CAPITALIZING ON OPPORTUNITIES IN AN EVOLVING MARKET. Photo Kelly Reed

Transcription

1 CAPITALIZING ON OPPORTUNITIES IN AN EVOLVING MARKET Photo Kelly Reed

2 TABLE OF CONTENTS Previous Page THANK YOU TO OUR 2015 SPONSORS Summary The National Economy The Houston Metro Economy The Houston Metro Office Market The Houston Metro Industrial Market The Houston Metro Multifamily Market The Houston Metro Retail Market Next Page A Transwestern Publication All Rights Reserved. You may neither copy nor disseminate this report. If quoted, proper attribution is required. To order your copy of TrendLines, contact the publication administrator at

3 FOREWORD NOVEMBER 2015 To our friends, clients and colleagues: We are pleased to provide you with the 15 th annual edition of our TrendLines publication - Capitalizing on Opportunities in an Evolving Market. Our purpose is to examine current trends and forces influencing the region s economy and their effect on commercial real estate. Through the third quarter of 2015, Houston s commercial real estate market began to take pause as a downturn in the energy market caused a slowdown in the metro economy. Employment growth in several major sectors, primarily energy and manufacturing, is on the decline with Houston recording net job losses year-to-date. The office market is taking the hardest hit as energy-related companies trim costs and increase efficiencies in reaction to declining revenue and margins. Industrial and multifamily remained healthy through the third quarter, but we expect softening in both sectors moving forward. Retail and healthcare are booming across the metro, driven by high population growth and continued strong consumer demand. The weakening of the Houston economy is reflected in rising vacancy rates for office and industrial while multifamily vacancy is edging up slightly as well. Asking rents for each of the three sectors continue to rise, but effective rents are seeing downward pressure due to increased concessions. Retail and healthcare are performing well with high demand powering strong fundamentals. We expect to find opportunities in our industry in the period ahead as the commercial real estate market stays active but moves at a slower pace. The retail sector is only mid way up its growth curve of the cycle, and close to five billion dollars in healthcare and life science development is currently underway or planned. Even though some economic drivers have cooled, the metro continues to diversify and be a target for international investment. Looking ahead, Houston will benefit from an improving national economy, while low oil prices and a rising U.S. dollar will remain a drag on local economic growth. In 2016, we expect: Flat job growth in metro Houston as the energy sector continues to challenge the economy. We expect a gain of approximately 5,000 payroll jobs during 2015, once the year is complete, followed by a loss of 10,000 jobs in This level of economic growth will continue as the outlook for Houston s energy sector over the next 12 to 18 months is not as optimistic as expected. Further softening in the office, industrial and multifamily sectors as they are affected by changing economic conditions. Conversely, retail and healthcare should continue to thrive as they head upward in their respective growth cycles. More forward visibility as to when energy prices will return to a level where exploration and production can resume. Recovery in oil prices is not projected to begin until 2017 and with slower growth than in past cycles. Thank you for your interest in our research and other services including leasing, property management, investment sales, structured finance and development. We look forward to helping you interpret not only the material in this report but everything you see in the market and to being your service partner in the period ahead. Best wishes for a successful Kevin Roberts President, Southwest TRANSWESTERN 3

4 SPECIAL THANK YOU TO OUR SPEAKERS Charles Payne Keynote Speaker Charles V. Payne is the Chief Executive Officer and Principal Analyst of Wall Street Strategies, Inc. (WSSI), which he founded in With less than $10,000 in start up capital and working from his apartment, he launched WSSI to provide a unique brand of stock market advice. Today, WSSI provides information to over 100,000 registered names and thousands of subscribers in more than 65 countries as well as several of the largest bank/brokerage firms. Charles is a regular contributor to the Fox Business and Fox News works. He can be seen daily on Varney & Co on FBN and Saturday s on FNC s Cavuto on Business. Charles also guest anchors on both networks having filled in for Stuart Varney, Neil Cavuto and Glenn Beck. In addition, he continually provides opinions on the market to scores of prestigious news organizations such as Reuters, Wall Street Journal, and the New York Times and is a regularly sought keynote speaker covering topics from investing, self-empowerment, economics and politics. Patrick Jankowski Economic & Real Estate Overview Patrick Jankowski is a regional economist and senior vice president at the Greater Houston Partnership. He leads the Partnership s research team, which provides information gathering, data analysis, database management, economic forecasting and mapping functions for the organization. Patrick has been researching and studying Houston s economy for 34 years. Acknowledgments Kevin Roberts, President-Southwest, wishes to acknowledge and thank the project s research team: Rachel Alexander, Director of Market Research and Rachel Andrae, Research Analyst and the creative team: Shannon Bedinger, Regional Marketing Director; Gregorio Barrera, Creative Director and Averegine Sanchez, Graphic Designer. Your time and effort is invaluable to this process. Representations Transwestern s research affiliate, Delta Associates, prepared the national economy section of this report, and Transwestern prepared the balance of the market analysis and outlook. Although the information contained herein is based on sources that Delta Associates (DA) and Transwestern (TW) believe to be reliable, DA and TW make no representation or warranty that such information is accurate or complete. All prices, yields, analyses, computations, and opinions expressed are subject to change without notice. Under no circumstances should any such information be considered representations or warranties of DA or TW of any kind. Any such information may be based on assumptions that may or may not be accurate, and any such assumption may differ from actual results. This report should not be considered investment advice. 4

5 Summary

6 Summary SUMMARY National Economy Houston Economy GDP growth dipped at third quarter, with economic gains primarily driven by increased consumer spending, while lackluster business spending limited broader expansion. With job growth far above historical averages in recent years, 2015 will mark the first year since coming out of the recession that the metro will fall below the long-term average. 6,400 Jobs added in the month of September (9,200) job losses year-to-date 36,200 Jobs added over 12 months ending in September Office The Houston office market began to falter in 2015 as economic uncertainty took a toll on fundamentals. Industrial Houston industrial remained strong in 2015 but did start to cool in the third quarter as lower oil prices impacted the sector. Multifamily After a robust start to 2015, the Houston multifamily sector began to show some signs of weakness at third quarter. Retail The retail market has been thriving even as oil prices have challenged growth in other sectors. 6

7 The National Economy

8 The National Economy NATIONAL ECONOMIC OVERVIEW GDP Posts Disappointing Third Quarter; Strong Job Growth Continues The national economy dipped again this quarter after rebounding at mid-year. GDP growth was 1.5% in the third quarter advance estimate, down from 3.9% in the second quarter. Economic growth was primarily driven by increased consumer spending, though lackluster business spending limited economic expansion. Job growth has been strong with the economy adding 2.71 million new payroll jobs over the 12 months ending September The private sector provided the vast majority of new jobs, mainly in the Professional/Business Services, Education/Health Services, Leisure/Hospitality and Retail Trade sectors. This job growth pushed the national unemployment rate down to 5.1% as of September 2015, in spite of an increasing labor force participation rate. Unfortunately, wage growth has remained lackluster, but this should change over the next couple of years, as increased hiring forces businesses to compete for top talent. Another encouraging sign for the national economy is continued growth in household net wealth and revolving credit. These trends reflect the upside of the Fed s accommodative monetary policy as lower rates encourage consumers to invest their cash in riskier assets and reach for their credit cards. The Federal Open Market Committee (FOMC) has repeatedly delayed any decision to increase the Federal Funds Rate, though recent reports suggest that the rate will probably be increased during the fourth quarter of Should this happen, it would likely cause somewhat of a slowdown in consumer spending and revolving credit. Moving forward, the U.S. economy is poised to continue gaining strength through the remainder of 2015 and beyond. Major economic indicators are moving in a positive direction, and the domestic economy does not appear to have been damaged by the crash of Chinese markets in August or other recent shocks to the global economy. Revolving Credit 12-month percentage change 15% 10% 5% 0% -5% -10% -15% * *12-month percentage change through August 2015, data not seasonally adjusted Source: Federal Reserve Board, Delta Associates Change in U.S. Household Worth United States 12-month percentage change 15.0% 10.0% 5.0% Cumulative Annual Growth Rate (CAGR) = 3.7% 0.0% -5.0% -10.0% -15.0% -20.0% * Source: Federal Reserve Board, Delta Associates *At Q

9 The National Economy Job Growth 2015 Shows Further Gains in Labor Market Job growth in the third quarter was strong with the national economy adding 2.71 million new payroll jobs during the 12 months ending September The private sector again accounted for the overwhelming majority of net additions with the public sector adding 178,000 positions during this period. Month-to-month gains (seasonally adjusted) from January to September averaged approximately 198,000 jobs per month: 245,000 June ,000 July ,000 August ,000 September 2015 Public sector hiring has been rebounding this year, particularly in the state and local government subsectors. At the Federal level, the workforce is no longer shrinking, but job growth has been limited. Following 47 consecutive months of year-over-year declines, Federal employment has actually increased in each month since January, albeit modestly. Overall, the public sector has now added jobs (year-over-year) for 16 consecutive months after shedding jobs during the previous several years. Federal employment is expected to remain stable in the next couple of years, as evidenced by President Obama s fiscal year 2016 budget proposal, which includes a $74 billion increase in discretionary investments over what is allowed under current spending caps. How close this proposal will resemble the approved budget is unclear, but it signals that there is a chance the Federal workforce will see an easing of budget constraints for the first time since During the 12-month period ending September 2015, the top four sectors in job gains were Professional/Business Services, Education/Health Services, Leisure/Hospitality and Retail Trade. These four sectors alone added approximately 1.9 million new jobs, accounting for 70% of net job growth. Job gains were positive across all major super sectors and seven of the 13 sectors added at least 135,000 payroll jobs over the year. A healthy Professional/Business Services sector is especially important for commercial real estate investors, since these jobs typically boost both retail spending and office demand. Payroll Job Growth United States Year-Over-Year Thousands of New Payroll Jobs 3,500 3,000 2,500 2,000 1,500 1,000 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Note: Data not seasonally adjusted Source: Bureau of Labor Statistics, Delta Associates Apr 15 Payroll Job Growth United States 12 Months Ending September 2015 Professional/Business Services Education/Health Leisure/Hospitality Retail Trade State and Local Government Financial Activities Transportation/Utilities Construction/Mining Manufacturing Wholesale Trade Other Services Information Federal Government 0Job Change 100,000 Note: Data not seasonally adjusted Source: Bureau of Labor Statistics, Delta Associates 200,000 Private Sector May ,000 Jun ,000 Jul ,000 Public Sector Aug ,000 Sep ,000 9

10 Labor Force And Wages Overall, initial unemployment claims have decreased steadily since peaking in March As of mid-october 2015, initial claims stood at 265,000 based on a four-week, seasonally-adjusted moving average. This is 6.7% below the same week in 2014 and 30.2% below the 15-year average of 379,618. We expect unemployment claims to continue steadily decreasing through the rest of the year and beyond as the national economic expansion continues. The unemployment rate (seasonally adjusted) declined to 5.1% as of September 2015, down from 5.9% one year earlier. This decline occurred despite the labor force increasing 2.0% during the same time period. The resurgence in the labor force after a long period of declining participation is very important, as it illustrates growing confidence among job seekers that they will actually secure employment. The unemployment rate should continue to decline through the rest of 2015 as the economy rebounds but at a slower rate as more people enter or re-enter the workforce. An ongoing area of concern for the national economy is the national average hourly wage, which has increased at a slow rate since the end of the recession. In September 2015, the average hourly wage saw a 2.2% increase from one year prior. By comparison, in 2007 prior to the recession, the average hourly wage increased by 3.0% each month on a year-over-year basis. This is a pressing issue for many aspects of the economy, including price levels and consumption patterns. There are multiple competing theories that may explain the weak wage growth. One is that slow growth in wages is an indicator that the jobs being created are in lowerpaying industries. Even if people are finding jobs, they are likely to be underemployed, meaning job seekers are taking jobs that are below the education and experience levels they have achieved. Another theory has to do with the changing composition of the workforce. The average age of workers has remained relatively constant over the last few years, which indicates that younger workers are entering the workforce at a faster pace than other age cohorts. These younger workers tend to start with lower salaries, which may partly explain depressed average wage growth. A third theory is, due to slow moving wage adjustments, known as sticky wages, firms could not adequately reduce wages to equalize with the decrease in overall demand during the recession, and we are witnessing a slow correction in wages or pent-up wage cuts as workers become more accepting of reduced nominal wages. Whatever the reason for the poor performance in wage growth, this metric is likely to improve in the next few years as a low unemployment rate will cause firms to compete for talent. Initial Unemployment Claims United States Four-Week Moving Average 700, , , , , , , , , ,000 Peak in Initial Unemployment Claims (not shown) (Week of 03/28/09) = 659,250 Unemployment Rate United States September % 10% 8% 6% 4% 2% 0% 15-Year Average= 379,618 (Week of 10/10/15) = 265, Note: Data seasonally adjusted. Source: Federal Reserve Bank of St. Louis, Delta Associates The National Economy * Note: Data seasonally adjusted, shaded bars represent recessions. Source: Bureau of Labor Statistics, Delta Associates * AT September

