Research AUSTIN 1Q16 OFFICE MARKET. Current Conditions

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1 is a Top Pick Going into 2016 The office market recognized its 14th consecutive quarter of positive net absorption in the first quarter of 2016, as its vacancy rate fell to 10., significantly lower than that of Dallas or Houston. Following consecutive years of strong demand, supply has steadily increased, and in each of the previous six quarters, the market has added an average of 600,000 square feet of new product. However, as new product has been delivered, the construction pipeline has not been replenished. Construction activity at the end of first-quarter 2016 stood at 1.3 million square feet, which, once completed, will represent a modest 2.3% inventory expansion. All told, going into 2016, ranked number one out of the 55 markets in the NGKF Momentum Index, an index based on demographics, employment trends and real estate market fundamentals. Economic Overview Boosting past performance and future expectations of the office market has been strong employment growth. added 43,400 new jobs in the year ending January 2016, which represents a staggering 4.7% expansion of the employment base. By industry, nearly all major segments contributed to positive employment growth, led by leisure/hospitality and professional/business services, which added 9,800 and 9,100 jobs, respectively. On the flip side, manufacturing was the only sector that recorded a decline, but the loss was modest at 700 jobs. As a result, the local unemployment rate dropped to 3., 170 basis points below the U.S. average, as of January Vacancies Rise, but Remain on a Downward Trend Since hitting a peak in second-quarter 2009, total vacancy has declined from 18. to 10. in first-quarter During this same time period, Class A vacancy tightened from 22. to 11.9%, while Class B vacancy improved from 17.1% to 10.3%. More recently, tenants have flocked to Class A product. In first-quarter 2016, positive absorption totaled 240,163 square feet. Contributing to this figure was Q2 Holdings, which moved into Boulevard, and Natera, which moved into McCallen Pass Drive. Combined, these transactions represented 161,000 square feet of absorption. At the same time, Class B inventory absorbed negative 77,000 square feet. Construction Activity is Limited Despite very low vacancies, construction activity was fairly limited at the end of the first quarter. As previously mentioned, work was underway on nine properties representing 1.3 million square feet. The largest concentration of activity is taking place in the Central Business District, where it is needed the most. Vacancy in s CBD stood at 5.9%, the lowest rate for a given submarket across, Dallas and Houston. The largest project currently underway is 500 West Second Street, a joint venture between Trammell Crow Company and Principal Real Estate. The property, which is part of a larger master-planned project at the former Thomas Green Water Treatment Plant, will feature roughly 490,000 square feet of Class A office space and 11,000 square feet of ground-floor retail. 500 West Second Street is expected to complete in first-quarter 2017, with Google as the anchor tenant. All told, the construction pipeline is nearly 30% pre-leased, and, once completed, will expand the existing inventory base by 2.3% Current Conditions Construction activity was limited with 1.3 million square feet underway, representing a modest 2.3% expansion of the existing inventory base once completed. Positive net absorption reached 167,724 square feet in first quarter This marked the 14 th consecutive quarter of positive absorption. The overall vacancy rate stood at 10., the lowest among the three major Texas metros. Market Analysis Asking Rent and Vacancy $34 $32 $30 $28 $26 $24 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 Net Absorption Square Feet, Millions Q11 1Q12 1Q13 1Q14 1Q15 1Q16 Market Summary Average Asking Rent (Price/SF) Vacancy (%) Current Quarter Prior Quarter Year Ago Period 20% 18% Month Forecast Total Inventory (SF) 57.8 M 57.4 M 55.2 M Vacancy Rate % Net Absorption (SF) 167, , ,678 Average Asking Rent $32.12 $31.79 $30.27 Under Construction 1,374,943 1,656,567 3,134,466 Deliveries 321, , ,391

