Houston Office and Industrial Markets Gearing Up 2011

8/7/2019 Houston Office and Industrial Markets Gearing Up 2011

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Quarterly Market OverviewYear-End 2010FOR IMMEDIATE RELEASE

For more information, please contact:David Mendel, Public Relations ManagerPhone: 713.629.1900 ext. 258E-mail: [email protected]

HOUSTON OFFICE AND INDUSTRIAL MARKETS GEARING UP FORINCREASED ACTIVITY IN 2011

HOUSTON (January 26, 2011) Houstons office market is gearing up for increased leasing

activity in 2011, particularly among Class A buildings, which ended the year with positive

absorption, according to quarterly market research compiled by Commercial Gateway, the

commercial division of the Houston Association of REALTORS. Citywide, the office market

recorded overall negative net absorption of 144,279 square feet in the fourth quarter,

contributing to the 2010 year-end total of a negative 1.1 million square feet. Class B buildings

account for the most red ink both for fourth quarter and year-to-date, recording over 1.6 million

square feet of the total negative absorption for the year. Class A space continued its third

consecutive quarter of positive absorption, 279,815 square feet, to finish out the year with a

positive 683,337 square feet. Several submarkets finished 2010 with positive absorption but

only four submarkets Energy Corridor, Northeast, Uptown and West -- reported positive

absorption activity in both fourth quarter and for yearend.

The current 13.4% vacancy rate is 0.6 percentage points higher when compared to

Fourth Quarter 2009s

12.8%, and rental rates are decreasing. The overall annual, weightedaveraged, gross rental rate quoted for this quarter of $23.03 per sq.ft. is 5.2% lower than the

same quarter last year, which was $24.29. The Central Business Districts (CBDs ) quoted

rates dropped 6.4% to $29.69 from a year agos $31. 71. Rental rate concessions vary across

the board, with tenants negotiating for the lower rates ahead of an anticipated increase in

sublease space hitting the market. Overall sublease space, at 3.2 million square feet, decreased

marginally from last quarter, but shows less square footage, 3.6 million, than reported in the

same quarter a year ago. The effects of various ongoing company consolidations in the

marketplace have yet to be fully realized by Houstons office market.


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Commercial Gateway Member/Broker Comments on the Houston Office Market

David Baker, Executive Vice President, Houston Operations, Transwestern The office

market velocity is steadily ticking upwards. This is in part due to the growth of energy-

related companies, driven by rising oil costs and increases in the international demand

for energy. We are beginning to see energy companies commit to more space due to the

positive economic outlook, both demand-wise and regulatory-wise.

In certain submarkets, such as the Galleria and Energ y Corridor, we are seeing large

blocks of space tightening up and rental rates increasing. This activity is proving to be a

great start to 2011.

Ryan C. Bishop, Vice President, Stream Realty Partners, L.P. The Houston office market is

starting the year on a very positive note. The Galleria submarket in particular has shownits resiliency, as this was one of the hardest hit submarkets over the past 12-18

months. This submarket lost nearly 1,000,000 square feet of major tenants during the

downturn, with Stanford Financial Group, Blackbox and Minute Maid exiting the market,

and BHP, Aon and Wachovia significantly reducing their foot print. The big blocks of

available space steadily decreased during 2010, and you are starting to see landlords

holding rates for the first time in over a year. Additionally, I would not be surprised if the

Galleria sees at least one office tower break ground during 2011.

The same positive news applies to the future of the Central Business District and the

Energy Corridor we are seeing both a tightening up of available space, firming up of

rental rates and reducing of concessions by landlords. The Energy Corridor submarket

saw a vacancy rate drop from 15% to 12% during the last year, with significant leasing

activity in the new developments. Several tenants, such as IntecSea, Alta Mesa and

most notably KBR, decided to upgrade their space during the year. This flight to quality

is a very positive sign for the overall market that tenants are not shying away from

paying more for quality, newer space. With no new development on the short term

horizon, I expect for the submarket to post single digit vacancy rates by the end of the

year.


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Jim Cockrill, Broker Associate, Coldwell Banker Commercial United, Realtors We have

experienced an increase in tenant representation business in respect to medical office

and industrial for the 4th quarter of 2010. Although it is still a tenant-controlled market,

landlords are pushing medical office tenants for longer term leases, to recoup the costs

of tenant improvements. With the high cost of medical office buildout and costsegregation -- a term few tenants take advantage of -- recovering those high costs just

takes a longer period of time.

Coy Davidson, Senior Vice President, Colliers International Overall leasing activity was

solid in the 4th quarter of last year but fragmented with specific submarkets exhibiting

solid activity, while others continue to struggle. There are signs that suggest the office

market has clearly bottomed out. However, the velocity of any pending market recovery

in 2011 remains in question.

Despite an increasingly optimistic economic outlook, Houston has yet to experience any

significant growth in office using employment and the drag of an undefined volume of

shadow office vacancy could likely push any significant shift of office market

fundamental into 2012.

Landlords are still generally very flexible on terms and remain aggressive both in their

efforts to attract new as well as retain existing tenants, particularly those with solid credit.