11 On a brighter note, while workers are not receiving a significant increase in wages on an hourly basis, they are successfully finding more full-time jobs. As recently as 2011, the U.S. economy was adding more part-time than fulltime jobs. Since that time, though, the gap between full-time and part-time employment growth has been gradually increasing. Though the gap closed slightly in April, as of September 2015 the spread between full-time and part-time employment growth remained at a high level. Full-time positions translate to more hours worked and higher paychecks. Recent trends in full-time employment seem to also indicate that any negative effects of Obamacare on full-time hiring have been blunted by the need for more fulltime workers. Yet another positive sign is the declining job availability ratio, which measures the relationship between the number of potential applicants and the number of jobs available. The national job availability ratio was 1.41 as of August 2015, down from 1.99 in August Even Construction, the most troubled sector by this measure, saw its job availability ratio decline from 7.0 in late 2014 to 4.6 in August The Professional/Business Services sector had the greatest number of job openings as of August 2015 with 1,026,400 jobs. The Education/Health Services sector is the tightest, with a potential job applicant to job opening ratio at Average Hourly Earnings 12-Month Percentage Growth 2007 Through September % Average = 3.3% 4% 3% Average = 2.1% 2% 1% 0% 07* *Data available starting March 2007 Source: Bureau of Labor Statistics, Delta Associates Employment Levels by Job Status United States 2010 Through September 2015 Full-Time 4,000 3,000 2,000 1, ,000-2,000-3,000-4,000-5,000-6, Note: Data seasonally adjusted Source: Bureau of Labor Statistics, Delta Associates Number of Unemployed Vs. Job Openings 12-Month Average Ending August 2015 Mining Information Financial Activities Transportation/Utilities Other Services Government Construction Manufacturing Education/Health Services Professional/Business Services Leisure/Hospitality Wholesale & Retail Trade Thousands of Jobs Number of Job Openings Note: Based on 12-month trailing average, data not seasonally adjusted Source: Bureau of Labor Statistics, Delta Associates The National Economy 1,000 1,200 Part-Time Number of Unemployed 1,400 11

12 The National Economy Gross Domestic Product (GDP) The estimate of real GDP growth for the third quarter of 2015 came in at 1.5%, below the 2.4% annual growth rate for GDP growth has fluctuated throughout 2015, coming in low at 0.6% in the first quarter but rising significantly to 3.9% at mid-year. Consumer spending in the second and third quarters grew more rapidly than predicted, and prices also increased. The economy has shaken off many of the weaknesses from the beginning of the year including harsh weather, declining oil prices and accelerated appreciation of the dollar, which sent net exports plunging. The improving job market is one of the primary drivers of economic growth, although business spending has remained subdued. The most recent report from the Federal Reserve Bank of Philadelphia s Survey of Professional Forecasters projects real GDP growth to be 2.8% in the fourth quarter, for an overall growth rate of 2.3% in Looking further ahead, real GDP is predicted to average 2.8% in 2016, 2.6% in 2017 and 2.4% in GDP Percent Change United States Annual GDP Change in 2009 Constant Dollars 6% 4% 2% 0% -2% -4% -6% -8% -10% 20-Year Average = 2.4% * Note: Quarters are seasonally adjusted at annual rates. Source: Bureau of Economic Analysis, Delta Associates * Through Q Corporate Profits U.S. corporate profits totaled $2.08 trillion during the second quarter on an annualized basis, up 3.5% from $2.01 trillion in the first quarter of 2015 and up 0.4% from $2.07 trillion in Corporate profits have largely plateaued in recent years as more companies are taking a U.S. Corporate Pre-tax Profits $2.5 Corporate Profits S&P Month EPS $120 cautious approach of buying back shares and slowly increasing dividends. Companies are continuing to weigh options on how to best deploy $2.0 $100 earnings and profits and, in many cases, are showing a preference for mergers and acquisitions over riskier, capital intensive projects that could rock the boat for shareholders. However, the recent increases in hiring indicate that corporate leaders are becoming more confident about consumer demand. Corporate Profits In Trillions $1.5 $1.0 $80 $60 S&P Month EPS $0.5 $40 $ * $20 *Through Q2 2015, seasonally adjusted at annual rates. Yearly data not seasonally adjusted. EPS reflects operating earnings as of September Source: Bureau of Economic Analysis, Standard and Poor s, Delta Associates 12

13 The National Economy Housing Market Home prices in the 20 major metro areas covered by S&P/Case-Shiller increased 5.1% during the 12 months ending August 2015, the most recent data available. This is down from the August 2014 figure of 5.6% but is more in line with the pace of overall economic growth. The growth rate of home prices has largely stabilized in 2015 as expanding inventories of homes for sale in many metro areas has eased pricing pressure. The annualized pace of existing home sales increased to 5.55 million in September 2015 from a revised 5.30 million in August 2015, a growth rate of 4.7%. The current sales pace is the fastest seen since the national housing crash began in According to the National Association of Realtors, the average existing home sales price was $265,000 in September 2015, up 3.9% from $255,000 one year ago. The Federal Budget The Congressional Budget Office projected in its August 2015 Budget Update that the fiscal year (Oct. 1-Sept. 30) 2015 Federal budget deficit will be $426 billion, representing the smallest deficit since fiscal year At 2.4% of GDP, the fiscal year 2015 budget is set to be below the average Federal deficit over the past 50 years and will mark the sixth consecutive year that the deficit s share of the GDP has decreased since peaking in 2009 at 9.8%. The smaller deficit is attributed to greater than anticipated tax revenues from businesses and households as a result of the improving economy. In spite of this progress, the U.S. is still running a deficit we are not paying down our debt, we are just increasing it at a slower rate. If current laws and spending practices are left alone, the Federal deficit would increase significantly over the next decade. The deficit is currently projected to reach $1.0 trillion by 2025, with growth driven by an aging population, rising healthcare costs, an expansion of Federal subsidies for health insurance and growing interest payments on the Federal debt. The national elections of 2016 could have a major impact on the long-term picture as the outcome could lead to profound changes in Federal taxation and spending policies. Annual Change in Existing Home Sale Prices United States Percent Change For Median Price of Single - Family Homes 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% * Note: Data reflects 20-city composite index. Source: S&P/Case-Shiller, Delta Associates * Through August 2015 U.S. Existing Home Sales vs. Sales Prices Number of Sales Thousands of Units Baseline Budget Projections United States Federal Deficit ($ Billions) 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3, ,000-1,200 Number of Existing Home Sales** * *At September 2015 ** Seasonally adjusted annual sales rate Source: National Association of Realtors, Delta Associates Average Existing Home Sales Price Deficit Baseline budget projections as of August Source: Congressional Budget Office, Delta Associates $270,000 $260,000 $250,000 $240,000 $230,000 $220,000 $210,000 $200,000 % of GDP 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% Average Sales Price Deficit As A % of Real GDP 13

14 Interest Rates and Inflation There has been a great deal of discussion during the third quarter about when the Fed will increase the Federal Funds Rate, and by how much. Though recent stock market woes on Wall Street brought about by a faltering Chinese economy and extremely low oil prices have caused speculation that any rate hike will be delayed, the continued trends of strong job growth and a low unemployment rate point to the likelihood of a rate increase sometime before the end of We expect some short-term volatility in financial markets, until uncertainty surrounding the Chinese economy, and the Chinese government s corrective measures, diminishes. Sectors that benefit from record-low borrowing rates will experience the most market volatility. Commercial real estate and the REIT sphere are experiencing downward pressures as the market accounts for higher costs of capital, though REITs with solid property fundamentals should be able to weather the storm. As of the end of trading on October 19, 2015, the S&P 500 Index stood at 2,033.66, up 6.8% over the previous 12 months. The Index reached a 2015 high of on May 21, up 13% over a year. Inflation remained flat during the 12 months ending September 2015, with a strong dollar and lower domestic energy prices keeping prices in check. This is well below the Fed s benchmark of a 2.0% increase, which has been a contributing factor to the delay in raising the Federal Funds Rate. The personal consumption expenditure price index (PCEPI), which takes into account changes in consumption habits as people substitute some goods and services for others, rose 0.2% during the 12 months ending September We expect inflation to be contained in the near-term due to modest wage growth and a strong dollar, coupled with the fact that price pressure tends to lag economic growth by a year or more. Given these conditions, inflation will likely remain in the 1.0% to 1.5% range on an annualized basis through the remainder of Selected U.S. Government Interest Rates Interest Rates (%) 7% 6% 5% 4% 3% 2% 1% 0% Effective Federal Funds Rate 10-Year Treasury 30-Year Treasury Data are non seasonally adjusted monthly averages, 30-Year Treasury not issued between March 2002-Dec Source: Federal Reserve Economic Data (FRED), Delta Associates U.S. Inflation and Personal Consumption Expenditure Index 12-Month Percentage Change 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% CPI-U PCEPI * Source: Federal Reserve Economic Database (FRED), Delta Associates *Through September 2015 The National Economy 14

15 Economic Outlook Conditions to Continue Improving in 2016 National economic conditions will show modest improvement through the latter portion of 2015, before growing at a more solid pace in 2016 and GDP growth averaged 2.0% over the first three quarters of the year, overcoming a weak first quarter for the second consecutive year. More substantial growth is expected over the balance of the year. Job growth has definitely been the bright spot of the economic recovery as net additions of jobs remains strong and continues to grow. In addition, the combination of a declining unemployment rate and a growing labor force points to greater confidence in the job market. Sustained employment growth over the past two years demonstrates the strength of the economic recovery. This good news is tempered by several concerns. First, wage growth remains weak, as most of the jobs being created are in lower paying sectors. Second, instability in international markets particularly China may threaten short-term economic prospects in the U.S. Third, the strong dollar is hampering net exports significantly. Fourth, the effects of the Fed s widely expected decision to raise interest rates by the end of the year remain unknown. The next three years are expected to bring a continued steady, albeit modest, rate of economic growth. The unemployment rate will continue to decline, and the labor force participation rate decline, as hiring ramps up to support increased output. Increased hiring should eventually lead to greater compensation for workers, as companies compete for the best-qualified employees. The reduced slack should also put upward pressure on inflation and interest rates. That said, economic growth has been, and will continue to be slower than in past economic recovery cycles. Specifically, we believe the economic outlook is as follows: Real GDP growth 2.0% In 2015 Unemployment Rate 5.1% Year-End 2015 Inflation Around 1.0% for 2015 as consumer demand strengthens, but fuel costs remain low Payroll jobs 2.7M Added in 2015 Slightly higher than last year s total Federal Funds Rate Hike likely before the end of 2015, despite limited inflation Housing National Payroll Job Growth Summary Payroll Jobs 2.71M U.S. payroll jobs gained 25-Year Annual Average 1.2M Payroll jobs gained Over the 12 months ending September % Average growth rate 1.9% Growth rate U.S. Payroll Job Growth The National Economy 5.0 to 5.5% Price appreciation in 2015 Long-term interest rates Edging higher during 2015, though at a slower pace than short term rates Year Job Change %Change 2015* 2,708, % ,649, % ,289, % ,262, % ,567, % , % ,937, % , % ,538, % ,393, % ,256, % * 12 months ending in September 2015; others are comparisons of annual averages. Note that Bureau of Labor Statistics has rebenchmarked figures since their initial publication. The figures presented above are the most recent estimates. 15

