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HOUSTON SUBMARKET REPORTFIRST QUARTER 2016

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 Metro

VACANCY RATES

NET ABSORPTION

RENTAL RATES (FSG)

SNAPSHOT

In the first quarter, nearly 2.0 million SF of office space delivered to the market at 92% preleased. This large prelease percentage drove Class A net absorption to 1.2 million SF, while Class B absorption was again negative at 191,000 SF. Class A direct vacancy rose to 11.5% and overall was 12.9%, and Class B vacancy grew to 14.1% for direct and 15.1% for overall. Class A rents decreased 0.6% from year-end to $35.09 per SF gross, while Class B rents ticked up just 0.1% to $21.30 per SF gross. Sublease space continues to increase, reaching 8.7 million SF at first quarter and could hit as high as 10.0 million SF by the end of 2016. As weak demand prevails, vacancy will continue trending upward, and absorption should begin to slow in the period ahead. Concession packages are expected to remain high as Houston has firmly become a tenant’s market, and conditions should become even more tenant-favorable as the year progresses. The office market will likely be extremely challenging for several years, and the full impact of the downturn will not be realized until oil prices have stabilized, and energy companies begin to recover.

SIGNIFICANT LEASES SIGNED

� United Airlines - 225,000 SF prelease, 609 Main at Texas, CBD submarket

� Linde Process Plants - 50,380 SF new lease, Linde Plaza, Katy Freeway West submarket

� Citigroup - 49,730 SF new lease, Galleria Tower I, Galleria submarket

� USI Insurance - 46,902 SF new lease, Air Liquide Center, Katy Freeway East submarket

� Bureau Veritas - 43,602 SF new lease, Greenspoint Park, North Belt West/Greenspoint submarket

NOTABLE INVESTMENT SALES

� 5300 Memorial - 155,179 SF, Class B, acquired by Equus Capital Partners for approximately $31.5 million, 7.6% cap rate

� Town & Country Central I - 148,434 SF, Class B, acquired by Equus Capital Partners for approximately $26.0 million, 7.7% cap rate

� 5433 Westheimer - 134,187 SF, Class B, purchased by Urban Meridian for approximately $15.2 million, 6.4% cap rate

L ARGEST PROJECTS UNDER CONSTRUCTION

� Phillips 66 - 1.1 million SF, 14-acre corporate campus, owner occupied, Q2 2016 delivery

� 609 Main at Texas - 47 stories, 1,057,000 SF, 27% preleased to United Airlines and Kirkland & Ellis, Q4 2016 delivery

� BHP Billiton Tower - 30 stories, 600,000 SF, 100% preleased to BHP Billiton, Q2 2016 delivery

� Energy Center Five - 18 stories, 524,328 SF, 0% preleased, Q2 2016 delivery

Class A Overall Class A Direct Class B Overall Class B Direct

6%

8%

10%

12%

14%

16%

2013 2014 2015 Q1 2016

Houston A Houston B

-2,000,000

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

2013 2014 2015 Q1 2016

Houston A Houston B

$16.00

$20.00

$24.00

$28.00

$32.00

$36.00

2013 2014 2015 Q1 2016



Central Business District

VACANCY RATES

NET ABSORPTION

RENTAL RATES (FSG)

SNAPSHOT

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 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 addition of 350,000 SF of long-term space in One Shell Plaza. This brings 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%. 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 from year-end, while Class B rents remain unchanged. In the first quarter, 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 Tower, 609 Main at Texas is the only office project under construction in the CBD, and it is currently 27% preleased.


� United Airlines - 225,000 SF prelease, 609 Main at Texas

� Pattern Energy - 34,901 SF new lease, Total Plaza

� Mitsubishi Motors - 22,920 SF new lease, LyondellBasell Tower

INVESTMENT SALES

� 723 Main - 92,883 SF, Class B, acquired by NewcrestImage for an undisclosed price

CONSTRUCTION ACTIVIT Y

� 609 Main at Texas - 47 stories, 1,057,000 SF, 27% preleased to United Airlines and Kirkland & Ellis, Q4 2016 delivery

L ARGE 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)

� One Shell Plaza, 350,000 SF sublease, term through 12/2025 (Shell)

� 2 Houston Center, Floors 4-8, 234,333 SF (Shell)

� 600 Jefferson, Floors 11-19, 192,984 SF (United Airlines)

� 811 Louisiana, Floors 10-15, 188,695 SF (Shell)