2 Asking Rents Move Significantly Higher Turning to pricing, as market conditions have tightened, landlords have become more aggressive in their pricing strategies. Average asking rents ended the first quarter at $32.12/SF, which was up 1.0% quarter-overquarter and 6.1% year-over-year. Class A office buildings have seen average asking rent increase by 6.3% year-over-year, to $36.17/SF. Similarly, Class B rents shot up 9.0%, to $25.82/SF. By submarket, yearover-year pricing gains occurred across the board, including double-digit gains in three submarkets: North (18.5%), South/Southeast (10.7%) and East/Northeast (10.). We expect asking rents will continue to rise through 2016 and 2017, as a result of the robust local economy and constrained supply. Investors Are Hot for In 2015, more than $2.1 billion of office transactions closed in. While this figure is down slightly from 2014, it represents 21.0% of total deals that took place across the four major metros in Texas (, Dallas, Houston and San Antonio). s market share is especially remarkable considering the city s existing office stock is roughly one-third the size of the existing stock in Dallas and Houston. One of the largest deals of the year took place at 301 Congress Avenue in the CBD, which sold for $234.7 million to Prudential Real Estate Investors. Overall, demand for properties remains strong. As a result, pricing has moved higher. In 2015, the average price for institutional quality office product hit roughly $300/SF. Furthermore, the average cap rate compressed from 6.3% in 2014 to 6.1% in 2015, based on data from Real Capital Analytics. Submarket Spotlight East East, historically known as a hipster hangout, is currently undergoing a redevelopment push. Former garage repair shops, manufacturing distribution centers, restaurants and vacant grocery stores are being assembled for repositioning. The trend is a result of skyrocketing rental rates in the CBD and s ever-growing creative tenant mix searching for the next Meatpacking District. Overall vacancy remained elevated at the end of first-quarter 2016, at 21.0%, but is set to come down dramatically due to pent-up demand for large-block users. Currently, there are at least a dozen 100,000-square-foot-plus users looking for product in. Several development deals are in the works that seek to capitalize on this repositioning trend. For example, Plaza Saltillo has been approved for a 10.0-acre transit-oriented development near the MetroRail at Fifth and Comal streets. This private-public partnership urban infill project is slated to deliver office, retail, affordable housing and plenty of public open space. Another project is the redevelopment of the acre former Freescale Semiconductor campus located at 3443 Ed Bluestein Boulevard. Newly dubbed MOS 8, the campus sat vacant for almost 10 years, but is currently being reimagined with 250,000 square feet of data center product, 450,000 square feet of revamped office, flex and industrial product, 500,000 square feet of developable office product and two restaurant pads. Lease/User Transactions Tenant Building Submarket Type Square Feet Yeti Coolers Inc Southwest Parkway Southwest New 175,000 Undisclosed Lamar Central West Central New 69,868 Oracle USA Stonebridge Plaza II Northwest Direct 44,712 Navitus Health Solutions Park Plaza Bldg V Northwest New 25,937 CalAtlantic Homes Paloma Ridge Building B Northwest New 22,285 Select Sales Transactions Building Submarket Sale Price Price/SF Square Feet 301 Congress 1 CBD $234, $ ,338 University Park 2 Central $60,100,000 $ ,297 Encino Trace 3 Southwest $45,650,000 $ ,743 North Office Pair 4 North/Northwest $14,700,000 $ ,310 Donley Plaza 5 North $8,693,300 $125 69,547 1 Dec sale 2 Estimated price, Real Capital Analytics 3 Dec sale, purchase price represents 50% ownership stake 4 Estimated financing 5 Asking price 2