16 The National Economy 12-Month Payroll Employment Change Through September 2015 Metro Area Job Change Job Change Metro Area # % # % LA Basin Houston 36, % Los Angeles/Long Beach/Glendale 85, % Portland (OR) 35, % Orange County (Santa Ana/Anaheim/Irvine) 44, % Minneapolis-St.Paul 35, % Riverside/San Bernardino/Ontario 36, % San Antonio 35, % Total LA Basin 166, % Charlotte 34, % San Francisco Bay Area Denver-Boulder 31, % San Jose/Sunnyvale/Santa Clara 48, % Austin 29, % San Francisco/San Mateo/Redwood City 47, % Tampa-St. Petersburg 28, % Oakland/Fremont/Hayward 22, % Indianapolis 28, % Total Bay Area 119, % Baltimore 27, % New York 115, % Cincinnati 26, % Dallas/Ft. Worth 98, % Philadelphia 26, % Atlanta 72, % Salt Lake City 24, % Seattle 61, % Sacramento 23, % South Florida Nashville 23, % West Palm Beach/Boca Raton 11, % Las Vegas 21, % Fort Lauderdale 22, % Columbus (OH) 20, % Miami/Miami Beach/Kendall 21, % Raleigh-Durham 19, % Total South Florida 56, % Jacksonville 16, % Washington, DC 53, % St. Louis 15, % Boston (Metropolitan NECTA) 47, % Kansas City 15, % San Diego 46, % Pittsburgh 14, % Phoenix 46, % Cleveland 12, % Detroit (Detroit/Warren/Livonia) 46, % Oklahoma City 8, % Orlando 41, % Memphis 6, % Chicago 39, % New Orleans -1, % Note: Data not seasonally adjusted. Source: Bureau of Labor Statistics, Delta Associates 16

17 The Houston Metro Economy

18 HOUSTON ECONOMY September job gains a good sign While the metro benefited from 2014 s momentum in the early part of the year, the downturn in the oil market quickly altered economic expectations for 2015 and beyond. With job growth far above historical averages in recent years, 2015 will mark the first year since coming out of the recession that the metro will fall below the long-term average. As close to 40% of Houston s economy is tied to energy, it is not unexpected that significant job losses have occurred given the speed and severity of the price drop. On the positive side, the Houston metro economy added 6,400 jobs in the month of September, an indicator that further growth is likely to come in the last quarter of the year. Houston s payroll employment grew by 36,200 jobs, or 1.2%, in the 12 months ending in September. With September s employment gains, the metro is now down just 9,200 jobs year-to-date heading into what is historically the largest period for growth each year. The top three sectors for job growth for the 12 months ending in September were Leisure/Hospitality, Education/Health Services and Retail Trade with a total of 47,600 jobs added in these sectors. With Houston s tremendous population growth, it is no surprise that sectors like retail and healthcare are outperforming the market. Unemployment The Houston area unemployment rate was 4.6% in September, down from 4.7% a year earlier. At 4.2%, unemployment in the state of Texas is at its lowest level since National unemployment was 5.1% in September, down from 5.9% the previous year. Gross Domestic Product (GDP) The Bureau of Economic Analysis estimated Houston s GDP at $525.4 billion for 2014, ranking it the fourth largest metro in the nation and the 26th largest in the world if it were a sovereign country. Core Industry Employment Energy 200 Jobs lost in the 12 months ending in September 2015 Construction Manufacturing 3,300 12,300 Jobs lost in Jobs lost in 0.2% the 12 months 1.6% the 12 months 4.8% ending in ending in September 2015 September 2015 Education & Health Services 17,700 Jobs added in the 12 months 5.0% ending in September 2015 Trade & Transportation 5,800 Jobs added in the 12 months ending in September % Payroll Job Change In Percentage Terms Large Metro Areas 12 Months Ending September % 4.0% 3.0% 2.0% 1.0% 0.0% Source: Bureau of Labor Statistics, Transwestern Payroll Job Growth Large Metro Areas 12 Months Ending September 2015 Payroll Jobs in Thousands Source: Bureau of Labor Statistics, Transwestern Payroll Job Growth Houston Metro Area Annual Job Growth (in Thousands) SF Bay DFW Atl Phx LA Basin LA Basin S. FL Den Bos Was NY Hou Chi 20-Year Average = 51,500/Year The Houston Metro Economy 1.2% * *12-month job growth through September 2015 Source: Bureau of Labor Statistics, Transwestern 36.2 SF Bay NY DFW Atl S. FL Was Bos Phx Chi Hou Den 18

19 The Houston Metro Economy Energy Energy employment is down 4,000 jobs year-to-date as oil and gas companies continue to announce layoffs and spending cuts. While many layoffs thus far have been blue collar, further job cuts in 2016 will be focused on the white collar workforce. After stabilizing somewhat in the spring, both oil prices and rig count fell again through the third quarter, down over 50% from their respective peaks in This has placed significant pressure on upstream companies to further reduce costs and increase efficiencies, evidence of which we have seen in Houston through mergers and acquisitions (M&A) activity and a dramatic increase in office sublease space. While the energy market has likely hit the pricing bottom of the downturn, the market remains volatile, and there is little forward visibility as to when prices will return to a level where exploration and production can resume. The outlook remains uncertain in the near-term with recovery not expected to begin until Significant M&A Activity to date Co. Acquired BG Group Baker Hughes $70.0B $34.6B Acquiring Co. Shell Halliburton Co. Acquired Cameron Piedmont Natural Gas $14.8B $4.9B $2.1B Acquiring Co. Schlumberger Duke Energy Rosetta Resources Noble Energy Construction Construction sector employment has fallen 3,500 jobs year-to-date, largely from the construction of buildings subset. This is not surprising with the office and industrial sectors both coming down from development peaks as the high energy prices of 2011 to 2014 fueled significant construction of projects for upstream users. While the petrochemical boom along the Gulf Coast is creating some construction jobs, it is not enough to offset the losses from the economic slowdown. According to Kirksey s 2015 Construction Cost Update, materials prices and labor shortages should begin to ease through the remainder of the year, benefiting the healthcare and retail sectors which are experiencing tremendous growth. Manufacturing Manufacturing continues to be one of the hardest sectors hit thus far in the downturn with 14,200 jobs lost, as a sizable portion of its demand is tied to the production of energy-related machinery. The Houston Purchasing Managers Index (PMI), a short-term leading indicator of production, registered at 47.6 in September, indicating a contraction in production for the ninth consecutive month. With exploration and production spending all but eliminated, the manufacture of oil field equipment will not be picking up any steam in the near-term. As energy companies remain under pressure to reduce costs, further manufacturing losses are likely into Unemployment Rates Large Metro Areas 8% 6% 4% 2% 0% National Average SF LA Den Bay DFW Bos Was Hou NY Chi Atl Phx S Fla Basin Source: Bureau of Labor Statistics, Transwestern U.S. Rotary Rig Count Annual Average Working Rigs 2,000 1,800 1,600 1,400 1,200 1, Source: Baker Hughes, Transwestern *As of 10/30/2015 Houston Manufacturing Outlook Purchasing Managers Index Source: ISM-Houston *Through September 2015 September 2015 September % 5.1% Misc Gas Oil * * Expansion Contraction 19

20 The Houston Metro Economy Education and Health Services Houston area hospitals are expanding at a rapid rate to accommodate the metro s booming population growth in recent years. Close to five billion dollars in development is currently underway or planned by major hospital systems and in the life sciences sector, both in the Texas Medical Center (TMC) and suburban areas. The high population growth coupled with an uptick in new development has caused increased demand for skilled labor in the healthcare sector. Several Houston hospital systems have released broad hiring plans for the near-term including Memorial Hermann, MD Anderson and Houston Methodist. In the education sector, colleges are seeking new opportunities to connect students with the workforce. To this end, San Jacinto College plans to construct a new campus in Generation Park, capitalizing on its location in the master-planned development to further relationships with leading companies in the area. Core Industries Houston Metro Area 2014 Gross Domestic Product 4% 7% 5% 19% 6% $525 Billion 12% Total GDP 18% * 12% 15% Energy Trade/Transportation/Utilities * Manufacturing Professional/Business Services Financial Activities Government Construction Education/Health Services Other Source: Bureau of Economic Analysis, Transwestern *Number is estimate as actual data not available Notable Healthcare Projects Announced $1.5B New 30-acre research campus called TMC3 9 New International routes operating out of Hobby Airport $650M Memorial Hermann expansion and renovation of TMC campus $540M Houston Methodist new hospital tower on TMC campus 10.1M Passengers through IAH in 2015 at current pace $506M Texas Children s expansion of TMC campus Trade and Transportation The Port of Houston is making significant upgrades and infrastructure improvements to increase capacity and ready the Port for larger ships. Major projects include working to almost triple container handling capacity, the arrival of four new 1,500-ton cranes and completion of the deepening and widening of the Barbours Cut Container Terminal. These investments are much needed as the Port Authority is predicting record levels of container traffic in 2015, and the Panama Canal expansion will finish in With a slowdown in emerging markets and the appreciation of the U.S. dollar, exports through the Houston-Galveston Customs District are down 15.0% through August year-to-date as compared to last year. In the transportation sector, the Houston Airport System is expecting another record year for passenger traffic through both airports. Additionally, Southwest Airlines recently completed construction on its new international terminal at Hobby Airport, making Houston one of only three metros with two international airports and increasing Houston s ties with Latin America. $200M Port of Houston capital improvement projects in 2015 Houston Port Authority Container Traffic Total TEUs Air Freight (Metric Tons) 2,400,000 2,200, Average = 1.8M TEUs/Year 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , * Note: TEUs = 20-foot-equivalent container units. Source: Houston Port Authority, Transwestern *Through September 2015, annualized Houston Airport System Air Freight 500, , , , , , , , , Average = 421,700 metric tons/year * Source: Houston Airport System, Transwestern *Through August 2015, annualized 20

21 The Houston Metro Economy Housing After cooling slightly in August, the Houston housing market experienced its strongest September to date. The Houston Association of Realtors reported 6,691 single-family home sales in September, up 3.5% from last year. Average sales price increased 0.5% year-over-year, hitting $270,901 in September. Months of inventory remained tight at just 3.5 months of supply, much lower than the national average of 5.2 months. A recent Rice University study shows Houston has crossed the threshold into housing unaffordability, passing the national recommendation of spending no more than 45% of income on housing and transportation. According to the report, close to a third of Houston households spend too great a percentage of their income on housing. Despite a weaker economy, the Houston residential market has remained robust. With net job losses expected in 2016, the market may begin returning to a more balanced state. Economic Outlook Further Uncertainty on the Horizon In a much anticipated jobs report, the Bureau of Labor Statistics reported 6,400 jobs gained in the month of September, leaving the metro with a net loss of 9,200 jobs yearto-date. While the positive number is encouraging, job losses have been widespread over the downturn and are not finished in sectors like energy and manufacturing. Looking ahead, Houston will continue to face challenging economic growth while a major driver of the economy faces uncertainty. Recovery in oil prices is not projected to begin until 2017, and as further consolidation and restructuring of the industry occur, growth may be slower than in past cycles. On the positive side, the retail and healthcare sectors should continue thriving in the period ahead while solid U.S. GDP growth and the petrochemical boom on the Gulf Coast will help to somewhat buoy the economy. As effects of the downturn have become more apparent, we have made further downward revisions to our job growth forecasts over the next two years. Since Houston s greatest employment gains have historically occurred in the fall, positive employment growth is still projected for We expect payroll job growth of approximately 0.2%, or 5,000 jobs in 2015 but a 0.3% loss, or negative 10,000 jobs in These numbers are based off forecasts from both the Greater Houston Partnership and the University of Houston. With the uncertainty of oil prices, however, job growth will remain a moving target, and revisions to expectations will continue to occur in the period ahead. Oil Prices & Job Growth Houston Metro Area $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $ * SOURCE Bloomberg, Transwestern *Prices as of 11/04/2015, job growth for 12 months ending in September Job Forecast Houston Metro Area Annual Job Growth 120, ,000 80,000 60,000 40,000 20, ,000-40,000-60,000 Avg. Annual Growth = 87,500/year Job Growth (in thousands) WTI Price Brent Price Avg. Annual Growth = 98,000/year Projected Avg. Annual Growth = (5,000)/year -80, Source: Bureau of Labor Statistics, Transwestern 21

