Houston s industrial market continues to expand

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1 Research & Forecast Report HOUSTON INDUSTRIAL Q Houston s industrial market continues to expand Lisa Bridges Director of Market Research Houston During the first quarter of 2017, 1.7M SF of Houston s industrial inventory was absorbed, slightly less than the 1.9M SF absorbed in the previous quarter. Industrial leasing activity decreased between quarters, dropping from 5.3M SF to 3.6M SF. Market Indicators Relative to prior period Annual Quarterly Quarterly Forecast* The average vacancy rate increased 30 basis points over the quarter from 5.3% in to 5.6%. About 60% of the 3.4M SF of new space delivered in Q was pre-leased and 78% of the 5.2M SF currently under construction is pre-leased. More than 38% of the 4.9M SF currently under construction is located in the East- Southeast Far submarket where the Houston Ship Channel and the Port of Houston are located. Amazon recently announced it will build another 1.0M square foot fulfillment center, this time in Katy, TX. Most of the new construction announced over the last year or so has been for distribution warehouse space, leased by logistic companies. The average citywide quoted industrial rental rate increased marginally on a quarterly basis from $7.03 per SF NNN to $7.09 per SF NNN, and it increased 1.9% annually. NET ABSORP NEW CONSTRUC UNDER CONSTRUC *Projected Summary Statistics Houston Industrial Market Q Q Q Vacancy Rate 5.2% 5.3% 5.6% According to the U.S. Bureau of Labor Statistics, the Houston metropolitan area created 19,300 jobs (not seasonally adjusted) between February 2016 and February Most of the job growth occurred in arts, entertainment & recreation, government, retail trade, and education. Net Absorption (SF) New Construction (SF) Under Construction (SF) Asking Rents Per Square Foot Per Year 0.3M 1.9M 1.7M 2.1M 2.2M 3.4M 14.5M 7.6M 4.9M Average $6.96 $7.03 $7.09 Warehouse/Distribution $6.42 $6.78 $6.70 Flex/Service $12.22 $11.19 $10.98 Tech/R&D $12.84 $12.47 $12.67 Share or view online at colliers.com/texas/houstonindustrial

2 Vacancy & Availability Houston s average industrial vacancy rate increased 30 basis points from 5.3% to 5.6% over the quarter and increased by 40 basis points over the year from 5.2% in Q At the end of the first quarter, Houston had 28.6M SF of vacant industrial space for direct lease and an additional 1.4M SF of vacant sublease space. Among the major industrial corridors, the Northeast Corridor has the lowest vacancy rate at 2.3%, followed by the South at 3.4%, and then the Inner Loop at 4.6%. The largest percentage of vacant space is located in the North Corridor which has a 9.0% vacancy rate. Currently in Houston, we have 4.9M SF of industrial space under construction of which 61.8% is pre-leased. Almost 38% of this space is spec development and is not pre-leased. The largest project under construction is the 855,000- SF build-to-suit Amazon fullfilment center located in Pinto Business Park in the North Fwy/Tomball Pky submarket. A partial list of buildings currently under construction can be found on page 3 of this report. Industrial Rental Rate and Vacancy Percentage Houston, TX $8.00 Avg. Rent Avg. Vacancy 6.5% Job Growth & Unemployment (not seasonally adjusted) UNEMPLOYMENT 2/16 2/17 HOUSTON 4.7% 5.9% TEXAS 4.4% 5.1% U.S. 5.2% 4.9% JOB GROWTH Sales Activity Source: Real Capital Analytics Annual # of Jobs Added HOUSTON 0.6% 19.3K TEXAS 1.8% 218.8K U.S. 1.7% 2.36M Q NO. OF PROPERTIES: 41 $7.00 $6.00 $5.00 $4.00 *Vacancy percentage includes direct and sublease space. 6.0% 5.5% 5.0% 4.5% 4.0% SF: 7.5M AVERAGE $/SF: $76 AVERAGE CAP : 7.13% Sales Transactions Gillingham Distribution Center Absorption & Demand Houston s industrial market posted 1.7M SF of positive net absorption in the first quarter, most of which was in the Southeast Corridor submarket. There were several major tenant move-ins contributing to net absorption gains in the first quarter including Palmer Logistics (333,200 SF), XPO Logistics (183,289 SF) and Hawthorne Customs & Dispatch Services (96,793 SF), all located in the East-Southeast submarket. Rental Rates According to CoStar, our data service provider, Houston s citywide average quoted industrial rental rate for all product types increased over the quarter from $7.03 per SF NNN to $7.09 per SF NNN. According to Colliers internal data, actual lease transactions are in the $4.56 $5.04 per SF NNN range for newer bulk industrial spaces, while flex rates range from $7.20 to $10.80 per SF depending on the existing improvements or the allowance provided for tenant improvements, and the location of the property. Rental rates remained relatively flat over the quarter. According to CoStar, the average quoted NNN rental rates by property type are as follows: $6.70 per SF for Warehouse Distribution space; $10.98 per SF for Flex/Service space; with Tech/R&D space averaging $12.67 per SF. Colliers International represented Dalfen America Corp in the sale of 1601 Gillingham Ln, a 330,674-SF distribution center located in the Sugar Land Business Park. The property was 100% leased at the time of sale. The sale included an additional five acres of land which can accommodate an 80,000-SF building. Underwood I According to Real Capital Analytics, Hines purchased a 2.2M square foot, 5 building industrial warehouse distribution park from BlackRock JV Clay Development for $148.8M or $69 per SF. The sale also included 3 development parcels. Major tenants include Katoen Natie, Crawford Electric Supply, and Northern Safety. 2 Houston Research & Forecast Report Q Industrial Colliers International

