016 delivery -1,600,000 2013 2014 2015 Q1 2016

LARGE BLOCKS OF SPACE BEING MARKETED (100,000 SF+) 800 Bell, Floors 1-46, 1,314,350 SF (Exxon)

609 Main at Texas, Floors 12-46, 756,873 SF (new construction) RENTAL RATES (FSG)

One Shell Plaza, 350,000 SF sublease, term through 12/2025 (Shell) CBD A CBD B 2 Houston Center, Floors 4-8, 234,333 SF (Shell) $45.00 600 Jefferson, Floors 11-19, 192,984 SF (United Airlines) $40.00 811 Louisiana, Floors 10-15, 188,695 SF (Shell) 811 Louisiana, Floors 18-22, 159,665 SF (Shell) $35.00

Total Plaza, Floors 10-15, 145,352 SF (Hilcorp) $30.00 Pennzoil Place, Floors 6-12 and 14, 140,270 SF (Cheniere Energy) $25.00 1415 Louisiana, Floors 25-32, 137,611 SF (Eagle Rock, other) Heritage Plaza, Floors 14-18, 133,263 SF sublease, term through $20.00 2013 2014 2015 Q1 2016 08/2023 (Rosetta Resources) Total Plaza, Floors 28-32, 124,069 SF (PwC) Wells Fargo Plaza, Floors 30-35, 114,066 SF (Gardere Wynne Sewell)

Energy Corridor

SNAPSHOT VACANCY RATES The Energy Corridor is likely to be the hardest hit over the downturn as upstream tenants occupy a significant portion of the office space. Class Class A Overall Class A Direct Class B Overall Class B Direct A direct vacancy increased to 9.5%, and overall was 11.8%, while Class 20% B vacancy rose to 14.5% for direct and 16.8% for overall at first quarter. 16% Absorption dipped into the negative for both classes of space, coming in at 22,000 and 59,000 SF for Class A and B, respectively. Rental rates for 12% Class A space fell 1.1% and Class B dropped 1.2% through first quarter. This marked the first quarter since Q3 2013 that the Energy Corridor has 8% not had an office building delivery. Bucking market trends, 10100 Katy 4% Frwy broke ground this quarter with Cemex as a lead tenant. Sublease space continues to grow, reaching 2.3 million SF available. 59% of this 0% 2013 2014 2015 Q1 2016 space has a term of three years or less, meaning it will convert to direct availability before the market has a chance to recover. The submarket will continue to experience increasing downside pressure and rising availability rates as the energy downturn cuts deep into fundamentals. NET ABSORPTION SIGNIFICANT LEASES SIGNED Energy Corridor A Energy Corridor B Linde Process Plants - 50,380 SF new lease, Linde Plaza 3,500,000 USI Insurance - 46,902 SF new lease, Air Liquide Center South 3,000,000 InterMoor - 20,923 SF renewal, Ashford 7 2,500,000 2,000,000 INVESTMENT SALES 1,500,000 Town & Country Central I - 148,434 SF, Class B, acquired by Equus 1,000,000 Capital Partners for approximately $26.0 million, 7.7% cap rate 500,000 LARGE BLOCKS OF SPACE BEING MARKETED (175,000 SF+) 0 -500,000 2013 2014 2015 Q1 2016 Energy Center Five, Floors 1-18, 524,238 SF (new construction) 13501 Katy Frwy, Floors 1-4, 331,707 SF (Exxon) Enclave Place, Floors 1-11, 300,907 SF (new) RENTAL RATES (FSG) Three Westlake, Floors 3-9 & 14-17, 242,052 SF sublease, term (Conoco) Energy Corridor A Energy Corridor B through 02/2019 $40.00 Two Westlake, Floors 7-15, 205,304 SF (Conoco) (new construction) $35.00 West Memorial Place II, Floors 2, 9-14, 199,997 SF 10777 Clay Rd, Floors 1-3, 189,285 SF sublease, term through $30.00 12/2020 (AMEC Paragon) $25.00 17000 Katy Frwy, Floors 1-3, 174,469 SF (Mustang)