22 The Houston Metro Office Market

23 The Houston Metro Office Market OFFICE MARKET OVERVIEW Shifting Fundamentals Create Tenant Opportunities The Houston office market began to falter in 2015 as lower oil prices and economic uncertainty took a toll on fundamentals. Leasing activity has slowed, and tenants with upcoming expirations are finding opportunities with changing market dynamics. Sublease inventories remain on the rise, though at a slower rate than the first half of the year. Office TrendLines 10-Year Trend Q Direct 11.6% The market continued to soften with rising vacancy and declining net absorption while asking rents still trended upward but with significant concessions being offered. The landlord market of has given way to a tenant favorable environment, though leverage varies by numerous factors including submarket and length of term. In Rental Rate addition, the flight to quality that defined the Houston office market over that same period has given way to a value trend in Major office occupiers like upstream companies are seeking more cost efficient options for their space needs in a weaker economy. $28.22 PSF Gross Notable 2015 Leases 255,413 SF Renewal 4 Greenway Plaza Greenway Plaza submarket 191,893 SF Renewal 12 Greenway Plaza Greenway Plaza submarket 189,061 SF Renewal Pennzoil Place CBD submarket 168,901 SF New lease 2425 West Loop South Post Oak Park submarket 2.4 MSF Year-to-Date 158,050 SF Prelease West Memorial Place II Katy Freeway West submarket 113,801 SF New lease Five Greenspoint Place Greenspoint/North Belt submarket 138,599 SF New lease 6330 West Loop South Bellaire submarket 101,679 SF Renewal 9 Greenway Plaza Greenway Plaza submarket Under Construction 10.1 MSF Total Available Sublease Space Submarket Q Q Q YE 2014 Q Energy Corridor 2,050,885 1,987,540 1,526, , ,351 CBD 1,468,177 1,435,987 1,399,826 1,147, ,188 Westchase 890, , , , ,054 Greenspoint/North Belt 691, , , , ,216 Galleria 472, , , , ,778 All Houston Metro 7,319,799 7,626,769 6,369,543 4,905,071 4,130,808 Job Growth 36,200 Jobs gained 12 Months ending September

24 The Houston Metro Office Market on the Rise in Softening Market The metro s overall vacancy rate was 13.0% at third quarter, up from 9.9% a year ago. After five quarters of rising vacancy, Houston falls in the middle of the pack among large metros in the U.S. Direct vacancy was 11.6% at third quarter, up from 9.3% one year ago. Over the course of 2015, the spread between direct and overall vacancy widened with significant growth of sublease space on the market. Total available sublease inventory grew to 7.3 million SF, and vacant available sublet space rose to 3.3 million SF at third quarter. Class A overall vacancy was 11.7% this quarter, up from 7.8% at third quarter 2014, and Class A direct was 9.8%, up from 7.1% over the same period. Class B overall vacancy rose to 14.7% this quarter from 12.4% a year ago, and Class B direct was 13.9%, up from 11.8% over the same period. Office vacancy rates will continue trending upward in the period ahead as new supply hits the market and weaker economic conditions impact demand for space. Preleased Deliveries Drive absorption for all classes of space totaled 725,000 SF in the third quarter, for a yearto-date total of almost 2.4 million SF, closing in on the 15-year historical average of 2.6 million SF per year. in 2015 came entirely from Class A space which can be largely attributed to the volume of preleased deliveries. Class A recorded 4.0 million SF recorded during the year, while Class B, still feeling the effects of the long-term flight to quality in the market, recorded negative 1.5 million SF of absorption. absorption should begin to level out somewhat as the corporate campus deliveries causing major swings between Class A and B dwindle down. Rental Rates Downward Pressure on Effective Rents Asking rental rates for all classes of space have increased 1.9% to $28.22 from year-end 2014 after rising 4.4% over the same period last year. Class A rents were up 2.5% to $35.35 per SF gross, and Class B rents grew 1.8% to $21.27 per SF gross from the close of last year. As the office sector has shifted to a tenant market, rent concessions have become more prevalent, especially with fewer tenants seeking space in the weakened economy. While asking rents remain up as landlords try to maintain current face rates, free rent and tenant improvement packages have dramatically increased. Metrowide asking rents should begin flattening out and trending downward as economic fundamentals remain weak. Office Rates Select Metro Areas Q Overall Rate 20% 15% 10% 5% 0% Phx Atl LA Chi DFW Was Hou S Fla Bos Den NY Source: CoStar, Transwestern Of Office Space Houston Metro 2000 Through Q in Thousands of SF 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, ,000-2,000-3,000 Note: Delivery of preleased space counts as positive net absorption. Source: CoStar, Transwestern *Through Q Contiguous Blocks Of Available Space Houston Metro Q Source: CoStar, Transwestern 13.0% Note: Includes both existing and under construction buildings National Rate: 11.5% 15-Year Annual Average = 2.6 Million SF SF Bay * Sublet 25,000 SF 50,000 SF 100,000 SF 200,000 SF Direct 24

25 The Houston Metro Office Market Supply and Development Pipeline Continues to Shrink There was 10.1 million SF of office space under construction this quarter compared to 11.3 million SF at mid-year and 17.1 million SF at the development peak a year ago. This space was 61% preleased at third quarter, compared to 66% a year ago. The Energy Corridor and Westchase submarkets account for the largest amount of development activity, about 3.8 million SF in total. Approximately 2.9 million SF is still scheduled to deliver in 2015, and this space is currently 53% preleased. Developers continue to exercise caution in the current economic climate with only two office projects breaking ground since mid-year. Largest Projects Under Construction Office Deliveries Houston Metro 2005 Through Q ,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 SF Leased at Delivery SF Available at Delivery Phillips 66 campus 1.1 million SF Owner occupied Q delivery 609 Main at Texas 1.1 million SF 0% preleased Q Delivery FMC Technologies campus 1.0 million SF Owner occupied Q delivery 2,000,000 1,000,000 72% 47% 46% 55% 43% 51% 68% 73% 52% 80% 74% * Source: CoStar, Transwestern *Through Q Office Space Under Construction Selected Metro Areas Q BHP Billiton Tower 600,000 SF Single tenant Q delivery Energy Center IV 600,000 SF 100% preleased to ConocoPhillips Q delivery Energy Center V 524,328 SF 0% preleased Q delivery Houston continues to experience a significant level of deliveries each quarter as the metro comes down from the high of the development cycle. In total, 32 office buildings finished construction in 2015 for 7.8 million SF added to the market at 74% preleased. The largest projects delivered include Exxon Mobil s 3.0 million SF campus in The Millions of SF U/C Nationally = Million SF Woodlands, Energy Center Three in the Energy Corridor and Noble Energy Center II in the FM 1960/Hwy 249 submarket. 2 The amount of office space under construction nationally rose sharply again in 2015 with million SF under construction at third quarter, compared to million SF a year ago. With only seven groundbreakings this year, Houston dropped out of the top 0 NY Hou DFW Was Bos Phx Source: CoStar, Transwestern SF Bay Chi LA Basin Den Atl S Fla spot and moved into second behind New York City. The metro s 10.1 million SF under construction represents 4.3% of the existing office inventory. 25

26 Investment Market Overview Deal Volume Steady but Returns Down in 2015 Total sales volume through third quarter is currently tracking above the same period in 2014, proving there are still opportunities to be had after the 2012 to 2014 high transaction period. Houston s office sales total year-to-date puts it on par with Dallas/Fort Worth and Denver. While the metro s volume does not match that of the larger coastal cities, investors still consider Houston a gateway market, and long-term fundamentals project favorably for continued investment. Based on the NCREIF Property Index, average 12-month returns increased in 2015 across the U.S., compared to one year ago, as did most of the major metro areas studied. Houston was one of four exceptions: the region s average office asset return fell significantly over this same time period, from 14.56% in June 2014 to 9.20% twelve months later. Despite having outpaced all major metro areas except Denver one year ago, Houston s 2015 returns on office assets now lag well behind the national average of 12.85%. This lower return level can be attributed to increased caution from investors in the Houston market due to the rapid decline of oil prices. The Houston metro recorded $2.3 billion in total office investment sales transactions through the third quarter of 2015, as compared to $2.0 billion over the same period last year. These are assets for which pricing information could be obtained. Pricing averaged $255 per SF over the first nine months of the year, compared to $213 per SF for all of The pricing disparity between years is due to the sale of a large CBD asset in the first quarter skewing pricing statistics upward for The average cap rate through third quarter was 7.0%, down just slightly from 7.1% for all of There is a wide range of cap rates depending on locations and characteristics of properties traded, most notably, Class A assets generally command much lower yields than Class B. Investment Market Outlook Single-Tenant Offerings Remain Attractive The uptick in single-tenant offerings Houston has experienced in recent months will likely continue in the period ahead. Properties such as these, with long-term leases, remove the near-term risk of underwriting vacancy and rents in a weaker economy. The drop in oil prices has kept some owners from bringing properties to market amid uncertainty over pricing expectations, and this trend will also likely remain in the current economic climate. The general sentiment among investors active in Houston is oil prices will eventually settle in a range sustainable for long-term growth, however more conservative underwriting projections will be used across all product types. NCREIF Return Index for Office Properties Metro Area Office Investment Sales Volume Select Metro Areas January Through Q Source: Real Capital Analytics, Transwestern 2015 YTD Return (through Q2) San Francisco 7.59% 19.09% New York 8.85% 15.88% Phoenix 7.33% 15.53% Denver 8.07% 15.45% Chicago 6.44% 14.69% Los Angeles 6.69% 13.90% Atlanta 6.87% 13.81% Dallas 5.78% 12.90% National Average 6.50% 12.85% Boston 6.89% 11.07% Houston 2.91% 9.20% Washington 3.58% 6.31% 12-Month Return at Q Note: NCREIF Index includes both current income and capital appreciation returns. Source: NCREIF, Delta Associates $25,000 $20,000 $15,000 $10,000 $5,000 $0 NY SF Bay The Houston Metro Office Market Was/ LA Bal Chi Bos Atl DFW Hou Den 26

27 The Houston Metro Office Market Office Market Outlook Expectations Tempered for 2015 and 2016 We expect leasing activity to remain slow in the period ahead, hindered by lower oil prices and a weaker metro economy. Demand will likely be lackluster in 2016 as office users look for additional ways to realize efficiencies through subletting planned growth space and evaluating lower-cost space alternatives. Office market fundamentals will continue to be affected by a larger sublease inventory creating greater options for tenants in a market where vacancy is already on the rise. Further M&A activity is also a risk with five major announcements since the downturn began. While Noble purchasing Rosetta has already resulted in the closing of Rosetta s CBD office, we do not yet know the implications of the other four on their respective Houston footprints going forward. As the energy market is not projected to recover for another 12 to 18 months, 2016 and 2017 will be difficult years for the Houston office market While the metro s current development pipeline is 61% preleased, a weakened economy is likely to limit further leasing activity in this space. Additionally, many of these tenants will leave behind large vacancies when they move to occupy new space. With tepid demand expected through 2016, we anticipate the overall vacancy rate for all classes of space will increase over the next two years, climbing to the mid-16% range. For the same reasons, Houston s strong net absorption and rental rate growth should begin to taper off and flatten out in the period ahead. The office sector will continue to experience softness and move into the tenant s favor while the current economic conditions persist. As tenants with 2016 and early 2017 expirations push leasing decisions out, we will see a backlog of activity begin to occur. This pent up demand will create high transactional volume in late 2017 and 2018 as the office market recovers. Office and Employment Houston Metro Area 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 *12-month job growth through September 2015, net absorption through Q Source: Bureau of Labor Statistics, Transwestern Office Rate Forecast Houston Metro 2008 Through 2017 Overall Rate 20% 18% 16% 14% 12% 10% 8% (Thousands of SF) 13.5% Source: CoStar, Transwestern Note: Dotted lines represent weak, moderate and strong demand forecasts *At Q Payroll Job Growth (in Thousands) 10.2% 13.0% * 16f 17f