Rents have stabilized but remain flat. There is a natural sequence of events in a marketrecovery. The first sign of a recovery will be a push back from landlords in terms of the

incentives or concessions packages (tenant improvement allowance, free rent, abated

parking charges) offered to attract new tenants and even more so to retain existing

tenants. We are only seeing the early and sporadic signs of this trend in specific

submarkets and among higher quality office assets where demand for office space

appears stronger.


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Houston Industrial Market

Houstons industrial market continues to rebound with positive absorption recorded and

limited major construction on the horizon, according to statistics released by Commercial

Gateway. With a fifth consecutive quarter of positive absorption, the industrial market has seena slow decrease in its vacancy rate and a stabilization of rental rates. Vacancy overall is 8.5%,

compared to 9.6% a year ago.

Properties classified as manufacturing are reporting the lowest vacancy rate of 4.1%,

with crane-ready buildings in short supply. However, warehouse/distribution property types are

experiencing the most leasing activity this year, accounting for 83% of the total year-to-date.

Properties classified as warehouse/distribution represent about 72.6% of the total market.

Rental rates have increased slightly, about 2.3%, over the last year, with a quoted, weighted

averaged annual rental rate of $5.45 per sq.ft. reported this quarter compared to $5.33 a yearago. Sublease space reported in fourth quarter represents a slight drop from third quarter but a

substantial drop from the first half of the year.

Commercial Gateway Member/Broker Comments on the Houston Industrial Market

J. Michael Boyd, CRE, SIOR, Boyd Commercial At Boyd Commercial, we saw a strong

uptick in industrial activity beginning around the middle of 2010, and it has been gaining

momentum ever since. We are in the process of finalizing some significant deals with

new companies coming into Houston, which should prove to be a positive for oureconomy. Although there was over 4.5 million square feet of net absorption last year,

most tenants are still finding multiple alternatives when they are looking for a facility,

particularly for large blocks of distribution space near the container ports. We anticipate

that net absorption for 2011 will be better than 2010, but still not rising to the level of

activity experienced in 2006- 2008.

Mike Chance, Senior Investment Advisor, Coldwell Banker Commercial United, Realtors

Theindustrial market in the Pearland area and South Belt is holding up well. The higher

oil prices have oil-related service companies out scouting for either more locations or for

larger locations in which to relocate. During 2010, I participated in several leases with

oil-related clients occupying Industrial buildings adjacent to South Beltway 8.


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Christopher S. Klein, Principal, Colliers International Houstons industrial sector started

out robust in 2010. This was caused by pent-up demand created by recovering

commodity pricing in the oil sector and relatively little expansion in 2009 because of

lower product demand. Looming economic uncertainly and lingering questions regarding

the effectiveness of Obamas stimulus package caused l easing activity to decline in thesecond quarter.

The third quarter proved to be the biggest surprise in terms of absorption despite the

demise of the Deepwater Horizon rig in the Gulf of Mexico. Many felt that this would

have a greater impact on the Houston Industrial market. However, many of the deals

that transpired in the third quarter were well under way earlier in the year. On a long

term basis, the Deepwater Horizon accident may cause more regulation which would

further benefit Houston because of its leadership position in the industry and its proximity

to the Gulf of Mexico.

In the fourth quarter, we found more willingness for large industrial users to visit with us

regarding their future plans. This increased activity seemed to coincide with the midterm

election results and more certainty regard our political situation. However, absorption

was below the fourth quarter of 2009 and it was the lowest of all quarters in 2010

indicating there was some fallout to the Deepwater Horizon event.

Sales activity for user buildings in 2010 picked up for most of the year with buyers trying

to take advantage of historically low interest rates in light of inflationary times ahead.

Nonetheless, many user deals had to be placed under contract 2 and 3 times before

they sold because of underwriting and/or issues involving value add building

purchases.

Another trend in 2010 was the proliferation of Design/Build projects at the expense of

the more lucrative build-to-suite market. Again, interest rates proved to be the biggest

driver of this event -- users preferred to own as their cost of capital was significantly less

than the required yields of the build-to-suite developers. This was further compoundedby user/owner thoughts of building a new facility, increasing productivity and paying off

the debt with inflated dollars.

2010 as a whole was a good year for the industrial real estate sector. Absorption was

up nearly threefold, rents were up nearly 8.5% and occupancy increased. Further


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compounding the health of the market is that 2010 experienced only one-third of the

deliveries of new space compared with 2009.

Mark Nicholas, SIOR, Senior Vice President, Jones Lang LaSalle Reports of consumer

confidence continue to increase, and we are seeing inquiries from retailers looking for

warehouse space. With Houstons production of energy, chemicals, plastics, and other

manufacturing goods coupled with the wealth of engineering services offered, we are

seeing continued interest from companies looking to relocate or consolidate significant

operations from other parts of the country and internationally.

Several international companies who recently completed deals to move into Houston

are just the start of this international influx to the area. In addition to Flair Packaging from

Calgary, Canada, and Barrett Steel from the UK, we are currently working with three

other European, energy-related companies looking to be in business in Houston by June

2011. This is by far the biggest influx of International business I have ever seen at any

one time in my 24-year tenure in commercial real estate.

Darryl Noon, Senior Vice President, Transwestern We are starting to see increased

demand and activity in the industrial sector due to continued improvement in the local

Houston economy, as well as positive signs in the national economy.

The energy and trade sectors are major demand drivers in todays local economy.

Companies are performing well and confidence is being restored for long term potential

growth with oil trading in the $90/barrel range.