$20.00 CONSTRUCTION ACTIVITY $15.00 10100 Katy Frwy - Six stories, 226,511 SF, 35% preleased to Cemex, Q2 2017 delivery $10.00 2013 2014 2015 Q1 2016 West Memorial Place II - 14 stories, 428,565 SF, 37% preleased to IHI E&C, Q2 2016 delivery Energy Center Five - 18 stories, 524,328 SF, 0% preleased, Q2 2016 delivery

West Loop

SNAPSHOT VACANCY RATES Sublease space continues to grow in the West Loop with large blocks from BHP Billiton and Marathon Oil added over the first quarter in the Class A Overall Class A Direct Class B Overall Class B Direct Galleria. BHP’s space was expected to hit the market as their new tower is nearing completion, while Marathon’s addition is directly related 13% to low oil prices. Class A vacancy was 11.0% for direct and 11.9% for 12% overall, and Class B vacancy was 10.0% for direct and 10.6% for overall. Net absorption was negative for both classes of space at 11,000 SF and 11% 119,000 SF for Class A and B, respectively. Class A rents dropped 0.9% to $36.12 per SF gross, and Class B rents have dropped 0.3% to $24.40 10% per SF gross. Low levels of leasing activity, coupled with an upcoming 9% delivery currently 0% preleased, will negatively impact fundamentals in the period ahead. The West Loop will continue to experience increasing 8% 2013 2014 2015 Q1 2016 downside pressure and rising availability rates as the energy downturn cuts deep into the submarket.

SIGNIFICANT LEASES SIGNED NET ABSORPTION Citigroup - 49,730 SF new lease, Galleria Tower I West Loop A West Loop B INVESTMENT SALES 5433 Westheimer - 134,187 SF, Class B, purchased by Urban Meridian 800,000 for approximately $15.2 million, 6.4% cap rate 600,000 400,000 CONSTRUCTION ACTIVITY The Post Oak - 36 stories, 140,000 SF, 20% preleased to Landry’s, Q4 200,000 2017 delivery 0 -200,000 Amegy Bank Headquarters - 22 stories, 380,000 SF, 74% owner occupied, Q1 2017 delivery -400,000 -600,000 2013 2014 2015 Q1 2016 BHP Billiton Tower - 30 stories, 600,000 SF, 100% preleased to BHP Billiton, Q2 2016 delivery 1885 Saint James Place - 15 stories, 165,000 SF, 0% preleased, Q2 2016 delivery RENTAL RATES (FSG)

LARGE BLOCKS OF SPACE BEING MARKETED (100,000 SF+) West Loop A West Loop B 1360 Post Oak Blvd, 159,751 SF sublease, term through 03/2025 (BHP) $38.00 1885 St James Place, Floors 7-15, 158,585 SF (new construction) $34.00 Galleria Place I, Floors 1-8, 153,603 SF (Telecheck) $30.00 Five Post Oak Park, Floors 2-8, 142,665 SF (Amegy Bank) $26.00 Galleria Tower I, Floors 17-23, 140,618 SF (Air Liquide) Park Towers North, Floors 13-17, 111,250 SF (NetIQ) $22.00 Park Towers South, Floors 7-11, 111,250 SF (GE) $18.00

Marathon Oil Tower, 108,204 SF sublease, term through 12/2021 $14.00 2013 2014 2015 Q1 2016 (Marathon Oil) 1330 Post Oak Blvd, 101,130 SF sublease, term through 11/2019 (BHP) 5718 Westheimer, Floors 3-7, 94,680 SF (Capital One)

Westchase

SNAPSHOT VACANCY RATES With a large percentage of energy-related tenants, the Westchase submarket continues to feel the effects of a weakened economy. Class A Overall Class A Direct Class B Overall Class B Direct Currently, there is 1.1 million SF of sublease space on the market, and 20% 50% of that space has a term of seven years or greater. This quality, long-term sublease space provides an attractive option for tenants in 16% the market and often at a lower rate than competitive direct space. Even with the delivery of the 100% preleased Millennium Tower II, vacancy 12% for both classes of space increased during the first quarter as a result of anemic demand. Class A vacancy jumped to 12.3% for direct and 16.7% 8% for overall, and Class B vacancy ticked up to 9.3% for direct and 9.5% for overall. In the first quarter, Class A net absorption was 189,000 SF, 4% 2013 2014 2015 Q1 2016 sourced entirely from the delivery, and Class B recorded negative 20,000 SF of absorption. Asking rental rates for Class A dropped to $38.86 per SF gross, and Class B increased slightly to $21.35 per SF gross.