28 The Houston Metro Office Market Office Market Indicators - All Space Houston Metro Area 2012 Through Q Submarket Total Bldgs Inventory SF Available Immediately Direct 2012 Direct 2013 Direct 2014 Direct Q with Sublet Under Construction Q YTD 2015 Central Business District 86 47,512,974 5,397, % 9.2% 7.0% 11.4% 13.1% 1,463, ,000 (240,000) 477,000 (114,000) (1,976,000) Midtown 33 5,759, , % 8.7% 9.1% 14.9% 15.1% - (14,000) 339,000 90,000 81,000 86,000 Downtown ,272,718 6,255, % 9.1% 7.2% 11.7% 13.3% 1,463, ,000 99, ,000 (33,000) (1,890,000) I-45 North 15 1,371, , % 14.2% 9.9% 12.0% 12.3% - 38,000 10,000 56,000 (4,000) (28,000) FM 1960 / Champions 22 1,850, , % 22.7% 25.6% 23.6% 23.6% - (95,000) 21,000 1,000-37,000 FM 1960 / Highway ,612, , % 14.4% 13.6% 11.5% 12.3% - 752,000 61, , , ,000 FM ,834,745 1,131, % 16.9% 15.9% 14.4% 15.0% - 695,000 92, , , ,000 North Belt West/Greenspoint 74 10,036,449 2,790, % 16.2% 19.8% 27.8% 31.7% 68,950 85,000 (342,000) (483,000) (401,000) (802,000) Greenspoint / IAH 22 3,076, , % 10.7% 10.3% 16.0% 16.2% - 11, ,000 27,000 (22,000) (176,000) Greenspoint / North Belt 96 13,112,457 3,282, % 14.9% 17.6% 25.0% 28.1% 68,950 96,000 (191,000) (456,000) (423,000) (978,000) Greenway Plaza 48 10,416, , % 9.1% 7.4% 9.1% 9.3% 858,275 12, , ,000 74,000 (176,000) Gulf Freeway/Pasadena 34 2,597, , % 10.5% 8.9% 14.2% 14.2% - 109,000 (13,000) 12,000 26,000 60,000 Katy 22 1,379, , % 4.6% 4.5% 16.3% 16.5% 124,017 58, ,704 61, , ,000 Katy Freeway East 60 8,829, , % 7.7% 6.2% 6.7% 7.3% 774, , ,000 99,000 92, ,000 Katy Freeway West ,906,721 3,075, % 3.6% 6.7% 11.9% 15.8% 1,514, ,000 1,027,000 1,695,000 (162,000) 1,070,000 Katy Fwy / Energy Corridor ,736,090 3,663, % 4.9% 6.6% 10.5% 13.6% 2,288,929 1,211,000 1,736,000 1,794,000 (70,000) 1,403,000 Kingwood / Humble 8 789,674 73, % 7.5% 7.3% 9.3% 9.3% - 20,000 21,000 69,000 (4,000) (16,000) NASA / Clear Lake 63 7,051, , % 16.8% 14.2% 13.4% 13.9% - (212,000) (386,000) 299,000 (7,000) - Northeast 15 1,155, , % 13.3% 15.9% 16.5% 16.5% 1,000,000 (6,000) 11,000 69,000 (1,000) (7,000) North Loop West 29 4,133, , % 18.6% 16.9% 14.2% 15.4% - 358,000 (115,000) (31,000) 11, ,000 Northwest Near 13 1,319,023 14, % 9.4% 1.7% 1.1% 1.3% - 30,000 (16,000) 60,000 3,000 8,000 Northwest Far 31 3,430, , % 10.0% 18.9% 23.8% 24.1% - 149, ,000 (9,000) (63,000) (180,000) Northwest 73 8,883,138 1,420, % 13.0% 15.4% 16.0% 16.7% - 537,000 35,000 20,000 (49,000) (61,000) South Main / Medical Center 49 10,469, , % 8.2% 8.7% 9.4% 9.5% - 112,000 (177,000) 42,000 42,000 (126,000) Southwest / Hillcroft 35 4,269, , % 15.5% 18.0% 17.1% 17.4% - 52,000 (29,000) (32,000) (9,000) 38,000 Southwest Beltway ,620, , % 22.0% 19.9% 16.9% 17.0% - 112,000 (65,000) (109,000) (6,000) 168,000 East Ft Bend Co. / Sugar Land 45 6,376, , % 10.8% 11.3% 7.3% 7.9% - 116, , , , ,000 Southwest Fwy / Sugar Land ,266,671 2,145, % 15.8% 16.1% 13.2% 13.5% - 280, , , , ,000 West Belt 36 4,702, , % 1.8% 1.9% 12.0% 13.5% 200, , ,518 (17,000) 127, ,000 Bellaire 29 4,374, , % 6.2% 5.8% 6.2% 6.7% - 5, ,000 34,000 13,000 (18,000) Post Oak Park 29 4,294, , % 15.7% 17.2% 17.1% 18.6% 380,000 (344,000) (38,000) (27,000) 44,000 61,000 Galleria 55 15,804,024 1,085, % 7.4% 6.1% 6.9% 7.7% 765,000 31, , ,000 68,000 (122,000) Riverway 16 2,868, , % 9.1% 8.8% 10.7% 11.5% - 4,000 37,000 20,000 3,000 (54,000) Richmond / Fountainview , , % 18.1% 27.3% 23.8% 23.8% - 12,000 23,000 (35,000) 6,000 29,000 San Felipe / Voss 33 5,041, , % 10.2% 11.1% 10.4% 10.7% - (45,000) 66,000 (23,000) 14,000 34,000 West Loop ,203,145 3,119, % 9.8% 9.0% 9.4% 10.2% 1,145,000 (337,000) 984, , ,000 (70,000) Westchase 87 15,922,349 1,370, % 7.4% 9.8% 8.6% 11.4% 1,545, ,000 (31,000) 308,000 (18,000) 173,000 The Woodlands 87 14,077, , % 4.0% 4.6% 5.0% 5.5% 1,411, , ,000 2,789,000 51,000 1,994,000 Conroe ,345 89, % 12.1% 16.8% 9.9% 9.9% - 201,000 (37,000) (9,000) - 63,000 TOTAL - Houston 1, ,773,382 89, % 10.1% 9.5% 11.6% 13.0% 10,105,224 4,222,000 3,571,000 6,412, ,000 2,377,000 Rate with Sublet Space 10.7% 10.8% 10.2% 13.0% SOURCE Inventory and vacancy from analysis of CoStar data, net absorption computed by Transwestern NOTE: Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government 28

29 The Houston Metro Office Market Office Market Indicators - Class A Space Houston Metro Area 2012 Through Q Submarket Total Bldgs Inventory SF Available Immediately Direct 2012 Direct 2013 Direct 2014 Direct Q with Sublet Under Construction Q YTD 2015 Central Business District 33 31,444,591 2,547, % 6.7% 5.8% 8.1% 10.0% 1,463, ,000 (121,000) 280,000 (63,000) (661,000) Midtown 7 2,494, , % 7.6% 9.3% 11.8% 12.0% - 82,000 (30,000) 43,000 60,000 86,000 Downtown 40 33,939,287 2,841, % 6.8% 6.0% 8.4% 10.1% 1,463, ,000 (151,000) 323,000 (3,000) (575,000) I-45 North 1 98, % 0.0% 0.0% 0.0% 0.0% - 28, FM 1960 / Champions 1 150, % 0.0% 0.0% 0.0% 0.0% FM 1960 / Highway ,008, , % 19.9% 16.1% 12.0% 12.9% - 702,000 85, , , ,000 FM ,256, , % 17.6% 14.1% 11.1% 11.9% - 730,000 85, , , ,000 North Belt West/Greenspoint 17 4,343,919 1,511, % 9.1% 21.1% 34.8% 40.2% 68,950 (38,000) (115,000) (522,000) (295,000) (594,000) Greenspoint / IAH 7 1,093, , % 10.9% 15.0% 27.9% 28.5% - 8,000 91,000 (46,000) (20,000) (141,000) Greenspoint / North Belt 24 5,437,586 1,816, % 9.5% 19.9% 33.4% 37.8% 68,950 (30,000) (24,000) (568,000) (315,000) (735,000) Greenway Plaza 15 6,190, , % 6.8% 5.1% 9.0% 9.2% 858, , , ,000 81,000 (241,000) Gulf Freeway/Pasadena % 15.8% 0.0% 0.0% 0.0% - 5, Katy , , % 8.7% 13.1% 28.5% 28.9% 124,017 18,436 35,408 55, , ,000 Katy Freeway East 19 4,645, , % 3.1% 2.3% 5.6% 6.2% 774, , ,000 22,000 (13,000) 237,000 Katy Freeway West 71 17,470,476 1,764, % 0.9% 5.2% 10.1% 14.5% 1,514, , ,000 1,763,000 (39,000) 1,591,000 Katy Fwy / Energy Corridor 90 22,115,625 2,024, % 1.5% 4.6% 9.2% 12.8% 2,288, ,000 1,305,000 1,785,000 (52,000) 1,828,000 Kingwood / Humble 1 86,665 30, % 31.3% 27.5% 34.7% 34.7% ,000 3,000 - (6,000) NASA / Clear Lake 16 2,182,855 56, % 6.9% 2.8% 2.6% 4.0% - 71,000 65, ,000 11,000 4,000 Northeast % 0.0% 0.0% 0.0% 0.0% 1,000, North Loop West 6 1,252, , % 26.6% 24.1% 15.0% 17.7% - (6,000) (14,000) 26,000 3, ,000 Northwest Near 1 237, % 0.0% 0.0% 0.0% 0.0% Northwest Far , , % 7.1% 22.5% 32.7% 33.5% - 182, ,000 12,000 33,000 (81,000) Northwest 23 2,292, , % 11.9% 20.8% 19.6% 21.4% - 176,000 96,000 38,000 36,000 33,000 South Main / Medical Center 16 4,618, , % 5.6% 5.9% 4.7% 4.7% - 124,000 (5,000) 60,000 8,000 54,000 Southwest / Hillcroft 6 1,485, , % 11.9% 12.8% 14.6% 15.4% - 66,000 48,000 (13,000) (9,000) (27,000) Southwest Beltway ,500 79, % 22.0% 15.1% 13.9% 13.9% - (5,000) (34,000) 40,000-7,000 East Ft Bend Co. / Sugar Land 21 4,122, , % 12.3% 10.6% 7.8% 8.2% - 159, , , , ,000 Southwest Fwy / Sugar Land 30 6,181, , % 13.2% 11.5% 10.0% 10.5% - 220, , ,000 99,000 96,000 West Belt 22 3,866, , % 1.1% 0.5% 12.9% 13.8% 200, , ,396 4, , ,000 Bellaire 7 1,203,314 86, % 10.8% 6.8% 7.2% 9.1% - (199,000) 157,000 37,000 8,000 (5,000) Post Oak Park 8 2,213, , % 18.0% 17.4% 22.9% 25.5% 380,000 (50,000) 36,000 6,000 75,000 (64,000) Galleria 30 11,982, , % 7.8% 6.0% 6.7% 7.6% 765,000 (44,000) 403, ,000 72,000 (84,000) Riverway 5 1,885, , % 7.5% 7.0% 8.2% 9.2% - (23,000) 32,000 9,000 13,000 (23,000) Richmond / Fountainview % 0.0% 0.0% 0.0% 0.0% San Felipe / Voss 3 1,714, , % 14.0% 16.6% 14.9% 17.2% - (57,000) 67,000 (44,000) 48,000 29,000 West Loop 53 19,000,523 1,805, % 9.6% 8.4% 9.5% 10.8% 1,145,000 (373,000) 695, , ,000 (147,000) Westchase 29 8,059, , % 6.0% 9.6% 8.7% 12.6% 1,545, ,000 (60,000) 349,000 (12,000) 77,000 The Woodlands 34 9,305, , % 2.0% 4.7% 3.7% 4.1% 1,411, , ,000 2,640,000 45,000 2,172,000 Conroe 2 128,832 10, % 10.1% 8.5% 8.5% 8.5% - (4,000) (5,000) 2, TOTAL - Houston ,428,597 12,549, % 7.1% 7.6% 9.8% 11.7% 10,105,224 2,969,000 3,246,000 5,711, ,000 4,028,000 Rate with Sublet Space 8.3% 8.1% 8.4% 11.7% SOURCE Inventory and vacancy from analysis of CoStar data, net absorption computed by Transwestern NOTE: Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government 29