Based on an improved confidence level in the overall economy, local industrial users

are beginning to make longer term commitments.

The focus remains on job growth, which translates into positive absorption of space. We

are starting to see positive absorption throughout most submarkets in the Greater

Houston area and in most industrial product types. We remain positive 2011 will show

modest and measured growth over the last few years.


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B. Kelley Parker III, SIOR, Executive Vice President, Cushman & Wakefield of Texas, Inc.

The activity level for industrial user transactions is continuing to increase. After the

Christmas holidays, the activity level is on the rise again. We are seeing continued

interest in build to suits for craned-served, free-standing projects in nearly all parts of the

city.

The port area is again seeing more activity as the shipping industry returns to more

normal levels. There is a very limited supply of modern rail-served warehouse space in

the eastern markets, and rates are holding for this type of product. Cedar Crossing in

seeing many land sale opportunities as well as a number of large scale manufacturing

project requirements. Since there was only around 1,000,000 square feet of industrial

product completed last year and only 571,000 square feet under construction currently, I

think we will see continuing absorption of all types of industrial space in 2011 and rates

will start to rise again ever so slowly as the year progresses. I think 2011 will be a

continuance of 2010 with an improving market place and more companies moving

forward on the plans for expansion, relocation or upgrading of facilities.

Karl D. Willmann, President, The Willmann Company, Inc. Beginning with the final months

of 2010, there has been a strong uptick in interest for land for new manufacturing

facilities from oil patch-related companies. These companies have business in hand

today and are bullish on their future prospects. This bodes well for Houstons industrial

real estate market.

Founded in 2001, Commercial Gateway, the commercial division of the Houston Association of R EALTORS (HAR) is a commercial information exchange of commercial real estate professionals engaged in every aspect of property sales and leasing, appraisal, property management and counseling.

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No. Vacant Vacancy Net Absorption Under Wted Avg SubleaseClass Bldgs * Bldg SF ** SF Rate Current YTD Construction Rent *** Avail

Central Business District

A 33 30,906,459 2,114,234 6.8 % (56,536) 167,579 1,817,237 $33.35 611,485

B 28 7,507,024 1,259,317 16.8 % (37,296) (364,032) 0 $25.36 219,135

C 15 1,237,255 264,411 21.4 % (2,030) 14,818 0 $20.98 0

Central Business DistrictSubtotal

76 39,650,738 3,637,962 9.2 % (95,862) (181,635) 1,817,237 $29.69 830,620

Energy Corridor

A 33 10,332,455 1,268,312 12.3 % 97,102 85,492 0 $30.54 90,542

B 54 5,215,745 847,095 16.2 % (68,740) (6,240) 0 $20.33 161,292

C 8 393,150 51,666 13.1 % 2,888 (11,531) 0 $16.53 0

Energy Corridor Subtotal 95 15,941,350 2,167,073 13.6 % 31,250 67,721 0 $26.21 251,834

Fort Bend County

A 32 3,831,575 1,058,211 27.6 % (5,616) (377,335) 0 $25.94 14,299

B 20 1,555,404 214,791 13.8 % 57,527 (13,544) 0 $14.96 23,064

C 1 45,000 0 0.0 % 0 0 0 N/A 0

Fort Bend County Subtotal 53 5,431,979 1,273,002 23.4 % 51,911 (390,879) 0 $24.09 37,363

Greenspoint

A 23 4,831,774 133,175 2.8 % 18,519 129,304 0 $27.31 204,193

B 41 4,491,122 1,113,486 24.8 % (105,238) (330,420) 0 $16.39 99,647

C 25 2,078,905 421,106 20.3 % (19,695) (47,121) 0 $13.18 15,806

Greenspoint Subtotal 89 11,401,801 1,667,767 14.6 % (106,414) (248,237) 0 $16.45 319,646

Inner Loop

A 36 10,873,553 1,261,269 11.6 % (72,071) (117,585) 0 $27.67 300,286

B 102 9,604,362 1,309,712 13.6 % 15,162 59,968 0 $21.62 74,408

C 81 4,585,022 549,413 12.0 % 42 49,718 0 $15.28 808

Inner Loop Subtotal 219 25,062,937 3,120,394 12.5 % (56,867) (7,899) 0 $22.95 375,502

North/TheWoodlands/Conroe

A 40 3,947,710 848,524 21.5 % 6,791 177,970 156,000 $29.20 65,111

B 73 4,368,627 813,806 18.6 % (46,825) (111,731) 0 $16.69 165,692

C 31 1,224,177 229,498 18.7 % (1,874) (23,501) 0 $13.53 0

North/TheWoodlands/Conroe Subtotal

144 9,540,514 1,891,828 19.8 % (41,908) 42,738 156,000 $21.92 230,803

Northeast

A 6 51,670 16,072 31.1 % 0 2,354 0 $25.34 0

B 17 728,827 101,563 13.9 % 10,042 3,128 0 $16.75 1,590

C 6 243,169 53,754 22.1 % 0 0 0 $14.00 0

Northeast Subtotal 29 1,023,666 171,389 16.7 % 10,042 5,482 0 $16.69 1,590

Northwest

A 31 2,393,963 733,873 30.7 % (52,346) 124,074 0 $25.49 42,452

B 58 5,492,085 1,201,547 21.9 % (50,453) (528,300) 0 $16.40 58,615

C 20 770,958 46,896 6.1 % (20) 1,162 0 $17.43 0

Northwest Subtotal 109 8,657,006 1,982,316 22.9 % (102,819) (403,064) 0 $19.79 101,067

Copyright 201 1 Commercial Gateway, the Commercial Division of the Houston Association of REALTORS This information has been compiled from various sources and is provided without guarantee or warranty.