NET ABSORPTION Overall activity should remain slow as upstream companies execute cost reduction strategies that impact real estate decisions across Houston. Westchase A Westchase B CONSTRUCTION ACTIVITY 400,000 Phillips 66 campus - 1.1 million SF, 14-acre corporate campus, Q2 300,000 2016 delivery, owner occupied CLASS A LARGE BLOCKS OF SPACE BEING MARKETED (50,000 SF+) 200,000 CityWestPlace 1, Floors 1-6, 305,827 SF (BMC) 100,000 Pinnacle Westchase, 160,356 SF sublease, term through 07/2019 (Phillips 66) 0 CityWestPlace 4, 150,439 SF sublease, 7-15 year term (Statoil) -100,000 2013 2014 2015 Q1 2016 Westchase Park II, Floors 1 and 5-6, 150,000 SF (new) Two BriarLake, Floors 10-13, 107,088 SF (new) RENTAL RATES (FSG) CityWestPlace 2, 103,018 SF sublease, 7-15 year term (Statoil) Westchase A Westchase B 2500 CityWest, Floors 19-21, 70,651 SF (National Oilwell Varco, Cal Dive) $42.00 Two BriarLake, 55,830 SF sublease, term through 11/2026 (Samsung $38.00 Engineering) $34.00 Pinnacle Westchase, Floor 3, 53,452 SF (Quorum Business Solutions)

$30.00 CLASS B LARGE BLOCKS OF SPACE BEING MARKETED (50,000 SF+) $26.00 Richmond Park Westchase, Floors 1-5, 99,088 SF $22.00 Silverstone Building, Floors 1-4, 59,566 SF $18.00

$14.00 2013 2014 2015 Q1 2016

The Woodlands

SNAPSHOT VACANCY RATES The Woodlands remains one of only a few submarkets across the metro with vacancy levels under 10.0%. This is likely to change over the next Class A Overall Class A Direct Class B Overall Class B Direct few quarters as the two remaining projects under construction deliver 0% 12% preleased amid the economic downturn. A new lease signed by Common Resources was wiped off the board when the company went bankrupt 10% in the first quarter. Class A vacancy continued to climb, reaching 8.7% 8% for direct and 9.2% for overall, and Class B vacancy grew to 9.7% and 6% 10.7% for direct and overall, respectively. Net absorption for Class A space totaled 202,000 SF, while Class B recorded negative 34,000 SF of 4% absorption. Rental rates increased slightly for both classes of space with 2% Class A at $40.80 per SF gross, and Class B at $25.44 per SF gross. Rental rate growth should taper off in the period ahead with rising vacancy 0% 2013 2014 2015 Q1 2016 and tepid demand. There are several large blocks of space available for tenants in the market. In total, there is over 1.0 million SF in first NET ABSORPTION generation office space, including under construction, available for lease in The Woodlands submarket. The Woodlands A The Woodlands B

BUILDINGS ON THE MARKET 3,000,000 610 Sawdust - 116,000 SF, Class B 2,500,000

CONSTRUCTION ACTIVITY 2,000,000 Havenwood Office Park - Four stories, 240,470 SF, 0% preleased, Q2 1,500,000 2016 delivery 1,000,000 Wildwood Corporate Centre II - Eight stories, 200,000 SF, 0% 500,000 preleased, Q3 2016 delivery 0

CLASS A LARGE BLOCKS OF SPACE BEING MARKETED (50,000 SF+) -500,000 2013 2014 2015 Q1 2016 Three Hughes Landing, Floors 1-12, 313,343 SF (new)