30 The Houston Metro Office Market Office Market Indicators - Class B Space Houston Metro Area 2012 Through Q Submarket Total Bldgs Inventory SF Available Immediately Direct 2012 Direct 2013 Direct 2014 Direct Q with Sublet Under Construction Q YTD 2015 Central Business District 38 14,511,526 2,419, % 10.2% 7.3% 16.7% 18.1% - 194,000 (69,000) 172,000 (57,000) (1,360,000) Midtown 19 3,177, , % 7.1% 4.3% 13.0% 13.1% - (86,000) 101,000 79,000 20,000 6,000 Downtown 57 17,688,873 2,830, % 9.5% 6.8% 16.0% 17.2% - 108,000 32, ,000 (37,000) (1,354,000) I-45 North 12 1,016, , % 14.1% 13.4% 15.6% 15.9% - 27,000 13,000 9,000 2,000 (22,000) FM 1960 / Champions 20 1,632, , % 28.0% 29.0% 26.7% 26.7% - (92,000) 19,000 15,000-37,000 FM 1960 / Highway ,444, , % 13.5% 9.9% 8.8% 8.8% - 34,000 (36,000) 37,000 9,000 16,000 FM ,093, , % 18.1% 18.4% 17.6% 17.7% - (31,000) (4,000) 61,000 11,000 31,000 North Belt West/Greenspoint 44 4,595,553 1,104, % 21.0% 18.4% 24.0% 27.4% - 44,000 (205,000) 23,000 (103,000) (259,000) Greenspoint / IAH 14 1,930, , % 11.5% 6.8% 8.3% 8.3% - 4,000 54,000 78,000 2,000 (29,000) Greenspoint / North Belt 58 6,525,569 1,264, % 18.2% 15.0% 19.4% 21.8% - 48,000 (151,000) 101,000 (101,000) (288,000) Greenway Plaza 27 3,764, , % 7.8% 6.4% 5.4% 5.6% - (109,000) (24,000) 64,000 (10,000) 16,000 Gulf Freeway/Pasadena 28 2,146, , % 11.9% 10.0% 15.1% 15.1% - 100,000 (15,000) 21,000 24, ,000 Katy 9 511,395 1, % 1.9% 0.8% 0.2% 0.2% - 40, ,296 7,000 3,000 4,000 Katy Freeway East 29 3,064, , % 15.9% 13.0% 8.4% 9.1% - (86,000) 16,000 80, , ,000 Katy Freeway West 73 8,194,731 1,302, % 7.0% 10.2% 15.9% 18.8% - 355, ,000 (160,000) (122,000) (466,000) Katy Fwy / Energy Corridor ,259,127 1,559, % 9.3% 11.0% 13.9% 16.2% - 269, ,000 (80,000) (15,000) (325,000) Kingwood / Humble 7 703,009 43, % 7.1% 4.9% 6.2% 6.2% - 18,000 11,000 90,000 (4,000) (9,000) NASA / Clear Lake 43 4,511, , % 21.1% 21.0% 21.3% 21.4% - (225,000) (500,000) 192,000 (14,000) (14,000) Northeast , , % 19.8% 14.0% 14.9% 14.9% - 2,000 8, ,000 (1,000) (6,000) North Loop West 20 2,536, , % 18.4% 15.3% 14.9% 15.5% - 320,000 25,000 (37,000) 9,000 9,000 Northwest Near 8 802,294 12, % 6.3% 1.3% 1.6% 1.8% - 23,000 34,000 27,000 (2,000) (3,000) Northwest Far 24 2,381, , % 12.6% 19.6% 23.4% 23.6% - (26,000) 52,000 (25,000) (95,000) (91,000) Northwest 52 5,720, , % 14.1% 15.1% 16.6% 17.0% - 317, ,000 (35,000) (88,000) (85,000) South Main / Medical Center 18 3,991, , % 14.5% 14.3% 17.4% 17.5% - (39,000) (301,000) (31,000) 43,000 (109,000) Southwest / Hillcroft 16 1,598, , % 23.5% 27.2% 24.9% 25.1% - (10,000) (42,000) (32,000) 7,000 38,000 Southwest Beltway ,413, , % 25.5% 22.5% 18.4% 18.5% - 90,000 (58,000) 11,000 (7,000) 183,000 East Ft Bend Co. / Sugar Land 22 2,039, , % 10.5% 13.9% 6.5% 7.4% - (62,000) 134,000 27, , ,000 Southwest Fwy / Sugar Land 69 8,051,168 1,340, % 19.0% 21.4% 16.7% 17.0% - 18,000 34,000 6, , ,000 West Belt 14 1,261,839 66, % 2.9% 4.3% 5.3% 8.1% - 62,089 43,122 (23,000) (13,000) (13,000) Bellaire 18 2,781, , % 5.1% 4.2% 4.8% 4.9% - 121,000 21,000 30,000 8,000 (17,000) Post Oak Park 18 1,891, , % 18.8% 18.5% 10.7% 11.1% - (289,000) 151,000 46,000 (27,000) 147,000 Galleria 22 3,307, , % 6.4% 5.6% 7.4% 7.8% - 91, ,000 22,000 (3,000) (59,000) Riverway 9 870, , % 12.8% 13.7% 17.5% 17.7% - 26,000 10,000 6,000 (12,000) (33,000) Richmond / Fountainview 7 559, , % 24.1% 31.7% 26.8% 26.8% - 16,000 36,000 5,000 3,000 28,000 San Felipe / Voss 30 3,326, , % 7.5% 8.3% 9.3% 9.5% - 22,000 (4,000) (12,000) (35,000) (31,000) West Loop ,736,580 1,191, % 10.1% 9.5% 9.4% 9.6% - (13,000) 496,000 97,000 (66,000) 35,000 Westchase 53 7,301, , % 8.8% 10.0% 8.9% 9.0% - 267,000 (30,000) (97,000) (9,000) 79,000 The Woodlands 51 4,566, , % 5.7% 4.8% 8.5% 9.1% - 249, , ,000 6,000 (167,000) Conroe 9 619,727 78, % 12.6% 16.1% 12.6% 12.6% - 204,000 8,000 10,000 1,000 70,000 TOTAL - Houston ,195,921 13,379, % 12.6% 11.6% 13.9% 14.7% - 1,183, , ,000 (131,000) (1,479,000) Rate with Sublet Space 12.6% 13.1% 12.0% 14.7% SOURCE Inventory and vacancy from analysis of CoStar data, net absorption computed by Transwestern NOTE: Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government 30

31 The Houston Metro Office Market Asking Rental Rate Analysis of Class A & B Office Buildings Houston Metro Area 2012 Through Q Submarket 2012 Class A 2012 Class B 2013 Class A 2013 Class B 2014 Class A 2014 Class B Q Class A Q Class B % Change 12/14-09/15 Class A % Change 12/14-09/15 Class B Central Business District $38.18 $25.06 $39.32 $25.99 $42.71 $28.13 $43.87 $ % 2.4% Midtown $30.12 $24.07 $30.32 $26.03 $34.36 $27.17 $35.17 $ % 2.0% Downtown $37.42 $24.96 $38.10 $25.99 $41.85 $27.99 $42.97 $ % 2.4% I-45 North - $ $ $ $ % FM 1960 / Champions - $ $ $ $ % FM 1960 / Highway 249 $24.27 $20.39 $25.67 $20.80 $26.56 $20.62 $26.92 $ % 0.0% FM 1960 $24.34 $14.94 $25.71 $15.52 $26.56 $15.85 $26.92 $ % 0.0% North Belt West/Greenspoint $23.76 $16.44 $29.51 $15.63 $30.26 $15.59 $29.40 $ % -0.2% Greenspoint / IAH $20.47 $16.38 $21.36 $16.34 $21.65 $15.80 $21.48 $ % 2.9% Greenspoint / North Belt $23.26 $16.43 $27.24 $15.73 $28.81 $15.62 $28.07 $ % 0.2% Greenway Plaza $30.22 $23.29 $32.11 $23.72 $35.04 $25.34 $35.77 $ % 2.4% Gulf Freeway/Pasadena - $ $ $ $ % Katy $30.56 $23.20 $30.56 $23.58 $32.26 $23.71 $33.09 $ % 1.3% Katy Freeway East $35.45 $21.38 $35.52 $21.79 $36.65 $23.26 $38.21 $ % 2.9% Katy Freeway West $31.62 $19.55 $33.69 $20.52 $35.98 $22.73 $37.38 $ % 3.2% Katy Fwy / Energy Corridor $32.10 $20.14 $33.92 $20.93 $36.07 $22.82 $37.49 $ % 3.1% Kingwood / Humble $32.13 $18.50 $32.13 $19.00 $32.13 $19.54 $32.13 $ % -4.0% NASA / Clear Lake $23.57 $19.40 $23.58 $18.33 $25.01 $18.62 $24.84 $ % 0.7% Northeast - $ $ $ $ % North Loop West $25.18 $16.57 $23.81 $18.25 $26.76 $20.50 $27.03 $ % 1.5% Northwest Near - $ $ $ $ % Northwest Far $18.98 $14.41 $19.04 $15.31 $19.29 $16.66 $19.38 $ % 0.2% Northwest $22.61 $15.46 $21.83 $16.72 $22.41 $18.19 $22.57 $ % 0.8% South Main / Medical Center $29.72 $23.42 $28.54 $24.00 $29.09 $25.09 $29.11 $ % 2.0% Southwest / Hillcroft $21.24 $14.61 $21.75 $14.18 $21.98 $13.81 $22.04 $ % 2.8% Southwest Beltway 8 $24.70 $16.37 $23.24 $16.68 $22.45 $16.43 $22.45 $ % -1.6% East Ft Bend Co. / Sugar Land $27.22 $19.98 $26.68 $21.32 $27.09 $21.60 $28.07 $ % 0.5% Southwest Fwy / Sugar Land $25.32 $16.48 $24.95 $16.76 $24.70 $16.17 $25.23 $ % -0.2% West Belt $29.02 $22.99 $30.35 $23.21 $31.42 $23.83 $32.22 $ % 0.5% Bellaire $25.06 $20.43 $25.86 $21.08 $26.80 $22.09 $26.88 $ % 0.4% Post Oak Park $32.48 $24.40 $35.43 $26.36 $35.94 $27.43 $36.46 $ % 0.9% Galleria $34.36 $23.90 $35.70 $26.70 $37.04 $27.49 $38.20 $ % -1.2% Riverway $29.57 $22.02 $30.82 $23.72 $32.10 $25.12 $33.01 $ % 1.1% Richmond / Fountainview - $ $ $ $ % San Felipe / Voss $32.70 $20.96 $32.44 $22.40 $34.54 $23.41 $35.48 $ % 0.4% West Loop $32.75 $21.79 $34.14 $23.41 $35.46 $24.26 $36.34 $ % 0.3% Westchase $34.27 $18.22 $35.38 $19.75 $38.70 $21.51 $39.14 $ % -2.2% The Woodlands $35.37 $23.79 $35.95 $23.38 $39.56 $25.63 $40.56 $ % -1.3% Conroe $29.54 $23.96 $28.42 $25.73 $28.40 $25.08 $29.55 $ % -3.6% TOTAL - Houston $31.56 $19.46 $32.71 $19.96 $34.49 $20.88 $35.35 $ % 1.8% SOURCE Transwestern analysis of CoStar data - rents of properties using triple net terms have been grossed up to full service with operating expense data, rents reflect full service equivalent 31

32 The Houston Metro Industrial Market

33 The Houston Metro Industrial Market INDUSTRIAL MARKET OVERVIEW Market Beginning to Soften in Weaker Economy Houston industrial remained strong in 2015 but did start to cool in the third quarter as lower oil prices impacted the sector. Looking at the job market, manufacturing is one of the hardest hit of the downturn and production of oil field equipment, a major driver of the sector, is not likely to pick up in Sublease inventories have been rising modestly since year-end but are still a small percentage as compared to the market s total inventory. Industrial TrendLines 10-Year Trend Q Direct 4.7% Construction activity remains high with owner-occupied users like Daikin and Aldi making long-term investments in the Houston metro, though overall leasing activity is slowing with deliveries at only 25% preleased in the third quarter. The industrial market is beginning to soften with a rise in vacancy and lower net absorption, but to a lesser extent than the office market. This is causing a weakening of the landlord market across the metro, though tenant Rental Rate leverage varies widely by building and location. Notable 2015 Leases $6.68 PSF NNN 400,250 SF New lease Fallbrook Distribution Center Northwest Far submarket 357,887 SF New lease Gateway North Business Park Northwest Far submarket 328,020 New lease Imperial Distribution Center North Far submarket 261,990 SF Renewal Port Northwest Northwest Far submarket 7.5 MSF Year-to-Date 194,334 SF New lease First Northwest Commerce North Far submarket 188,000 SF New lease DCT Northwest Crossroads Northwest Far submarket 162,000 SF Expansion and renewal West by Northwest Northwest Far submarket 143,690 SF New lease Hardy Distribution Center North Far submarket Under Construction 9.8 MSF Total Available Sublease Space Submarket Q Q Q YE 2014 Q North Far 753, , , , ,443 Northwest Near 701, , , , ,428 Job Growth Northwest Far 307, , ,850 67, ,010 South Far 273, , , , ,954 Southwest Near 226, , , ,646 3,475,477 36,200 Jobs gained 12 Months ending September 2015 All Houston Metro 2,567,870 2,221,704 2,020,711 1,761,568 2,045,092 33