Houston-Area Office Market SummaryYear -end 2010


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** Rental rates weighted and averaged based on available space.

* Includes all general-purpose existing office buildings 20,000 square feet or larger.

Number of buildings calculated on specific buildings at each property address.

No. Vacant Vacancy Net Absorption Under Wted Avg SubleaseClass Bldgs * Bldg SF ** SF Rate Current YTD Construction Rent *** Avail

Southeast

A 18 2,121,407 214,319 10.1 % 4,502 25,940 0 $22.60 44,452

B 52 3,293,419 207,468 6.3 % (23,812) (29,831) 0 $17.77 12,636

C 51 2,129,585 365,483 17.2 % (49,408) (122,152) 0 $17.50 25,434

Southeast Subtotal 121 7,544,411 787,270 10.4 % (68,718) (126,043) 0 $18.96 82,522

Southwest

A 8 1,514,658 504,252 33.3 % 18,697 (37,949) 0 $17.85 108,296

B 50 5,694,889 1,103,493 19.4 % (11,767) (10,858) 0 $15.61 57,797

C 83 4,955,485 426,573 8.6 % (44,094) 96,574 0 $13.01 7,271

Southwest Subtotal 141 12,165,032 2,034,318 16.7 % (37,164) 47,767 0 $15.62 173,364

Uptown

A 48 17,604,125 1,883,689 10.7 % 227,654 345,297 0 $28.89 313,605

B 80 10,234,651 1,082,937 10.6 % (20,508) (24,825) 0 $20.44 90,620

C 17 1,069,488 118,913 11.1 % 1,278 (7,658) 0 $15.73 10,454

Uptown Subtotal 145 28,908,264 3,085,539 10.7 % 208,424 312,814 0 $25.42 414,679

West

A 26 4,078,840 653,429 16.0 % 41,226 78,748 0 $28.65 50,710

B 39 3,204,819 464,567 14.5 % (10,055) (49,878) 0 $17.97 56,996

C 42 2,768,666 254,284 9.2 % 7,935 (28,637) 0 $15.93 3,313

West Subtotal 107 10,052,325 1,372,280 13.7 % 39,106 233 0 $22.68 111,019

Westchase

A 25 7,066,583 1,183,776 16.8 % 51,893 74,843 0 $30.20 113,852

B 49 6,503,709 924,850 14.2 % (9,029) (278,568) 0 $22.42 105,481

C 19 856,493 185,579 21.7 % (18,124) (19,680) 0 $16.20 6,179

Westchase Subtotal 93 14,426,785 2,294,205 15.9 % 24,740 (223,405) 0 $25.93 225,512

Suburban

A 326 68,648,313 9,758,901 14.2 % 336,351 511,153 156,000 $27.81 1,347,798

B 635 60,387,659 9,385,315 15.5 % (263,696) (1,321,099) 0 $18.55 907,838

C 384 21,120,098 2,703,165 12.8 % (121,072) (112,826) 0 $14.93 69,265

Suburban Subtotal 1,345 150,156,070 21,847,381 14.5 % (48,417) (922,772) 156,000 $22.24 2,324,901

Houston-Area

A 359 99,554,772 11,873,135 11.9 % 279,815 678,732 1,973,237 $28.79 1,959,283

B 663 67,894,683 10,644,632 15.7 % (300,992) (1,685,131) 0 $19.36 1,126,973

C 399 22,357,353 2,967,576 13.3 % (123,102) (98,008) 0 $15.46 69,265

Houston-Area Subtotal 1,421 189,806,808 25,485,343 13.4 % (144,279) (1,104,407) 1,973,237 $23.03 3,155,521


Houston-Area Office Market SummaryYear -end 2010


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No. of Vacant SF Vacancy Rate Net Absorption Avg* Gross Rent

Period Office SF Bldgs Direct Sublease Total Direct Sublease Total Direct Sublease Total Direct Sublease

20 10 Q4 18 9,806 ,8 08 1,421 25 ,4 85,34 3 3,155 ,5 21 28,64 0,864 13 .4 % 1.7 % 15 .1 % (144,279) 399,868 255,589 $23.03 $22.44

20 10 Q3 18 9,775 ,8 55 1,421 25 ,7 89,43 3 3,349 ,9 75 29,13 9,408 13 .6 % 1.8 % 15 .4 % (150,587) (164,181) (314,768) $23.46 $22.

2010 Q2 189,775,855 1,421 25,630,117 3,185,794 28,815,911 13.5 % 1.7 % 15.2 % 566,683 550,704 1,117,387 $23.74 $23.56

20 10 Q1 18 9,044 ,7 36 1,416 25 ,5 39,54 3 3,736 ,4 98 29,27 6,041 13 .5 % 2.0 % 15 .5 % (1,376,224) (116,108) (1,492,332) $23.90 $24.