Havenwood Office Park, Floors 1-4, 240,000 SF (new construction) RENTAL RATES (FSG) Wildwood Corporate Centre II, Floors 1-8, 201,651 SF (new construction) The Woodlands A The Woodlands B 1725 Hughes Landing, Floors 8-14, 162,120 SF (new) $42.00 Research Forest Lakeside 4, 149,988 SF sublease, term through $38.00 08/2025 (Talisman Energy) Sierra Pines II, Floors 1-6, 132,581 SF (new) $34.00

CLASS B LARGE BLOCKS OF SPACE BEING MARKETED (50,000 SF+) $30.00 8800 Technology Forest Dr, Floors 13, 260,000 SF (Lexicon Pharmaceuticals) $26.00 2001 Timberloch Place, Floors 3-5, 90,539 SF (Repsol) $22.00

$18.00 2013 2014 2015 Q1 2016

Greenway Plaza

SNAPSHOT VACANCY RATES The Greenway Plaza submarket remained quiet in the first quarter with Class A Overall Class A Direct Class B Overall Class B Direct only one significant lease signed and no investment sales occurring. 14% Class A vacancy increased to 13.8% for both direct and overall. Vacancy for Class B edged up as well to 5.7% for direct and 5.9% for overall. 12% Sublease space is not an issue in this submarket with only 189,000 SF on the market. Net absorption for Class A space totaled 129,000 SF 10% at first quarter, while Class B space recorded negative 12,000 SF of absorption. Asking rents for both Class A and B saw a slight softening in 8% the first quarter. Class A rents were down 0.1% to $35.90 per SF gross, 6% and Class B decreased 0.2% to 25.83 per SF gross. One Grove Street delivered at 68% preleased to Vitol, BoyarMiller, Johnson Law Group and 4% 2013 2014 2015 Q1 2016 PlainsCapital Bank. Despite the current economic environment, The Kirby Collection, a 188,696 SF office building in a mixed-use property, broke ground in the first quarter. The are currently nine large blocks of space NET ABSORPTION over 25,000 SF being marketed in Greenway Plaza.

SIGNIFICANT LEASES SIGNED Greenway Plaza A Greenway Plaza B CommunityBank of Texas - 23,809 SF new lease, 9 Greenway Plaza 150,000 BUILDINGS ON THE MARKET 100,000 3120 Buffalo Speedway - 350,000 SF, Class B 50,000 3100 Richmond - 56,000 SF, Class B 0 CONSTRUCTION ACTIVITY -50,000 Kirby Collection - 13 stories, 188,696 SF, 0% preleased, Q4 2017 -100,000 delivery -150,000 2013 2014 2015 Q1 2016 Regions Financial Center - 11 stories, 210,000 SF, 37% preleased to Regions Bank, Q2 2016 delivery

LARGE BLOCKS OF SPACE BEING MARKETED (25,000 SF+) RENTAL RATES (FSG) Kirby Collection, Floors 1-2,4,6-13, 188,696 SF (new construction) Greenway Plaza A Greenway Plaza B Three Greenway Plaza, Floors 4-10, 161,343 SF (ExxonMobil) $36.00 3737 Buffalo Speedway, Floors 14-19, 142,570 SF (new) Regions Financial Center, Floors 2-8, 101,148 SF (new construction) $32.00 Phoenix Tower, 77,977 SF sublease, term through 02/2018 (NALCO $28.00 Champion) 3737 Buffalo Speedway, Floors 2-6, 53,872 SF (new) $24.00 Phoenix Tower, Floors 16-17, 50,568 SF (WorleyParsons)

$20.00 One Grove Street, Floors 15-16, 37,157 SF (new construction)

$16.00 2013 2014 2015 Q1 2016 Twelve Greenway Plaza, Floors 9-10, 36,266 SF (CPL Retail Energy)