� 811 Louisiana, Floors 18-22, 159,665 SF (Shell)

� Total Plaza, Floors 10-15, 145,352 SF (Hilcorp)

� Pennzoil Place, Floors 6-12 and 14, 140,270 SF (Cheniere Energy)

� 1415 Louisiana, Floors 25-32, 137,611 SF (Eagle Rock, other)

� Heritage Plaza, Floors 14-18, 133,263 SF sublease, term through 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)


0%

4%

8%

12%

16%

20%

2013 2014 2015 Q1 2016

CBD A CBD B

-1,600,000

-1,200,000

-800,000

-400,000

0

400,000

2013 2014 2015 Q1 2016

CBD A CBD B

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

2013 2014 2015 Q1 2016



SNAPSHOT

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 A direct vacancy increased to 9.5%, and overall was 11.8%, while Class B vacancy rose to 14.5% for direct and 16.8% for overall at first quarter. 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 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 not had an office building delivery. Bucking market trends, 10100 Katy 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 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.


� Linde Process Plants - 50,380 SF new lease, Linde Plaza

� USI Insurance - 46,902 SF new lease, Air Liquide Center South

� InterMoor - 20,923 SF renewal, Ashford 7

INVESTMENT SALES

� Town & Country Central I - 148,434 SF, Class B, acquired by Equus Capital Partners for approximately $26.0 million, 7.7% cap rate


� 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)

� Three Westlake, Floors 3-9 & 14-17, 242,052 SF sublease, term through 02/2019 (Conoco)

� Two Westlake, Floors 7-15, 205,304 SF (Conoco)

� West Memorial Place II, Floors 2, 9-14, 199,997 SF (new construction)

� 10777 Clay Rd, Floors 1-3, 189,285 SF sublease, term through 12/2020 (AMEC Paragon)

� 17000 Katy Frwy, Floors 1-3, 174,469 SF (Mustang)


� 10100 Katy Frwy - Six stories, 226,511 SF, 35% preleased to Cemex, Q2 2017 delivery

� West Memorial Place II - 14 stories, 428,565 SF, 37% preleased to IHI E&C, Q2 2016 delivery

� Energy Center Five - 18 stories, 524,328 SF, 0% preleased, Q2 2016 delivery

Energy Corridor

VACANCY RATES

NET ABSORPTION

RENTAL RATES (FSG)


0%

4%

8%

12%

16%

20%

2013 2014 2015 Q1 2016

Energy Corridor A Energy Corridor B

-500,0000500,0001,000,0001,500,0002,000,0002,500,0003,000,0003,500,000

2013 2014 2015 Q1 2016

Energy Corridor A Energy Corridor B

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

2013 2014 2015 Q1 2016



West Loop

VACANCY RATES

NET ABSORPTION

RENTAL RATES (FSG)

SNAPSHOT

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 Galleria. BHP’s space was expected to hit the market as their new tower is nearing completion, while Marathon’s addition is directly related to low oil prices. Class A vacancy was 11.0% for direct and 11.9% for 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 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 per SF gross. Low levels of leasing activity, coupled with an upcoming delivery currently 0% preleased, will negatively impact fundamentals in the period ahead. The West Loop will continue to experience increasing downside pressure and rising availability rates as the energy downturn cuts deep into the submarket.


� Citigroup - 49,730 SF new lease, Galleria Tower I

INVESTMENT SALES

� 5433 Westheimer - 134,187 SF, Class B, purchased by Urban Meridian for approximately $15.2 million, 6.4% cap rate


� The Post Oak - 36 stories, 140,000 SF, 20% preleased to Landry’s, Q4 2017 delivery

� Amegy Bank Headquarters - 22 stories, 380,000 SF, 74% owner occupied, Q1 2017 delivery

� 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


� 1360 Post Oak Blvd, 159,751 SF sublease, term through 03/2025 (BHP)

� 1885 St James Place, Floors 7-15, 158,585 SF (new construction)

� Galleria Place I, Floors 1-8, 153,603 SF (Telecheck)

� Five Post Oak Park, Floors 2-8, 142,665 SF (Amegy Bank)

� Galleria Tower I, Floors 17-23, 140,618 SF (Air Liquide)

� Park Towers North, Floors 13-17, 111,250 SF (NetIQ)

� Park Towers South, Floors 7-11, 111,250 SF (GE)

� Marathon Oil Tower, 108,204 SF sublease, term through 12/2021 (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)