20 09 Q4 18 8,014 ,6 71 1,411 24 ,0 70,65 3 3,620 ,3 90 27,69 1,043 12 .8 % 1.9 % 14 .7 % (305,530) 126,268 (179,262) $24.29 $24.

2009 Q3 187,720,640 1,409 23,453,319 3,746,658 27,199,977 12.5 % 2.0 % 14.5 % 648,313 156,041 804,354 $24.20 $21.79

20 09 Q2 18 6,849 ,0 36 1,404 23 ,0 81,09 6 3,902 ,6 99 26,98 3,795 12 .4 % 2.1 % 14 .4 % (1,313,979) (994,805) (2,308,784) $24.09 $21.

20 09 Q1 18 5,629 ,1 20 1,398 20 ,5 24,99 7 2,907 ,8 94 23,43 2,891 11 .1 % 1.6 % 12 .6 % 6 26,502 (625,732) 770 $23.70 $21.7

20 08 Q4 18 4,092 ,2 20 1,388 19 ,6 85,44 3 2,282 ,1 62 21,96 7,605 10 .7 % 1.2 % 11 .9 % (62 ,666) (206,550) (269,216) $22.83 $21.

20 08 Q3 18 3,145 ,5 30 1,382 18 ,6 82,29 1 2 ,075 ,6 12 20,75 7,903 10 .2 % 1.1 % 11 .3 % 1 ,6 26,66 0 (205,834) 1,420,826 $22.43 $21.4

20 08 Q2 18 1,908 ,7 43 1,371 19 ,1 43,83 2 1 ,841 ,6 63 20,98 5,495 10 .5 % 1.0 % 11 .5 % 1 ,0 10,88 9 (181,441) 829,448 $22.40 $19.9

2008 Q1 181,108,774 1,365 19,382,160 1,660,222 21,042,382 10.7 % 0.9 % 11.6 % 831,472 69,586 901,058 $21.69 $21.26

2007 Q4 179,352,172 1,347 18,959,615 1,729,808 20,689,423 10.6 % 1.0 % 11.5 % 1,403,747 759,677 2,163,424 $20.90 $20.61

20 07 Q3 17 9,095 ,9 73 1,334 20 ,2 71,26 2 2,489 ,4 85 22,76 0,747 11 .3 % 1.4 % 12 .7 % 1 90,864 (187,703) 3,161 $20.26 $18.9

20 07 Q2 17 8,273 ,0 66 1,318 19 ,7 70,66 6 2 ,301 ,7 82 22,07 2,448 11 .1 % 1.3 % 12 .4 % 1 ,1 95,46 6 (349,426) 846,040 $19.77 $18.9

2007 Q1 177,608,411 1,309 20,676,419 1,952,356 22,628,775 11.6 % 1.1 % 12.7 % 1,307,235 371,314 1,678,549 $19.40 $17.80

2006 Q4 177,164,733 1,306 21,550,645 2,323,670 23,874,315 12.2 % 1.3 % 13.5 % 1,465,074 343,919 1,808,993 $18.30 $16.96

20 06 Q3 17 6,951 ,8 96 1,302 22 ,8 18,67 9 2 ,667 ,5 89 25,48 6,268 12 .9 % 1.5 % 14 .4 % 2 ,0 13,88 2 (510,523) 1,503,359 $18.46 $17.2

20 06 Q2 17 6,702 ,0 80 1,299 24 ,6 62,61 9 2,157 ,0 66 26,81 9,685 14 .0 % 1.2 % 15 .2 % 8 33,624 (155,846) 677,778 $18.81 $16.5

2006 Q1 176,445,026 1,296 25,108,486 2,001,220 27,109,706 14.2 % 1.1 % 15.4 % 1,067,259 517,651 1,584,910 $18.72 $15.41

20 05 Q4 17 3,158 ,9 52 1,261 25 ,7 86,86 1 2,496 ,7 71 28,28 3,632 14 .9 % 1.4 % 16 .3 % 9 85,140 (241,959) 743,181 $17.91 $16.1

2005 Q3 175,890,694 1,282 26,677,867 2,405,964 29,083,831 15.2 % 1.4 % 16.5 % 143,525 513,428 656,953 $19.18 $15.62

20 05 Q2 17 4,405 ,1 75 1,275 26 ,3 23,68 1 2,919 ,3 92 29,24 3,073 15 .1 % 1.7 % 16 .8 % (850,694) 283,521 (567,173) $18.44 $15.

2005 Q1 174,831,236 1,275 25,472,987 3,202,913 28,675,900 14.6 % 1.8 % 16.4 % 44,536 504,050 548,586 $18.25 $15.34

* Rental rates are averaged and weighted based on available space.201 1 HRIS. All information is deemed reliable but not guaranteed.

01/25/2011 page

Houston-Area Historical Office Statistical Summary


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* Gross rental rates are averaged and weighted based on available space.201 1 HRIS. All rights reserved. All information is deemed reliable but is not guaranteed.

01/25/2011 page

Houston-Area Office Vacancy and Rental Rates* by Quarter


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Year-end numbers. *Gross rental rates are averaged and weighted based on available space.201 1 HRIS. All rights reserved. All information is deemed reliable but is not guaranteed.