Greenspoint/North Belt

SNAPSHOT VACANCY RATES This is the eighth consecutive quarter that Greenspoint/North Belt has experienced negative absorption and an increase in vacancy in the Class Class A Overall Class A Direct Class B Overall Class B Direct A market. Class A vacancy jumped to 34.5% for direct and 38.5% for 44% overall, while Class B vacancy fell slightly to 23.3% and 25.5% for direct and overall, respectively. White Oak Operating leased some of Exxon’s 36% previous space in Four Greenspoint Place, taking 22,378 SF in the building. Bureau Veritas also signed a new lease this quarter for 43,602 28% SF in Greenspoint Park II. Net absorption for Class A space was negative 20% 53,000 SF, and Class B was positive 47,000 SF. Class A rents dropped to $27.05 per SF gross, from $27.22 per SF gross at year-end, and Class 12% B rents were down to $14.31 per SF gross, compared to $15.03 per SF gross over the same period. The submarket has 684,088 SF of sublease 4% 2013 2014 2015 Q1 2016 space on the market, 80% of which has a remaining term of three years or less, meaning more vacancy increases are coming in the period ahead. There are currently 13 blocks of space over 100,000 SF being marketed for lease, offering several opportunities for large tenants in the market. NET ABSORPTION

SIGNIFICANT LEASES SIGNED Greenspoint/North Belt A Greenspoint/North Belt B Bureau Veritas - 43,602 SF new lease, Greenspoint Park II 200,000 White Oak Operating - 22,378 SF new lease, Four Greenspoint Place 0 INVESTMENT SALES -200,000 Greenspoint Park - Three building portfolio sale, 352,125 SF total, purchased by Lincoln Property for an undisclosed price -400,000

CLASS A BLOCKS OF SPACE BEING MARKETED (100,000 SF+) -600,000 Six Greenspoint Place, 356,468 SF, available 11/2016 (ExxonMobil) -800,000 2013 2014 2015 Q1 2016 Five Greenspoint Place, 336,443 SF, vacant (ExxonMobil) Two Greenspoint Place, 276,617 SF, vacant (ExxonMobil) Three Greenspoint Place, 253,562 SF, available 07/2018 (ExxonMobil) RENTAL RATES (FSG) Northborough Tower, 204,198 SF, vacant (Noble Energy) Eight Greenspoint Plaza, 198,256 SF sublease, term through 04/2018 Greenspoint/North Belt A Greenspoint/North Belt B (ExxonMobil) $30.00 $28.00 Four Greenspoint Place, 173,480 SF, vacant (ExxonMobil) $26.00 13401 North Fwy, 143,410 SF, vacant (ExxonMobil) $24.00 2350 North Belt Tower, 116,746 SF, vacant (Southwestern Energy) $22.00 10700 North Frwy, 109,217 SF, vacant $20.00 $18.00 16676 Northchase Dr, 101,111 SF, vacant $16.00 CLASS B BLOCKS OF SPACE BEING MARKETED (100,000 SF+) $14.00 396 W Greens Rd, 181,646 SF, vacant (ExxonMobil) $12.00 2013 2014 2015 Q1 2016 Three Northborough, 154,454 SF, available 07/2016 (Noble Energy/FMC)

FM 1960

SNAPSHOT VACANCY RATES Overall activity in the FM 1960 submarket was slow to start the year with Class A Overall Class A Direct Class B Overall Class B Direct no significant leases signed and one investment sale closed. Class A 26% vacancy is down from year-end, recording 11.5% for direct and 12.2% for overall, from 11.8% and 12.6% for direct and overall in the fourth 22% quarter. Class B vacancy rose to 19.4% for direct and 22.0% for overall, compared to 18.8% for direct and 20.5% for overall over the same time period. Class A rents increased by 0.7% to $26.92 per SF gross, and 18% Class B rents fell 0.1% to $15.98 per SF gross. Net absorption for Class A space totaled 15,000 SF, and Class B absorbed negative 25,000 SF. The 14% sale of Northwoods Park marked the only investment sale in the FM 1960 submarket. There are 11 large blocks of space over 25,000 SF for tenants 10% 2013 2014 2015 Q1 2016 in the market. There are also four buildings on the market for investors looking to expand their portfolios.