34 The Houston Metro Industrial Market Up Slightly Year-over-Year The metro s overall vacancy rate was 4.8% at third quarter, up marginally from 4.6% a year ago. Direct vacancy was 4.7%, up slightly from 4.6% over the same period. Houston s vacancy again ranked second-lowest among major metros after the LA Basin. Despite more than 9.2 million SF in deliveries this year, warehouse/distribution vacancy has remained tight, rising only 0.5% from year-end This is a testament to the leasing momentum carried into 2015 by the Houston industrial market. Over the last several quarters, total available industrial sublease inventory has ticked up slightly, rising 523,000 SF since the third quarter of This is not a concerning number yet, as vacancy remains low, but it is something that could impact industrial fundamentals if it continues to grow. Industrial vacancy is likely to continue climbing in the period ahead as Houston comes down from a construction peak and lower oil prices impact the market. Demand Weakens at Q3 The warehouse/distribution sector comprises 76% of total industrial inventory and accounted for 96% of net absorption through third quarter. absorption across all three sectors of space totaled 7.5 million SF in the first three quarters of the year, well above the 15-year annual average of 6.9 million SF. While 7.5 million SF is higher than the same period in 2014, it is important to note that absorption dropped significantly from 3.4 million SF at second quarter to 1.3 million SF this quarter. This marks the lowest quarterly absorption total since the third quarter of 2012 and represents a slowdown in leasing activity, which is expected to continue in The drop in oil prices is causing weak job growth, and this is starting to affect demand for industrial space, which is expected to decline through 2015 and into Rental Rates Asking Rents Continue Trending Upward Asking rental rates for all sectors rose 7.9% to $6.68 per SF triple net from year-end 2014 after growing 3.7% over the same period last year. Quoted base rents for new distribution space are between $5.00 and $5.30 per SF triple net with an allowance of $5.00-$6.50 per SF for initial improvements. While asking rents recorded impressive growth through third quarter, it will likely begin to slow as pressure on effective rents builds. Due to the volume of supply hitting the market, greater concessions with higher tenant improvement packages and free rent are being offered, especially on speculative construction projects. Industrial Rates Select Metro Areas Q Overall Rate 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Source: CoStar, Transwestern of Industrial Space Houston Metro 2005 Through Q in Thousands of SF 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Note: Delivery of preleased space counts as positive net absorption. Source: CoStar, Transwestern *Through Q Industrial Space Under Construction Select Metro Areas Q Millions of SF Source: CoStar, Transwestern LA Basin Hou DFW SF Bay NJ Chi Atl 15-Year Annual Average = 6.9 Million SF Was/ Bal * DFW Atl Chi Hou National Total = Million SF LA Basin Was/ Bal SF Bay NJ 34

35 The Houston Metro Industrial Market Supply and Development Pipeline Begins Downward Shift There was 9.8 million SF of industrial space under construction this quarter, compared to 11.0 million SF at mid-year and 5.2 million SF one year ago. This space was 58% preleased at third quarter, compared to 18% a year ago. The Northwest Far and East-Southeast Far submarkets account for 71% of this space, and warehouse/distribution product comprises 56% of the space under construction. Largest Projects Under Construction Industrial Deliveries Houston Metro 2005 Through Q ,000,000 12,000,000 10,000,000 8,000,000 SF Leased at Delivery SF Available at Delivery Daikin Industries 4.0 million SF Owner occupied Manufacturing/ distribution Northwest Bay Area Business Park 4 buildings, 829,415 SF 0% preleased Warehouse/ distribution Southeast Houston continues to experience a significant level of deliveries each quarter as the development pipeline remains sizable. In total, 102 industrial buildings finished construction in 2015 for 9.6 million SF added to the market at 46% preleased. The full development pipeline is at 2.7% of standing inventory, and developers are exercising caution breaking ground as supply is expected to exceed demand in Investment Market Overview Transaction Volume on Pace for New High Port buildings, 753,864 SF 14% preleased Warehouse/ distribution Southeast Aldi 650,000 SF Owner occupied Warehouse/ distribution Southwest West Ten 2 buildings, 415,296 SF 0% preleased Warehouse/ distribution West Sales volume through the first nine months of the year is already ahead of 2014 s total transaction volume and is on a record-setting pace to surpass 2013, the highest point since 2001 when data collection began. The metro recorded $1.4 billion in total industrial investment sales transactions through the third quarter of 2015, as compared to $1.1 billion for all of last year. Cap rates covered a wide range depending on the type and class of product. Class A properties sold in the 5-6% range, while Class B traded in the 7-9% range. However, well-located Class A distribution projects are currently trading in the low-5% range based on the abundance of capital looking for core investments. Based on the NCREIF Property Index, returns on investments in industrial assets increased across the U.S. again in The Houston industrial market, which was second only to New York among major metros in June of last year with returns of 14.23%, fell to near the bottom of the list with assets generating 11.31% in June ,000,000 4,000,000 2,000,000 76% 31% 33% 29% 24% 81% 82% 62% 60% 46% 46% * Source: CoStar, Transwestern *Through Q NCREIF Return Index for Industrial Properties Metro Area 2015 YTD Return (through Q2) Denver 9.91% 20.81% San Francisco 8.84% 17.37% Atlanta 9.20% 17.26% Los Angeles 7.15% 15.35% National Average 7.38% 14.79% Dallas 6.40% 13.88% Chicago 7.86% 13.84% Washington 7.03% 12.42% Houston 4.41% 11.31% Phoenix 5.13% 11.05% New York 5.88% 9.27% 12-Month Return at Q Note: NCREIF Index includes both current income and capital appreciation returns. Source: NCREIF, Delta Associates 35

36 The Houston Metro Industrial Market Investment Market Outlook Transaction Activity Likely to Slow The decline in oil prices has resulted in increased caution from some investors, though long-term fundamentals project favorably for industrial investment. In a weaker metro economy, the high transaction volume recorded in each of the last three years is likely not sustainable, and activity should begin to normalize in Active industrial buyers in the Houston market include Prologis, TA Realty, CABOT, TIAA-CREF, Crow Holdings, Invesco, Industrial Property Trust, Liberty Property Trust, Clarion Partners and GLP. We expect downward pressure on cap rates to continue for Class A distribution product. Cap rates for Class B product have risen based on age of product, tenant base and concerns about future demand and rent growth in the sector. Industrial Market Outlook Sector to Cool in 2016 The Houston industrial market remained active in 2015 and will continue to benefit from strong distribution channels and high levels of investment at both the Port of Houston and in petrochemical developments along the Gulf Coast. The market is beginning to weaken in the uncertain economy, however the industrial sector should see less overall softness than office and multifamily due to its sub-5% vacancy and sub-3% development pipeline. With slower demand expected through 2016, we anticipate the overall vacancy rate for all sectors of industrial to rise into the mid-6% range over the next 12 months. The high levels of absorption should begin to abate with the volume of deliveries set to hit the market and lower oil prices reducing demand for space. Rents are expected to hold steady for the year and remain flat though 2016, though concessions will become more prevalent, especially in new construction. As economic conditions remain weak through 2016, the landlord market of the last several years may begin to shift to a more balanced state. With the number of rooftops growing across the metro, the outlook for retail distribution is strong, while freestanding, crane-served projects will not perform as well in current conditions. Industrial Investment Sales Houston Metro 2002 Through Q Millions of $ Industrial Rate Forecast Houston Metro 2007 Through Q Overall Rate $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Source: CoStar, Transwestern *Through Q % 7% 6% 5% 4% 3% 2% * 6.0% * 16f Source: CoStar, Transwestern Note: Dotted lines represent weak, moderate and strong demand forecasts *At Q % 4.8% 36

37 The Houston Metro Industrial Market Summary of Industrial Market Indicators - All Space Houston Metro Area 2012 Through Q Submarket Inventory SF Available Immediately Direct 2012 Direct 2013 Direct 2014 Direct Q with Sublet Under Construction Q YTD 2015 Central Business District Flex/R & D 583,281 54, % 9.9% 8.3% 9.3% 9.3% - 4,000 (14,000) 11,000 - (6,000) Manufacturing 6,137,612 24, % 0.8% 0.0% 0.4% 0.4% - 166,000 35,000 31,000 - (25,000) Warehouse/Distribution 23,497,545 1,409, % 6.3% 5.9% 6.0% 6.1% - (477,000) 63,000 70,000 (47,000) (24,000) Total - Central Business District 30,218,438 1,488, % 5.4% 4.7% 4.9% 5.0% - (307,000) 84, ,000 (47,000) (55,000) East-Southeast Far Flex/R & D 1,917, , % 8.9% 12.2% 15.1% 15.1% - (72,000) 97,000 (6,000) - (56,000) Manufacturing 6,195, , % 5.5% 5.4% 5.4% 5.4% - (279,000) 54, ,000 (6,000) - Warehouse/Distribution 3/ 4/ 38,571,016 1,963, % 7.8% 5.9% 5.1% 5.1% 2,332, , ,000 1,711, ,000 1,592,000 Total - East-Southeast Far 46,683,708 2,587, % 7.6% 6.1% 5.5% 5.6% 2,332, , ,000 1,815, ,000 1,536,000 North Far Flex/R & D 3/ 8,138, , % 8.0% 7.6% 5.7% 5.9% 50,000 90, ,000 94,000 98, ,000 Manufacturing 7,510, , % 2.7% 1.0% 3.4% 3.4% - 15,000 (11,000) 110,000 (98,000) (130,000) Warehouse/Distribution 46,262,729 4,783, % 4.7% 9.7% 10.3% 10.4% 796, ,000 2,010,000 1,103, ,000 2,295,000 Total - North Far 61,911,981 5,502, % 4.9% 8.3% 8.9% 9.0% 846, ,000 2,199,000 1,307, ,000 2,366,000 North Near Flex/R & D 1,097,470 82, % 12.3% 10.1% 7.5% 8.4% - 48, ,000 27,000 10,000 28,000 Manufacturing 3,283,704 45, % 5.4% 3.4% 1.4% 1.4% - 16,000 (134,000) 184, ,000 66,000 Warehouse/Distribution 13,339, , % 5.0% 7.1% 6.3% 6.6% 75, ,000 (67,000) 383,000 (8,000) 201,000 Total - North Near 17,720, , % 5.5% 6.6% 5.4% 5.7% 75, ,000 (16,000) 594, , ,000 Northeast Far Flex/R & D 22, % 0.0% 0.0% 0.0% 0.0% - 3, Manufacturing 182, % 0.0% 0.0% 0.0% 0.0% Warehouse/Distribution 859, % 0.8% 0.0% 0.0% 0.0% - (5,000) 6,000 4, Total - Northeast Far 1,064, % 0.7% 0.0% 0.0% 0.0% - (2,000) 6,000 4, Northeast Near Flex/R & D 419,469 32, % 6.8% 6.2% 7.8% 7.8% - (18,000) 33,000 19,000 (2,000) (7,000) Manufacturing 5,931, % 0.4% 0.0% 0.3% 0.3% - 23,000-24,000 (18,000) (18,000) Warehouse/Distribution 23,800, , % 2.6% 1.6% 1.2% 1.2% - 65, , , , ,000 Total - Northeast Near 30,151, , % 2.3% 1.3% 1.1% 1.1% - 70, , ,000 82, ,000 Northwest Far Flex/R & D 5,536, , % 4.0% 3.2% 4.0% 4.3% - 75,000 71, ,000 (3,000) (37,000) Manufacturing 8,886, , % 5.1% 1.8% 2.4% 2.4% 4,000,000 51, , ,000 (36,000) (39,000) Warehouse/Distribution 48,382,255 3,788, % 3.2% 4.7% 7.8% 7.8% 584, ,000 1,732,000 1,221, ,000 1,810,000 Total - Northwest Far 62,805,363 4,220, % 3.5% 4.1% 6.7% 6.7% 4,584, ,000 1,952,000 1,651, ,000 1,734,000 Northwest Near Flex/R & D 10,791, , % 8.4% 7.4% 8.0% 8.6% 22,800 92, , ,000 1,000 (64,000) Manufacturing 9,327, , % 0.7% 1.1% 1.5% 1.5% - 256,000 (10,000) (43,000) - - Warehouse/Distribution 67,263,805 1,721, % 3.2% 2.4% 2.6% 2.9% 204, ,000 1,092,000 1,150, , ,000 Total - Northwest Near 87,382,138 2,724, % 3.5% 2.9% 3.1% 3.5% 226,870 1,219,000 1,277,000 1,288, , ,000 SOURCE Inventory and vacancy from analysis of CoStar data, net absorption computed by Transwestern NOTE Includes buildings 15,000 SF RBA and greater; does not include buildings under construction or owned by the government 37