8%

9%

10%

11%

12%

13%

2013 2014 2015 Q1 2016

West Loop A West Loop B

-600,000

-400,000

-200,000

0

200,000

400,000

600,000

800,000

2013 2014 2015 Q1 2016

West Loop A West Loop B

$14.00

$18.00

$22.00

$26.00

$30.00

$34.00

$38.00

2013 2014 2015 Q1 2016



SNAPSHOT

With a large percentage of energy-related tenants, the Westchase submarket continues to feel the effects of a weakened economy. Currently, there is 1.1 million SF of sublease space on the market, and 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 the market and often at a lower rate than competitive direct space. Even with the delivery of the 100% preleased Millennium Tower II, vacancy 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% 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, 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. Overall activity should remain slow as upstream companies execute cost reduction strategies that impact real estate decisions across Houston.


� Phillips 66 campus - 1.1 million SF, 14-acre corporate campus, Q2 2016 delivery, owner occupied

CL ASS A L ARGE BLOCKS OF SPACE BEING MARKETED (50,000 SF+)

� CityWestPlace 1, Floors 1-6, 305,827 SF (BMC)

� Pinnacle Westchase, 160,356 SF sublease, term through 07/2019 (Phillips 66)

� CityWestPlace 4, 150,439 SF sublease, 7-15 year term (Statoil)

� Westchase Park II, Floors 1 and 5-6, 150,000 SF (new)

� Two BriarLake, Floors 10-13, 107,088 SF (new)

� CityWestPlace 2, 103,018 SF sublease, 7-15 year term (Statoil)

� 2500 CityWest, Floors 19-21, 70,651 SF (National Oilwell Varco, Cal Dive)

� Two BriarLake, 55,830 SF sublease, term through 11/2026 (Samsung Engineering)

� Pinnacle Westchase, Floor 3, 53,452 SF (Quorum Business Solutions)

CL ASS B L ARGE BLOCKS OF SPACE BEING MARKETED (50,000 SF+)

� Richmond Park Westchase, Floors 1-5, 99,088 SF

� Silverstone Building, Floors 1-4, 59,566 SF

Westchase

VACANCY RATES

NET ABSORPTION

RENTAL RATES (FSG)


4%

8%

12%

16%

20%

2013 2014 2015 Q1 2016

Westchase A Westchase B

-100,000

0

100,000

200,000

300,000

400,000

2013 2014 2015 Q1 2016

Westchase A Westchase B

$14.00

$18.00

$22.00

$26.00

$30.00

$34.00

$38.00

$42.00

2013 2014 2015 Q1 2016



The Woodlands

VACANCY RATES

NET ABSORPTION

RENTAL RATES (FSG)

SNAPSHOT

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 few quarters as the two remaining projects under construction deliver 0% preleased amid the economic downturn. A new lease signed by Common Resources was wiped off the board when the company went bankrupt in the first quarter. Class A vacancy continued to climb, reaching 8.7% for direct and 9.2% for overall, and Class B vacancy grew to 9.7% and 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 absorption. Rental rates increased slightly for both classes of space with 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 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 generation office space, including under construction, available for lease in The Woodlands submarket.

BUILDINGS ON THE MARKET

� 610 Sawdust - 116,000 SF, Class B


� Havenwood Office Park - Four stories, 240,470 SF, 0% preleased, Q2 2016 delivery

� Wildwood Corporate Centre II - Eight stories, 200,000 SF, 0% preleased, Q3 2016 delivery

CL ASS A L ARGE BLOCKS OF SPACE BEING MARKETED (50,000 SF+)

� Three Hughes Landing, Floors 1-12, 313,343 SF (new)

� Havenwood Office Park, Floors 1-4, 240,000 SF (new construction)

� Wildwood Corporate Centre II, Floors 1-8, 201,651 SF (new construction)

� 1725 Hughes Landing, Floors 8-14, 162,120 SF (new)

� Research Forest Lakeside 4, 149,988 SF sublease, term through 08/2025 (Talisman Energy)

� Sierra Pines II, Floors 1-6, 132,581 SF (new)


� 8800 Technology Forest Dr, Floors 13, 260,000 SF (Lexicon Pharmaceuticals)

� 2001 Timberloch Place, Floors 3-5, 90,539 SF (Repsol)


0%

2%

4%

6%

8%

10%

12%

2013 2014 2015 Q1 2016

The Woodlands A The Woodlands B

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2013 2014 2015 Q1 2016

The Woodlands A The Woodlands B

$18.00

$22.00

$26.00

$30.00

$34.00

$38.00

$42.00

2013 2014 2015 Q1 2016



Greenway Plaza

VACANCY RATES

NET ABSORPTION

RENTAL RATES (FSG)

SNAPSHOT

The Greenway Plaza submarket remained quiet in the first quarter with only one significant lease signed and no investment sales occurring. 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. 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 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 the first quarter. Class A rents were down 0.1% to $35.90 per SF gross, 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 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 over 25,000 SF being marketed in Greenway Plaza.