INVESTMENT SALES NET ABSORPTION Northwoods Park - 104,786 SF, Class B, purchased by Harry Shani for an undisclosed price FM 1960 A FM 1960 B 600,000 BUILDINGS ON THE MARKET 500,000 Northwoods Park - 104,786 SF, Class B 400,000 9720 Cypresswood Dr - 85,290 SF, Class A 300,000 Willowchase Office Bldg - 62,001 SF, Class B 200,000 3648 W FM 1960 - 61,000 SF, Class B 100,000 CLASS B LARGE BLOCKS OF SPACE BEING MARKETED (25,000 SF+) 0 11450 Compaq Center West, Floors 7-8, 104,896 SF -100,000 2013 2014 2015 Q1 2016 Willowchase Office Bldg, 62,001 SF sublease, term through 09/2017 (Canrig Drilling) Centre at Cypress Creek, 40,278 SF sublease, term through 03/2017 RENTAL RATES (FSG) Mill Creek Building, Floors 1-2, 39,956 SF FM 1960 A FM 1960 B $28.00 Centre at Cypress Creek, Floors 2-3, 39,663 SF Torrey Chase 2, Floors 1-4, 37,711 SF $24.00 11450 Compaq Center West, Floor 5, 36,000 SF $20.00 Plaza at Commerce Park North, Floor 3, 36,000 SF Two Kuykendahl Place, Floors 1-3, 33,796 SF $16.00 Cypress Court, Floor 2, 32,135 SF $12.00 11450 Compaq Center West, Floor 2, 26,000 SF

$8.00 2013 2014 2015 Q1 2016 PROPOSED DEVELOPMENTS Five Chasewood - 236,880 SF, GenCap Partners development Offices at Vintage Marketplace - 125,000 SF, Read King development

Northwest

SNAPSHOT VACANCY RATES The Northwest submarket experienced decreasing rental rates and low absorption numbers at first quarter. Class A vacancy increased to Class A Overall Class A Direct Class B Overall Class B Direct 21.3% for direct, from 19.2% at year-end, and overall vacancy rose to 26% 22.8%, from 20.9% over the same period. Conversely, Class B vacancy fell to 16.1% for direct, from 16.3% in 2015, and to 16.3% for overall, 22% from 16.6% during the same period. Asking rents for both classes of space dipped at first quarter due to low leasing activity in not just this 18% submarket but across the metro. Rental rates for Class A space dropped to $22.37 per SF gross, and Class B rates dipped to $17.88 per SF gross. Net absorption for Class A was negative 46,000 SF, and Class B absorbed 14% positive 13,000 SF. The Northwest submarket has seven buildings listed for sale, providing investors with opportunities to move into the area. 10% 2013 2014 2015 Q1 2016

SIGNIFICANT LEASES SIGNED Catholic Charities of the Archdiocese of Galveston - 21,079 SF new NET ABSORPTION lease, 2707 N Loop West Northwest A Northwest B INVESTMENT SALES 200,000 Northwest Central I - 56,111 SF, Class B, purchased by Honesty Environmental Services, Inc for an estimated $1.7 million 100,000 BUILDINGS ON THE MARKET 2707 North Loop W - 181,586 SF, Class A 0 2600 North Loop W - 135,407 SF, Class B 2727 North Loop W - 123,103 SF, Class B -100,000 2013 2014 2015 Q1 2016 7000 Hollister Rd - 105,900 SF, Class B 5252 Hollister - 93,225 SF, Class B RENTAL RATES (FSG) Northwest Central Plaza - 73,401 SF, Class B Northwest A Northwest B 2855 Mangum - 72,059 SF, Class B $24.00 CLASS A BLOCKS OF SPACE BEING MARKETED (25,000 SF+) Brookhollow Central I, Floors 1-8 & 10, 134,246 SF $22.00 Brookhollow Central III, Floors 2-4, 56,084 SF $20.00 Northwest Crossing, Floors 2-3, 38,358 SF $18.00 Northwest Crossing III, Floor 4, 27,889 SF (Solar Turbines)