01/25/2011 page

Houston-Area Office Vacancy and Rental Rates* by Year


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Class A Class B Class C All Classes

2010 Q4 279,815 (300,992) (123,102) (144,279)

Q3 359,036 (569,230) 59,607 (150,587)

Q2 362,660 190,200 13,823 566,683

Q1 (318,174) (1,005,372) (52,678) (1,376,224)

2009 Q4 (161,651) (185,717) 41,838 (305,530)

Q3 489,300 333,251 (174,238) 648,313

Q2 (442,724) (824,516) (46,739) (1,313,979)

Q1 73,722 479,440 73,340 626,502

2008 Q4 (141,893) 83,397 (4,170) (62,666)

Q3 1,308,624 224,130 93,906 1,626,660

Q2 580,869 377,212 52,808 1,010,889

Q1 533,780 200,962 96,730 831,472

2007 Q4 1,118,349 395,011 (109,613) 1,403,747Q3 236,348 63,278 (108,762) 190,864

Q2 833,564 354,646 7,256 1,195,466

Q1 445,531 663,271 198,433 1,307,235

2006 Q4 1,863,523 (419,105) 20,656 1,465,074

Q3 1,369,151 587,229 57,502 2,013,882

Q2 691,760 69,484 72,380 833,624

Q1 715,211 288,026 64,022 1,067,259

2005 Q4 760,637 360,405 (135,902) 985,140

Q3 (251,318) 332,446 62,397 143,525

Q2 (393,896) (475,340) 18,542 (850,694)

Q1 176,163 19,421 (151,048) 44,536

Absorption square footage includes only net absorption for direct space; sublease space is excluded.201 1 HRIS. All rights reserved. All information is deemed reliable but is not guaranteed.

Houston-Area Historical Office Absorption by Class by Quarter


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Class A Class B Class C All Classes

2010 683,337 (1,685,394) (102,350) (1,104,407)

2009 (41,353) (197,542) (105,799) (344,694)

2008 2,281,380 885,701 239,274 3,406,355

2007 2,633,792 1,476,206 (12,686) 4,097,312

2006 4,639,645 525,634 214,560 5,379,839

2005 291,586 236,932 (206,011) 322,507

Absorption square footage includes only net absorption for direct space; sublease space is excluded.201 1 HRIS. All rights reserved. All information is deemed reliable but is not guaranteed. 01/25/2011 page 1

Houston-Area Historical Office Absorption by Class by Year


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No. Vacant Vacancy Net Absorption Under Wted Avg SubleaseMarket Area Type Bldgs * Bldg SF ** SF Rate Current YTD Construction Rent *** Avail

Inner Loop

Warehouse/Distribution 498 17,472,858 1,553,667 8.9 % (147,998) (65,787) 0 $3.88 55,075

Flex/Service Center 189 4,704,070 153,409 3.3 % (714) 15,337 0 $9.02 8,050

Manufacturing 50 1,862,209 65,596 3.5 % 0 0 0 N/A 0

HighTech/R&D 5 169,011 0 0.0 % 0 29,950 0 N/A 0

nner Loop Subtotal 742 24,208,148 1,772,672 7.3 % (148,712) (20,500) 0 $4.35 63,125

North

Warehouse/Distribution 361 7,461,025 433,571 5.8 % 11,495 74,072 0 $6.04 0

Flex/Service Center 111 2,427,211 292,022 12.0 % 18,200 (78,860) 0 $10.03 24,343

Manufacturing 54 958,141 279,684 29.2 % 23,760 26,990 0 $4.20 42,550

HighTech/R&D 13 474,125 58,653 12.4 % 137,253 146,909 0 $12.00 12,727

North Subtotal 539 11,320,502 1,063,930 9.4 % 190,708 169,111 0 $6.98 79,620

Northeast

Warehouse/Distribution 1,081 45,154,200 4,105,240 9.1 % (19,602) 1,270,879 52,400 $4.00 351,488

Flex/Service Center 312 7,741,837 641,771 8.3 % 93,695 99,569 0 $6.34 59,200

Manufacturing 213 8,383,615 205,500 2.5 % 19,324 (52,276) 0 $4.24 0

HighTech/R&D 6 281,809 16,000 5.7 % 0 44,159 0 $12.48 0

Northeast Subtotal 1,612 61,561,461 4,968,511 8.1 % 93,417 1,362,331 52,400 $4.34 410,688

Northwest

Warehouse/Distribution 2,272 86,392,874 7,851,140 9.1 % 221,987 1,114,895 0 $5.98 449,079

Flex/Service Center 743 18,108,179 1,726,708 9.5 % (112,540) 141,487 0 $8.20 55,807

Manufacturing 473 17,119,188 416,420 2.4 % 102,411 230,763 0 $4.68 0

HighTech/R&D 37 2,048,916 191,615 9.4 % (6,390) 7,348 0 $10.71 0

Northwest Subtotal 3,525 123,669,157 10,185,883 8.2 % 205,468 1,494,493 0 $6.39 504,886

South

Warehouse/Distribution 642 22,184,163 1,116,315 5.0 % 92,477 354,377 0 $3.78 127,105