3 Submarket Statistics Total Under Total Qtr YTD Direct Sublet Total Total reflects Class A,B,C Inventory Construction Vacancy Absorption Absorption Asking Rent Asking Rent Asking Rent (SF) (SF) Rate (SF) (SF) (Price/SF) (Price/SF) (Price/SF) CBD Total 10,608, , % 50,350 50,350 $43.52 $40.01 $43.13 Class A 7,119, , % 73,276 73,276 $44.98 $41.00 $44.58 Class B 2,802, % -25,429-25,429 $37.17 $36.91 $37.12 Cedar Park/Georgetown/ Round Rock 1,770, , % -51,568-51,568 $25.67 $24.36 $25.62 Class A 894,332 24, % -57,347-57,347 $26.26 $24.76 $26.19 Class B 697, , ,779 5,779 $23.61 $22.50 $23.58 Central/West Central 4,411,506 46, ,098 40,098 $28.60 $27.79 $28.53 Class A 1,112,043 46, % 41,526 41,526 $36.87 $44.00 $37.23 Class B 2,160, % -4,961-4,961 $24.91 $23.56 $24.75 East/Northeast 4,320,603 39, % 10,029 10,029 $19.64 $18.00 $19.65 Class A 799,967 39, ,267-2,267 $ $23.71 Class B 3,026, ,296 12,296 $19.38 $20.71 $19.47 North 5,425, , % 48,838 48,838 $ $32.82 Class A 1,766, , % 15,263 15,263 $36.77 $33.44 $36.61 Class B 3,524,512 74, % 33,575 33,575 $27.07 $23.15 $26.71 Northwest 16,130, % 120, ,945 $31.34 $26.27 $30.75 Class A 9,477, % 168, ,890 $34.08 $26.62 $32.71 Class B 5,400, % -52,345-52,345 $27.18 $24.34 $27.21 South/Southeast 4,642, % -15,963-15,963 $29.50 $26.21 $29.24 Class A 669, % 5,980 5,980 $38.46 $32.90 $37.86 Class B 3,078, % -16,265-16,265 $28.84 $25.42 $28.67 Southwest 10,525,820 87, % -35,005-35,005 $34.55 $32.52 $34.38 Class A 7,551,393 87, ,158-5,158 $35.72 $32.70 $35.24 Class B 2,769, ,847-29,847 $29.26 $27.54 $29.50 Suburban Total 47,227, , , ,374 $30.54 $27.19 $30.23 Class A 22,271, , % 166, ,887 $34.43 $29.25 $33.67 Class B 20,657, , % -51,768-51,768 $26.19 $24.05 $26.14 Total 57,836,298 1,374, , ,724 $32.24 $30.34 $32.12 Class A 29,390,740 1,168, % 240, ,163 $36.76 $32.17 $36.17 Class B 23,460, , % -77,197-77,197 $25.80 $25.39 $

4 Economic and Office Construction Conditions Texas Development Activity Top 10 Submarkets by Square Feet Under Construction Rank Submarket (SF) 1 Far North Dallas 2,728,058 2 Houston Galleria/Uptown/West Loop 1,285,000 3 Houston CBD 1,171,658 4 Dallas Uptown/Turtle Creek 1,001,330 5 Houston Energy Corridor 952,893 6 CBD 680,358 7 Dallas Las Colinas 542,183 8 Houston Westchase 445,000 9 Houston The Woodlands 442, Dallas Richardson/Plano 411,258 Employment By Industry, 2015 Annual Data % 16.8% 2.8% % 5.8% 6.0% 11. Information Other Services Financial Activities Mining, Logging, and Construction Manufacturing Education and Health Services Leisure and Hospitality Professional and Business Services Trade, Transportation, and Utilities Government Source: Newmark Grubb Knight Frank Unemployment Rate Payroll Employment Not Seasonally Adjusted 8% 0% Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change 5% 3% 1% Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 United States United States, Payroll Employment Select Texas Markets Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change 8% 0% Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Dallas Houston, Employment Growth by Industry, January 2016, 12-Month % Change, Not Seasonally Adjusted Total Nonfarm Mining, Logging and Construction Manufacturing Trade, Transportation, and Utilities Information Financial Activities Professional and Business Services Education and Health Services Leisure and Hospitality Other Services Government -5.0% 0.0% 5.0% 10.0% 4

5 901 S MoPac Expy Suite 300, TX Newmark Grubb Knight Frank United States Office Locations David Wegman, CFA Director of - Texas dwegman@ngkf.com Leta Wauson Manager - Texas lwauson@ngkf.com Newmark Grubb Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents. Newmark Grubb Knight Frank Reports are also available at All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Grubb Knight Frank (NGKF) has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NGKF. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient s choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of NGKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.