Northwest Crossing III, Floor 10, 26,594 SF (Solar Turbines) $16.00 2707 North Loop W, Floors 1-2, 25,299 SF (Christus Health) $14.00 2013 2014 2015 Q1 2016 CLASS B BLOCKS OF SPACE BEING MARKETED (25,000 SF+) 2727 North Loop W, Floors 1-7, 123,103 SF 7000 Hollister, Floors 1-3, 105,900 SF (Baker Hughes) Northwest Central Plaza, Floors 1-4, 54,602 SF

E Ft Bend Co/Sugar Land

SNAPSHOT VACANCY RATES Sugar Land held steady through the first quarter, maintaining strong Class A Overall Class A Direct Class B Overall Class B Direct fundamentals in an economic environment where many other areas 20% across the metro are suffering. For all classes of space, it has the lowest direct and overall vacancy rates of any submarket in Houston. It is this resilience that continues to drive corporate headquarter relocations like 15% Schlumberger to the area. Vacancy rates in Class A space closed the quarter at 6.8% for direct and 7.1% for overall, and Class B recorded 6.2% for direct and 7.1% for overall. Following a year of strong net absorption, 10% the momentum continued in 2016 with Class A space absorbing 23,000 SF, and Class B absorbing 9,000 SF. Class A rental rates increased to $28.29 per SF gross, while Class B rents declined slightly to $21.19 per SF 5% 2013 2014 2015 Q1 2016 gross. Fluor Enterprises put 54,744 SF of sublease space on the market in One Fluor Daniel. With this sublease, there are seven large blocks of space over 25,000 SF available for lease, leaving plenty of space for NET ABSORPTION tenants to enter the dynamic suburban market.

BUILDINGS ON THE MARKET E Ft Bend Co/Sugar Land A E Ft Bend Co/Sugar Land B 400,000 12603 Southwest Fwy - 141,779 SF, Class B 13927 Gessner - 87,720 SF, Class B 300,000 2440 Texas Pkwy - 64,768 SF, Class B

200,000 5819 Hwy 6 - 51,179 SF, Class B

LARGE BLOCKS OF SPACE BEING MARKETED (25,000 SF+) 100,000 Sugar Creek on the Lake, Floor 4, 62,457 SF

0 2013 2014 2015 Q1 2016 Sugar Creek on the Lake, 61,052 SF sublease, term through 07/2021 One Fluor Daniel, 54,774 SF sublease, negotiable term (Fluor Enterprises) RENTAL RATES (FSG) Sugar Creek II, Floors 7-8, 52,984 SF E Ft Bend Co/Sugar Land A E Ft Bend Co/Sugar Land B Three Sugar Creek Center, Floors 2-3, 52,000 SF $30.00 Sugar Creek Place I, Floors 3-4, 41,093 SF $28.00 $26.00 $24.00 $22.00 $20.00 $18.00

$16.00 2013 2014 2015 Q1 2016

West Belt

SNAPSHOT VACANCY RATES After several years of booming development activity, the West Belt submarket has finally cooled with no projects currently in the pipeline. Class A Overall Class A Direct Class B Overall Class B Direct Market fundamentals held steady as vacancy and rental rates were largely 20% unchanged. Class A vacancy stayed at 17.3% for direct and 17.8% for overall, and Class B vacancy also remained the same at 15.6% for direct, 15% but overall vacancy increased to 19.2%. In an unusually quiet quarter of inactivity, absorption for both Class A and B was 0 SF for the first three 10% months of the year. Class A rents were $32.02 per SF gross, and Class B asking rents were $23.89 per SF gross, both unchanged from the fourth quarter. With the additional sublease space in Beltway Lakes I and The 5% Offices at Sam Houston, there are 15 large blocks of space over 25,000 SF available in West Belt. Many of these blocks are in new construction 0% 2013 2014 2015 Q1 2016 buildings still trying to lock in tenants for lease-up. This new submarket was created north of the Energy Corridor during the high upstream growth period of 2012 to 2014. Demand began to stagnate in 2015 as NET ABSORPTION the downturn continues to hit the west side markets hard. West Belt A West Belt B CLASS A BLOCKS OF SPACE BEING MARKETED (25,000 SF+) 800,000 Beltway Lakes III, Floors 1-9, 244,226 SF (new) 600,000 Remington Square II, Floors 1-8, 200,000 SF (new) Legacy at Fallbrook, Floors 3-5, 129,767 SF (new) 400,000 Legacy at Fallbrook, Floor 1, 35,459 SF (new) 200,000