Flex/Service Center 131 2,750,777 76,338 2.8 % 37,685 48,658 0 $9.82 0

Manufacturing 120 4,932,478 311,500 6.3 % 0 34,140 0 $2.52 90,987

HighTech/R&D 15 386,299 0 0.0 % 0 1,800 0 N/A 0

South Subtotal 908 30,253,717 1,504,153 5.0 % 130,162 438,975 0 $3.83 218,092

Southeast

Warehouse/Distribution 1,391 65,194,778 7,772,224 11.9 % 157,940 783,972 207,000 $4.08 102,296Flex/Service Center 265 4,976,040 190,691 3.8 % (17,346) 54,517 0 $11.00 6,559

Manufacturing 209 8,963,229 417,229 4.7 % 16,835 (126,365) 0 $3.56 20,500

HighTech/R&D 15 445,973 6,109 1.4 % 23,214 17,105 0 $14.00 0

Southeast Subtotal 1,880 79,580,020 8,386,253 10.5 % 180,643 729,229 207,000 $4.22 129,355

Southwest

Warehouse/Distribution 767 32,071,748 3,127,284 9.8 % (70,694) 284,597 0 $5.76 279,751

Flex/Service Center 470 13,882,674 1,138,844 8.2 % 34,859 127,396 0 $9.08 56,982

Manufacturing 93 2,576,366 121,407 4.7 % (69,591) (28,307) 0 $4.20 5,645

HighTech/R&D 21 1,020,308 102,628 10.1 % 41,716 42,904 0 $15.00 0

Southwest Subtotal 1,351 49,551,096 4,490,163 9.1 % (63,710) 426,590 0 $6.77 342,378

Houston-Area

Warehouse/Distribution 7,014 275,968,846 25,959,441 9.4 % 245,605 3,817,005 259,400 $4.85 1,364,794

Flex/Service Center 2,221 54,590,788 4,219,783 7.7 % 53,839 408,104 0 $8.46 210,941

Manufacturing 1,212 44,795,226 1,817,336 4.1 % 92,739 84,945 0 $3.87 159,682

HighTech/R&D 112 4,826,441 375,005 7.8 % 195,793 290,175 0 $12.22 12,727

Houston-AreaSubtotal

10,559 380,181,301 32,371,565 8.5 % 587,976 4,600,229 259,400 $5.45 1,748,144

Number of buildings calculated on specific buildings at each property address.

* Includes all general-purpose existing industrial buildings 10,000 square feet or larger.

** Rental rates are weighted and averaged based on available space.


Houston-Area Industrial Market SummaryYear -end 2010


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No. of Vacant SF Vacancy Rate Net Absorption Avg* Gross

Period Building SF Bldgs Direct Sublease Total Direct Sublease Total Direct Sublease Total Direct Rent