� CommunityBank of Texas - 23,809 SF new lease, 9 Greenway Plaza


� 3120 Buffalo Speedway - 350,000 SF, Class B

� 3100 Richmond - 56,000 SF, Class B


� Kirby Collection - 13 stories, 188,696 SF, 0% preleased, Q4 2017 delivery

� Regions Financial Center - 11 stories, 210,000 SF, 37% preleased to Regions Bank, Q2 2016 delivery


� Kirby Collection, Floors 1-2,4,6-13, 188,696 SF (new construction)

� Three Greenway Plaza, Floors 4-10, 161,343 SF (ExxonMobil)

� 3737 Buffalo Speedway, Floors 14-19, 142,570 SF (new)

� Regions Financial Center, Floors 2-8, 101,148 SF (new construction)

� Phoenix Tower, 77,977 SF sublease, term through 02/2018 (NALCO Champion)

� 3737 Buffalo Speedway, Floors 2-6, 53,872 SF (new)

� Phoenix Tower, Floors 16-17, 50,568 SF (WorleyParsons)

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

� Twelve Greenway Plaza, Floors 9-10, 36,266 SF (CPL Retail Energy)


4%

6%

8%

10%

12%

14%

2013 2014 2015 Q1 2016

Greenway Plaza A Greenway Plaza B

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

2013 2014 2015 Q1 2016

Greenway Plaza A Greenway Plaza B

$16.00

$20.00

$24.00

$28.00

$32.00

$36.00

2013 2014 2015 Q1 2016



Greenspoint/North Belt

VACANCY RATES

NET ABSORPTION

RENTAL RATES (FSG)

SNAPSHOT

This is the eighth consecutive quarter that Greenspoint/North Belt has experienced negative absorption and an increase in vacancy in the Class A market. Class A vacancy jumped to 34.5% for direct and 38.5% for 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 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 SF in Greenspoint Park II. Net absorption for Class A space was negative 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 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 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.


� Bureau Veritas - 43,602 SF new lease, Greenspoint Park II

� White Oak Operating - 22,378 SF new lease, Four Greenspoint Place

INVESTMENT SALES

� Greenspoint Park - Three building portfolio sale, 352,125 SF total, purchased by Lincoln Property for an undisclosed price

CL ASS A BLOCKS OF SPACE BEING MARKETED (100,000 SF+)

� Six Greenspoint Place, 356,468 SF, available 11/2016 (ExxonMobil)

� 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)

� Northborough Tower, 204,198 SF, vacant (Noble Energy)

� Eight Greenspoint Plaza, 198,256 SF sublease, term through 04/2018 (ExxonMobil)

� Four Greenspoint Place, 173,480 SF, vacant (ExxonMobil)

� 13401 North Fwy, 143,410 SF, vacant (ExxonMobil)

� 2350 North Belt Tower, 116,746 SF, vacant (Southwestern Energy)

� 10700 North Frwy, 109,217 SF, vacant

� 16676 Northchase Dr, 101,111 SF, vacant

CL ASS B BLOCKS OF SPACE BEING MARKETED (100,000 SF+)

� 396 W Greens Rd, 181,646 SF, vacant (ExxonMobil)

� Three Northborough, 154,454 SF, available 07/2016 (Noble Energy/FMC)


4%

12%

20%

28%

36%

44%

2013 2014 2015 Q1 2016

Greenspoint/North Belt A Greenspoint/North Belt B

-800,000

-600,000

-400,000

-200,000

0

200,000

2013 2014 2015 Q1 2016

Greenspoint/North Belt A Greenspoint/North Belt B

$12.00

$14.00

$16.00

$18.00

$20.00

$22.00

$24.00

$26.00

$28.00

$30.00

2013 2014 2015 Q1 2016



FM 1960

VACANCY RATES

NET ABSORPTION

RENTAL RATES (FSG)

SNAPSHOT

Overall activity in the FM 1960 submarket was slow to start the year with no significant leases signed and one investment sale closed. Class A 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 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 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 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 in the market. There are also four buildings on the market for investors looking to expand their portfolios.