Sam Houston Crossing I, 35,454 SF sublease, term through 02/2019 0 4920 Westway Park Blvd, Floor 1, 31,922 SF (Allstate Insurance) -200,000 2013 2014 2015 Q1 2016 Beltway Lakes I, 27,770 SF sublease, term through 05/2019 (Trican Well Service)

The Offices at Sam Houston, 27,748 SF sublease, term through RENTAL RATES (FSG) 10/2020 (IPSCO Tubulars) West Belt A West Belt B Sam Houston Crossing I, 27,011 SF sublease, term through 05/2018 $34.00 CLASS B BLOCKS OF SPACE BEING MARKETED (25,000 SF+) $30.00 6677 N Gessner Dr, Floors 1-2, 96,000 SF (FMC Technologies) 10900 Corporate Centre, Floors 1-2, 95,450 SF (Cameron) $26.00 11302 Tanner, Floors 1-2, 57,798 SF $22.00

4700 W Sam Houston Pkwy N, Floor 1, 42,551 SF (Stewart Title) $18.00 10900 Corporate Centre, 32,589 sublease, term through 11/2016 $14.00 10235 W Little York, Floor 3, 30,767 SF $10.00 2013 2014 2015 Q1 2016

Katy

SNAPSHOT VACANCY RATES After dramatic increases in vacancy in 2015, Class A vacancy dipped Class A Overall Class A Direct Class B Overall Class B Direct slightly to 28.3% for direct and 28.4% for overall at first quarter. Class B 30% vacancy remains extremely tight at 1.4% and 1.6% for direct and overall, respectively. Net absorption for both classes of space was minimal at 25% 1,000 SF apiece for both Class A and B. Class A rental rates fell to $32.65 per SF gross, from $32.94 per SF gross in the fourth quarter. Conversely, 20% Class B increased to $24.28 per SF gross, compared to $24.01 per SF 15% gross over the same period. There are quite a few proposed projects in the Katy area, but office development remains largely on hold as 10% apprehension about future market conditions continues. All of the large 5% blocks of space on the market come from either under construction 0% 2013 2014 2015 Q1 2016 projects or recently delivered buildings. With less than 35,000 SF on the sublease market, Katy is in a better position to rebound when the overall economy begins to bounce back than many other areas in Houston.

NET ABSORPTION CONSTRUCTION ACTIVITY Grandway West II - Three stories, 124,017 SF, 17% preleased to Katy A Katy B Severn Trent, 04/2016 delivery 250,000 BUILDINGS ON THE MARKET 200,000 Mason Creek Office Center II - 127,955 SF, Class A 150,000 Park Plaza Centre - 59,656 SF, Class A

100,000 LARGE BLOCKS OF SPACE BEING MARKETED (15,000 SF+) Mason Creek Center II, Floors 1-3, 127,953 SF (new) 50,000 Katy Ranch Crossing I, Floors 2-6, 108,019 SF (new) 0 2013 2014 2015 Q1 2016 Grandway West II, Floors 1-3, 82,637 SF (new construction)

PROPOSED DEVELOPMENTS

RENTAL RATES (FSG) Grandway West III, IV, V - 460,200 SF total, Insite Realty & Urban Cos development Katy A Katy B Grand Crossing I & II - 394,465 SF total, Trammell Crow development $34.00 Katy Ranch Crossing II - 156,330 SF, Freeway Properties development $32.00 West Ten Grand Center - 139,000 SF, NewQuest Properties $30.00 development $28.00 LaCenterra at Cinco Ranch IV - 25,000 SF, Vista Cos & Amstar $26.00 development $24.00 $22.00

$20.00 2013 2014 2015 Q1 2016