2010 Q4 380,181,301 10,559 32,371,565 1 ,748,144 34,119,709 8.5 % 0.5 % 9.0 % 587,976 83,049 671,025 $5.45

2010 Q3 380,179,142 10,557 33,375,232 1 ,831,193 35,206,425 8.8 % 0.5 % 9.3 % 886,575 630,895 1,517,470 $5.40

2010 Q2 380,136,974 10,555 34,229,207 2,462,088 36,691,295 9.0 % 0.6 % 9.7 % 2,088,351 147,783 2,236,134 $5.54

2010 Q1 380,026,618 10,540 36,230,904 2,609,871 38,840,775 9.5 % 0.7 % 10.2 % 1,037,327 (202,279) 835,048 $5.

2009 Q4 377,242,192 10,387 36,221,808 2 ,327,345 38,549,153 9.6 % 0.6 % 10.2 % 203,756 244,727 448,483 $5.33

2009 Q3 374,553,922 10,335 35,926,324 2,572,072 38,498,396 9.6 % 0.7 % 10.3 % (340,001) 259,436 (80,565) $5

2009 Q2 369,358,064 10,229 33,477,737 2,760,562 36,238,299 9.1 % 0.7 % 9.8 % 2,045,017 134,516 2,179,533 $5.41

2009 Q1 364,433,870 10,102 33,351,826 2,812,308 36,164,134 9.2 % 0.8 % 9.9 % 1,070,176 (331,272) 738,904 $5.

2008 Q4 358,833,631 10,018 30,867,014 1,692,722 32,559,736 8.6 % 0.5 % 9.1 % 625,261 (1,365,946) (740,685) $5

2008 Q3 353,992,191 9,853 27,243,979 669,101 27,913,080 7.7 % 0.2 % 7.9 % 3,065,026 948,607 4,013,633 $5.25

2008 Q2 348,570,458 9,759 25,808,925 1 ,617,708 27,426,633 7.4 % 0.5 % 7.9 % 2,317,141 69,257 2,386,398 $5.38

2008 Q1 343,066,097 9,644 24,100,573 1,536,715 25,637,288 7.0 % 0.4 % 7.5 % 3,640,601 (293,337) 3,347,264 $5.4

2007 Q4 336,508,151 9,518 25,265,660 1,219,378 26,485,038 7.5 % 0.4 % 7.9 % 2,175,232 (70,742) 2,082,990 $4.9

2007 Q3 329,844,342 9,401 22,292,990 1,121,418 23,414,408 6.8 % 0.3 % 7.1 % 3,620,557 (62,379) 3,558,178 $5.

2007 Q2 325,835,607 9,292 24,100,779 1,052,291 25,153,070 7.4 % 0.3 % 7.7 % 3,794,715 233,067 4,027,782 $5.11

2007 Q1 314,956,629 9,087 24,167,360 1,278,458 25,445,818 7.7 % 0.4 % 8.1 % 2,421,701 237,727 2,659,428 $4.93

2006 Q4 312,743,314 9,045 24,925,075 1,503,685 26,428,760 8.0 % 0.5 % 8.5 % 2,483,921 (97,327) 2,362,594 $4.9

2006 Q3 310,651,485 8,988 25,520,177 1,318,471 26,838,648 8.2 % 0.4 % 8.6 % 4,619,285 116,745 4,736,030 $4.80

2006 Q2 308,372,515 8,936 28,586,373 1,429,816 30,016,189 9.3 % 0.5 % 9.7 % 2,783,011 (156,484) 2,626,527 $4.

2006 Q1 307,367,938 8,891 30,728,941 1,273,332 32,002,273 10.0 % 0.4 % 10.4 % 2,110,339 277,268 2,387,607 $4.79

2005 Q4 304,946,429 8,840 30,759,819 1 ,550,600 32,310,419 10.1 % 0.5 % 10.6 % 141,252 563,320 704,572 $4.68

2005 Q3 303,482,020 8,788 29,885,375 2,113,920 31,999,295 9.8 % 0.7 % 10.5 % 6,105,317 (142,583) 5,962,734 $4.

2005 Q2 295,983,458 8,726 30,280,988 1,946,304 32,227,292 10.2 % 0.7 % 10.9 % 2,520,405 485,958 3,006,363 $4.62

2005 Q1 293,190,275 8,654 31,357,175 2,409,415 33,766,590 10.7 % 0.8 % 11.5 % 708,196 469,133 1,177,329 $4.63

Rental rates are averaged and weighted based on available space.201 1 HRIS. All rights reserved. All information is deemed reliable but is not guaranteed and should be independently verified.

01/25/2011 page

Houston-Area Historical Industrial Statistical Summary


17/20

* Gross rental rates are averaged and weighted based on available space.201 1 HRIS. All rights reserved. All information is deemed reliable but is not guaranteed and should be independently verified.

01/25/2011 page

Houston-Area Industrial Vacancy and Rental Rates* by Quarter


18/20

Year-end numbers. *Gross rental rates are averaged and weighted based on available space.201 1 HRIS. All rights reserved. All information is deemed reliable but is not guaranteed and should be independently verified.

01/25/2011 page

Houston-Area Industrial Vacancy and Rental Rates* by Year


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Flex/Service Center Manufacturing

Warehouse/Distribution HighTech/R&D All Types

2010 Q4 48,451 92,739 245,605 201,181 587,976Q3 89,277 (103,890) 900,397 791 886,575Q2 314,747 352,974 1,362,377 58,253 2,088,351Q1 (44,371) (256,878) 1,308,626 29,950 1,037,327

2009 Q4 (303,270) 93,001 391,781 22,244 203,756Q3 (176,540) (18,590) (105,722) (39,149) (340,001)

Q2 187,581 114,665 1,737,027 5,744 2,045,017Q1 72,307 19,908 1,071,368 (93,407) 1,070,176

2008 Q4 322,211 79,388 368,124 (144,462) 625,261Q3 302,853 71,890 2,585,230 105,053 3,065,026Q2 (36,294) 369,126 1,758,963 225,346 2,317,141Q1 187,334 987,781 2,422,488 42,998 3,640,601

2007 Q4 203,993 263,624 1,707,615 0 2,175,232Q3 260,879 194,298 3,362,446 (197,066) 3,620,557Q2 868,806 (696,735) 3,276,486 346,158 3,794,715Q1 41,031 (198,641) 2,390,718 188,593 2,421,701

2006 Q4 433,588 596,168 1,351,165 103,000 2,483,921Q3 867,615 818,075 2,939,309 (5,714) 4,619,285Q2 424,468 251,780 2,081,861 24,902 2,783,011

Q1 (70,013) 1,096,910 828,652 254,790 2,110,3392005 Q4 300,529 33,051 (165,266) (27,062) 141,252

Q3 258,763 218,905 5,730,306 (102,657) 6,105,317Q2 698,518 19,199 1,784,055 18,633 2,520,405Q1 (92,618) 104,980 673,366 22,468 708,196

Absorption square footage includes only net absorption for direct space; sublease space is excluded.201 1 HRIS. All rights reserved. All information is deemed reliable but is not guaranteed and should be independently verified. 01/25/2011 page 1

Houston-Area Historical Industrial Absorption by Type by Quarter


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Flex/Service Center Manufacturing

Warehouse/Distribution HighTech/R&D All Types

2010 408,104 84,945 3,817,005 290,175 4,600,229

2009 (219,922) 208,984 3,094,454 (104,568) 2,978,948

2008 776,104 1,508,185 7,134,805 228,935 9,648,029

2007 1,374,709 (437,454) 10,737,265 337,685 12,012,205

20061,655,658 2,762,933 7,200,987 376,978

11,996,556

2005 1,165,192 376,135 8,022,461 (88,618) 9,475,170

Absorption square footage includes only net absorption for direct space; sublease space is excluded.201 1 HRIS All rights reserved All information is deemed reliable but is not guaranteed and should be independently verified 1

Houston-Area Historical Industrial Absorption by Type by Year

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Houston Office and Industrial Markets Gearing Up 2011