38 The Houston Metro Industrial Market Summary of Industrial Market Indicators - All Space (continued) Houston Metro Area 2012 Through Q Submarket Inventory SF Available Immediately Direct 2012 Direct 2013 Direct 2014 Direct Q with Sublet Under Construction Q YTD 2015 South Far Flex/R & D 1,303,105 20, % 2.9% 1.6% 1.6% 1.6% - 21, ,000 (3,000) - - Manufacturing 6,872,511 68, % 3.0% 1.0% 1.0% 1.0% - - (53,000) 393,000 41, ,000 Warehouse/Distribution 3/ 21,635, , % 3.1% 2.5% 3.2% 3.3% - 17, , ,000 22,000 87,000 Total - South Far 29,810, , % 3.1% 2.1% 2.6% 2.7% - 38, , ,000 63, ,000 South Near Flex/R & D 689, , % 22.8% 19.7% 16.8% 17.5% - (25,000) (12,000) 37,000-20,000 Manufacturing 1,509,616 16, % 8.2% 6.7% 1.1% 1.1% - (2,000) (75,000) 39,000 85,000 85,000 Warehouse/Distribution 9,955, , % 4.5% 2.8% 1.8% 1.8% - (109,000) (134,000) 192,000 (10,000) 100,000 Total - South Near 12,154, , % 5.9% 4.2% 2.6% 2.6% - (136,000) (221,000) 268,000 75, ,000 Southeast Near Flex/R & D 363,962 9, % 12.2% 11.0% 2.5% 2.5% - 25,000 15,000 (16,000) 31,000 31,000 Manufacturing 9,947, % 0.4% 0.0% 0.0% 0.0% - - (31,000) 40, Warehouse/Distribution 20,423, , % 2.7% 1.8% 2.5% 2.5% - 207,000 (324,000) 465,000 (55,000) (149,000) Total - Southeast Near 30,734, , % 2.3% 1.3% 1.7% 1.7% - 232,000 (340,000) 489,000 (24,000) (118,000) Southwest Far Flex/R & D 1,502, , % 24.4% 9.0% 8.0% 8.3% 200,000 (23,000) 187,000 79,000 (5,000) 15,000 Manufacturing 1,580, , % 8.8% 8.7% 7.8% 7.8% - (15,000) (33,000) 15,000 (16,000) 14,000 Warehouse/Distribution 6,470, , % 2.4% 3.6% 6.4% 6.4% 452, , ,000 (51,000) 4, ,000 Total - Southwest Far 9,552, , % 6.6% 5.4% 6.9% 6.9% 652,500 62, ,000 43,000 (17,000) 289,000 Southwest Near Flex/R & D 6,602, , % 7.5% 4.8% 5.3% 5.3% - (186,000) 180, ,000 (40,000) (33,000) Manufacturing 4,608,887 59, % 2.9% 2.6% 1.3% 1.3% - 113,000 (31,000) 19,000 5,000 60,000 Warehouse/Distribution 27,569,753 1,077, % 2.2% 3.6% 3.9% 4.0% 424, , ,000 (133,000) (32,000) 34,000 Total - Southwest Near 38,780,779 1,487, % 3.1% 3.7% 3.8% 3.9% 424, , ,000 66,000 (67,000) 61,000 Sugar Land Flex/R & D 3,082, , % 5.1% 4.0% 3.9% 4.4% - 65, ,000 6,000 (3,000) 4,000 Manufacturing 2,510,135 10, % 0.0% 0.7% 0.4% 0.4% - 96,000 - (17,000) 8,000 8,000 Warehouse/Distribution 12,384, , % 4.5% 7.2% 4.2% 4.2% 650, , , ,000 6, ,000 Total - Sugar Land 17,976, , % 4.1% 5.7% 3.6% 3.7% 650, , , ,000 11, ,000 Total Houston Flex/R & D 42,049,289 2,739, % 8.3% 6.7% 6.5% 6.8% 272,800 99,000 1,352, ,000 87,000 96,000 Manufacturing 74,483,341 1,309, % 2.6% 1.7% 1.8% 1.8% 4,000, ,000 (140,000) 1,228,000 77, ,000 Warehouse/Distribution 360,415,159 18,172, % 4.1% 4.6% 5.0% 5.1% 5,519,362 4,411,000 6,232,000 7,012,000 1,131,000 7,160,000 Total - Houston 476,947,789 22,221, % 4.2% 4.3% 4.7% 4.8% 9,792,162 4,950,000 7,444,000 8,956,000 1,295,000 7,472,000 Rate with Sublet Space 4.4% 4.3% 4.4% 4.8% SOURCE Inventory and vacancy from analysis of CoStar data, net absorption computed by Transwestern NOTE Includes buildings 15,000 SF RBA and greater; does not include buildings under construction or owned by the government 38

39 The Houston Metro Multifamily Market

40 The Houston Metro Multifamily Market MULTIFAMILY MARKET OVERVIEW Development Pipeline Grows Further After a robust start to 2015, the Houston multifamily sector began to show some signs of weakness at third quarter. Construction activity was expected to continue trending downward after mid-year, but instead picked back up. Developers are staying bullish on Houston as many submarkets have maintained strong fundamentals through the oil downturn. Occupancy and rental rate growth have remained relatively steady over the first nine months of the year, while absorption and investment activity have started to decline. Going forward, we expect to see softening in the multifamily sector with further concessions being offered in the uncertain economy. Apartment Occupancy All Classes Houston Metro 2005 Through Q % 92% 90% 88% 86% 90.5% 91.1% Occupancy Demand Keeps Pace with Supply in 2015 Houston s multifamily market averaged occupancy of 91.1% in the third quarter, up just barely from 91.0% one year prior. Class B properties recorded the highest occupancies, averaging 94.2%, followed by Class C assets at 94.1%, Class D properties at 88.6% and lastly Class A properties at 84.3%. Demand remains high for Class B properties as Class A rent increases are pricing some tenants out of that market. Occupancy should remain relatively high in the period ahead as the economic slowdown has not impacted population growth and supply remains tight in the single-family market. Rental Rates Rents to Grow at Slower Pace Average effective rents ended the third quarter at $969 per unit, $1.10 per SF, compared to $921 per unit, $1.05 per SF a year ago. Rental rates, on an annualized basis, have increased 2.6% over the past three months and 6.1% over the last 12 months with the third quarter marking the twenty-third consecutive period of effective rent increases. Concessions were reported in 24% of the market with the average special provided at 5.7%. Rental rate growth is beginning to cool but should continue rising modestly with new construction pushing rates. Greater concession offers are likely to continue in the period ahead as new inventory comes online. Dips at Q3 absorption for all classes of space totaled 2,485 units in the third quarter, for a year-to date total of 13,144 units, down from 14,760 units absorbed over the same period last year. This is compared to the 10-year average of 12,210 which includes the 2005 outlier where Hurricane Katrina brought an influx of new residents to Houston. Excluding 2005, the average annual absorption was 9,940 units. In the coming months, absorption will likely trend downward as deliveries continue adding supply to the market and job growth remains low. 84% 82% 80% 83.9% * Source: Apartment Data Services, Transwestern *Through Q All Classes Houston Metro 2005 Through Q ,000 30,000 25,000 20,000 15,000 10,000 5, , Year Annual Average = 12,210 units * Source: Apartment Data Services, Transwestern *Through Q

41 The Houston Metro Multifamily Market Supply and Development Increase in Construction Bucks Market Trend Over the 12 months ending in September, 69 communities comprised of 20,045 units delivered across the metro. Currently, there are 26,363 units in 96 communities under construction and 18,715 units in 64 communities proposed. The Inner Loop continues to see the most construction activity, while submarkets on the west side of Houston are experiencing a decline due to the high percentage of energy-related employees in those areas. Contrary to expectations, construction activity grew by over 6,000 units this quarter as developers confidence levels remain high despite uncertainty in the Houston economy. Average Apartment Rents/SF Houston Metro Q Through Q $1.15 $1.10 $1.05 $1.00 $1.10 Investment Market Sales Volume Down Year-over-Year Third quarter transaction activity increased after a drop at mid-year with 44 properties sold, comprised of 11,923 units as compared to 60 buildings, comprised of 14,270 units, during the same period last year. Value-add product will continue to be attractive for investors in the evolving multifamily market. Similar to the retail sector, quality, welllocated projects are seeing the highest demand, especially in a weaker economy. Cap rates look to remain in the % range going forward, even if a slowdown in investment activity occurs. Multifamily Market Outlook Sector to Soften in 2016 The Houston multifamily sector will likely begin to cool in the period ahead as a weaker metro area economy impacts market fundamentals. Although developers are still breaking ground on new projects, construction starts should begin tapering off, allowing the market time to absorb new units. Houston s strong base of renters by choice, including millennials and baby boomers, will continue to drive growth. With population growth high and the single-family market tight, demand for apartments should remain steady, though it will be outpaced by supply over the next several quarters. $0.95 $0.90 $0.85 Source: Apartment Data Services, Transwestern Average Apartment Rents/Unit Select Metro Areas Q Through Q $1,000 $950 $900 $850 $969 Class A assets will continue experiencing some softness with average concessions approaching one month free, while Class B and C stock remains very tight, well occupied with minimal concessions. $800 $750 $ Source: Apartment Data Services, Transwestern 41

42 The Houston Metro Multifamily Market Houston Multifamily Market Indicators Submarket # Apartment Communities # Apartment Units Average Occupancy Average Unit SF Average Rent/Month Average Rent/SF Units Under Construction Units Absorbed Q3 Montrose/ Museum District 54 13, % 930 $1,692 $1.82 3, Inner Loop West/ Greenway Plaza 65 16, % 958 $1,738 $1.81 1, Medical Center/ Bellaire 72 21, % 875 $1,305 $1.49 2,267 (17) Heights 23 4, % 854 $1,497 $1.75 1, Inner Loop East 56 8, % 818 $1,043 $1.28 3, Northshore/ Wood Forest 40 8, % 811 $738 $ (1) Eastex Frwy/ Near Northeast 30 5, % 929 $783 $ (36) Northline/ Aldine 62 10, % 847 $702 $ Greenspoint 37 9, % 760 $613 $ (46) FM 1960 East/ IAH Airport 47 8, % 853 $811 $ (8) Lake Houston/ Kingwood 45 11, % 937 $1,072 $ (71) Far East 29 4, % 932 $810 $ Brookhollow 92 20, % 829 $805 $ Spring Branch 95 18, % 914 $832 $ (87) Inwood/ Northwest 40 7, % 895 $748 $ (2) FM 1960 West/ Champions , % 877 $858 $ (85) FM 1960 West/ Steeplechase 73 19, % 915 $999 $ (90) Bear Creek/ Copperfield 51 13, % 887 $1,001 $ Katy/Far West 73 20, % 961 $1,150 $1.20 1, Tomball/ Far Northwest 27 5, % 924 $1,122 $1.21 1, Woodlands/ Far North 55 16, % 936 $1,153 $ Conroe/ Montgomery 44 7, % 900 $883 $0.98 1,768 9 Hwy 288/ South 59 13, % 957 $1,026 $ (98) Gulfgate/ Almeda Mall 98 22, % 816 $744 $ (337) Galena Park/ Jacinto City % 740 $656 $ (6) Pasadena/ Deer Park , % 846 $762 $ (81) Friendswood/ Pearland 30 5, % 874 $982 $ (44) Clear Lake 98 24, % 879 $1,015 $ (86) Baytown 52 9, % 847 $795 $ Galveston/ Brazoria , % 829 $791 $ (89) Galleria , % 894 $1,299 $1.45 1, Woodlake/ Westheimer 39 12, % 891 $1,053 $ West Memorial/ Briar Forest 88 27, % 946 $1,138 $1.20 2, Westchase 49 14, % 838 $976 $ Alief , % 873 $822 $ Sharpstown/ Westwood , % 790 $661 $ Gulfton/ Bissonnet 58 16, % 811 $714 $ (46) Braeswood/ Fondren SW 84 21, % 839 $705 $ (1) Almeda/ South Main 22 4, % 848 $815 $ Fort Bend 55 14, % 950 $1,180 $ Richmond/ Rosenberg 28 4, % 860 $939 $ (22) Total - Houston 2, , % 878 $969 $ ,667 2,485 Source: Apartment Data Services, Transwestern 42

43 The Houston Metro Retail Market