INVESTMENT SALES

� Northwoods Park - 104,786 SF, Class B, purchased by Harry Shani for an undisclosed price


� Northwoods Park - 104,786 SF, Class B

� 9720 Cypresswood Dr - 85,290 SF, Class A

� Willowchase Office Bldg - 62,001 SF, Class B

� 3648 W FM 1960 - 61,000 SF, Class B


� 11450 Compaq Center West, Floors 7-8, 104,896 SF

� 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

� Mill Creek Building, Floors 1-2, 39,956 SF

� Centre at Cypress Creek, Floors 2-3, 39,663 SF

� Torrey Chase 2, Floors 1-4, 37,711 SF

� 11450 Compaq Center West, Floor 5, 36,000 SF

� Plaza at Commerce Park North, Floor 3, 36,000 SF

� Two Kuykendahl Place, Floors 1-3, 33,796 SF

� Cypress Court, Floor 2, 32,135 SF

� 11450 Compaq Center West, Floor 2, 26,000 SF

PROPOSED DEVELOPMENTS

� Five Chasewood - 236,880 SF, GenCap Partners development

� Offices at Vintage Marketplace - 125,000 SF, Read King development


10%

14%

18%

22%

26%

2013 2014 2015 Q1 2016

FM 1960 A FM 1960 B

-100,000

0

100,000

200,000

300,000

400,000

500,000

600,000

2013 2014 2015 Q1 2016

FM 1960 A FM 1960 B

$8.00

$12.00

$16.00

$20.00

$24.00

$28.00

2013 2014 2015 Q1 2016



Northwest

VACANCY RATES

NET ABSORPTION

RENTAL RATES (FSG)

SNAPSHOT

The Northwest submarket experienced decreasing rental rates and low absorption numbers at first quarter. Class A vacancy increased to 21.3% for direct, from 19.2% at year-end, and overall vacancy rose to 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, 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 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 positive 13,000 SF. The Northwest submarket has seven buildings listed for sale, providing investors with opportunities to move into the area.


� Catholic Charities of the Archdiocese of Galveston - 21,079 SF new lease, 2707 N Loop West

INVESTMENT SALES

� Northwest Central I - 56,111 SF, Class B, purchased by Honesty Environmental Services, Inc for an estimated $1.7 million


� 2707 North Loop W - 181,586 SF, Class A

� 2600 North Loop W - 135,407 SF, Class B

� 2727 North Loop W - 123,103 SF, Class B

� 7000 Hollister Rd - 105,900 SF, Class B

� 5252 Hollister - 93,225 SF, Class B

� Northwest Central Plaza - 73,401 SF, Class B

� 2855 Mangum - 72,059 SF, Class B


� Brookhollow Central I, Floors 1-8 & 10, 134,246 SF

� Brookhollow Central III, Floors 2-4, 56,084 SF

� Northwest Crossing, Floors 2-3, 38,358 SF

� Northwest Crossing III, Floor 4, 27,889 SF (Solar Turbines)

� Northwest Crossing III, Floor 10, 26,594 SF (Solar Turbines)

� 2707 North Loop W, Floors 1-2, 25,299 SF (Christus Health)


� 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


10%

14%

18%

22%

26%

2013 2014 2015 Q1 2016

Northwest A Northwest B

-100,000

0

100,000

200,000

2013 2014 2015 Q1 2016

Northwest A Northwest B

$14.00

$16.00

$18.00

$20.00

$22.00

$24.00

2013 2014 2015 Q1 2016



E Ft Bend Co/Sugar Land

VACANCY RATES

NET ABSORPTION

RENTAL RATES (FSG)

SNAPSHOT

Sugar Land held steady through the first quarter, maintaining strong fundamentals in an economic environment where many other areas 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 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, 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 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 tenants to enter the dynamic suburban market.


� 12603 Southwest Fwy - 141,779 SF, Class B

� 13927 Gessner - 87,720 SF, Class B

� 2440 Texas Pkwy - 64,768 SF, Class B

� 5819 Hwy 6 - 51,179 SF, Class B


� Sugar Creek on the Lake, Floor 4, 62,457 SF

� Sugar Creek on the Lake, 61,052 SF sublease, term through 07/2021

� One Fluor Daniel, 54,774 SF sublease, negotiable term (Fluor Enterprises)

� Sugar Creek II, Floors 7-8, 52,984 SF

� Three Sugar Creek Center, Floors 2-3, 52,000 SF

� Sugar Creek Place I, Floors 3-4, 41,093 SF


5%

10%

15%

20%

2013 2014 2015 Q1 2016

E Ft Bend Co/Sugar Land A E Ft Bend Co/Sugar Land B

0

100,000

200,000

300,000

400,000

2013 2014 2015 Q1 2016

E Ft Bend Co/Sugar Land A E Ft Bend Co/Sugar Land B

$16.00

$18.00

$20.00

$22.00

$24.00

$26.00

$28.00

$30.00

2013 2014 2015 Q1 2016



West Belt

VACANCY RATES

NET ABSORPTION

RENTAL RATES (FSG)

SNAPSHOT

After several years of booming development activity, the West Belt submarket has finally cooled with no projects currently in the pipeline. Market fundamentals held steady as vacancy and rental rates were largely 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, 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 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 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 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 the downturn continues to hit the west side markets hard.


� Beltway Lakes III, Floors 1-9, 244,226 SF (new)

� Remington Square II, Floors 1-8, 200,000 SF (new)

� Legacy at Fallbrook, Floors 3-5, 129,767 SF (new)

� Legacy at Fallbrook, Floor 1, 35,459 SF (new)

� Sam Houston Crossing I, 35,454 SF sublease, term through 02/2019

� 4920 Westway Park Blvd, Floor 1, 31,922 SF (Allstate Insurance)

� 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 10/2020 (IPSCO Tubulars)

� Sam Houston Crossing I, 27,011 SF sublease, term through 05/2018


� 6677 N Gessner Dr, Floors 1-2, 96,000 SF (FMC Technologies)

� 10900 Corporate Centre, Floors 1-2, 95,450 SF (Cameron)

� 11302 Tanner, Floors 1-2, 57,798 SF

� 4700 W Sam Houston Pkwy N, Floor 1, 42,551 SF (Stewart Title)

� 10900 Corporate Centre, 32,589 sublease, term through 11/2016

� 10235 W Little York, Floor 3, 30,767 SF


0%

5%

10%

15%

20%

2013 2014 2015 Q1 2016

West Belt A West Belt B

-200,000

0

200,000

400,000

600,000

800,000

2013 2014 2015 Q1 2016

West Belt A West Belt B

$10.00

$14.00

$18.00

$22.00

$26.00

$30.00

$34.00

2013 2014 2015 Q1 2016



Katy

VACANCY RATES

NET ABSORPTION

RENTAL RATES (FSG)

SNAPSHOT

After dramatic increases in vacancy in 2015, Class A vacancy dipped slightly to 28.3% for direct and 28.4% for overall at first quarter. Class B 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 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, Class B increased to $24.28 per SF gross, compared to $24.01 per SF gross over the same period. There are quite a few proposed projects in the Katy area, but office development remains largely on hold as apprehension about future market conditions continues. All of the large blocks of space on the market come from either under construction 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.


� Grandway West II - Three stories, 124,017 SF, 17% preleased to Severn Trent, 04/2016 delivery


� Mason Creek Office Center II - 127,955 SF, Class A

� Park Plaza Centre - 59,656 SF, Class A


� Mason Creek Center II, Floors 1-3, 127,953 SF (new)

� Katy Ranch Crossing I, Floors 2-6, 108,019 SF (new)

� Grandway West II, Floors 1-3, 82,637 SF (new construction)

PROPOSED DEVELOPMENTS

� Grandway West III, IV, V - 460,200 SF total, Insite Realty & Urban Cos development

� Grand Crossing I & II - 394,465 SF total, Trammell Crow development

� Katy Ranch Crossing II - 156,330 SF, Freeway Properties development

� West Ten Grand Center - 139,000 SF, NewQuest Properties development

� LaCenterra at Cinco Ranch IV - 25,000 SF, Vista Cos & Amstar development


0%

5%

10%

15%

20%

25%

30%

2013 2014 2015 Q1 2016

Katy A Katy B

0

50,000

100,000

150,000

200,000

250,000

2013 2014 2015 Q1 2016

Katy A Katy B

$20.00

$22.00

$24.00

$26.00

$28.00

$30.00

$32.00

$34.00

2013 2014 2015 Q1 2016

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