3 Leasing Activity Houston s industrial leasing activity decreased 32% over the quarter from 5.3M SF in Q to 3.6M SF in Q The table below highlights some of the larger transactions that occurred in Q Q Industrial Lease Transactions over 50,000 SF BUILDING NAME/ADDRESS SUBMARKET SF TENANT LEASE DATE Greens Port Industrial Park East I-10 Outer Loop 303,281 Gulf Winds International 2 Jan-16 Alamo Crossing Commerce Northwest Near 250,000 Ford Motor Company 2 Feb-17 Citypark East Industrial Park Northeast Hwy ,753 Exel 2 Mar Market St Southeast Outer Loop 125,000 Flexitallic 3 Feb-17 Point North Five North Hardy Toll Road 108,576 MVP Logistics 1 Jan-17 IPT La Porte Distribution Center East-Southeast Far 96,793 Hawthorne Customs & Dispatch Services Feb-17 Kirby Business Center Southwest Far 95,648 Hendee Enterprises, Inc. 1,2 Feb-17 West Road Business Park Hwy 290/Tomball Pky 77,987 Smurfit Kappa Jan-17 1 Colliers International Transaction 2 Renewal 3 Sublease Under Construction Q Industrial Under Construction - 100,000 SF or greater BUSINESS PARK/ADDRESS SUBMARKET RBA % LEASED DEVELOPER/CONTRACTOR DELIVERY DATE BUILDING DESCRIP Pinto Business Park North Fwy/Tomball Pky 855, % Panattoni Development Jul-17 BTS Amazon Fulfillment Center 8787 W Grand Pky N Northwest Outlier 800, % Unknown Aug-17 BTS for FedEx Cedar Port Distribution Park East-Southeast Far 501, % Clay Development Apr-17 Distribution Ikea 4830 Borusan Rd 1919 FM 565 Rd - Bldg 4 East-Southeast Far 500, % A&F General Contractors Jul-17 BTS for Katoen Natie Carson Bayport 2 - Bldg Malone Dr Carson Bayport 3 - Bldg I Malone Dr 3730 S Main St South Hwy , % American Commercial Contractors Beltway SW Business Park Hillcroft St East-Southeast Far 274,479 0% Carson Companies Jun-17 Spec Warehouse East-Southeast Far 231,983 0% Carson Companies Apr-17 Spec Warehouse Jun-17 BTS for FloWorks International Southwest Far 112,500 0% Hines Securities, Inc. Jun-17 Spec Distribution 500 Cane Island Pky Northwest Outliers 110, % Pepperl+Fuchs Apr-17 BTS for Pepperl+Fuchs Carson Bayport 3 - Bldg I Malone Dr East-Southeast Far 107,291 0% Carson Co Apr-17 Spec Warehouse 3 Houston Research & Forecast Report Q Industrial Colliers International

4 Market Summary Q Houston Industrial Market Statistical Summary MARKET RENTABLE AREA DIRECT VACANT SF DIRECT SUBLET VACANT SF SUBLET VACANT SF 1Q17 NET ABSORP- 4Q16 NET ABSORP- 1Q17 COMPLE- S 4Q16 COMPLE- S SF UNDER CONSTRUC- Houston Total 538,518,897 28,563, % 1,382, % 29,945, % 1,657,760 1,939,520 3,435,460 2,237,980 4,909,420 CBD-NW Inner Loop 11,566, , % 103, % 533, % (23,045) (66,612) Downtown 31,100,901 1,726, % - 0.0% 1,726, % (159,229) (74,078) North Inner Loop 4,838, , % - 0.0% 231, % 17,500 (9,300) Southwest Inner Loop 7,184,578 47, % - 0.0% 47, % (12,015) (11,836) INNER LOOP CORRIDOR 54,689,968 2,435, % 103, % 2,539, % (176,789) (161,826) North Fwy/Tomball Pky 22,076,554 2,502, % 31, % 2,534, % 208,852 46,705 34,715 70, ,000 North Hardy Toll Rd 33,483,975 3,487, % 213, % 3,701, % (146,629) 273,752 49, ,125 19,700 North Outer Loop 19,759, , % 54, % 1,030, % (391) (11,354) ,000 The Woodlands/Conroe 16,940,867 1,048, % 14, % 1,063, % (184,707) (54,700) - 11,875 79,450 NORTH CORRIDOR 92,260,697 8,014, % 315, % 8,329, % (122,875) 254,403 84, ,000 1,014,150 Northeast Hwy 321 1,298,073 37, % - 0.0% 37, % Northeast Hwy 90 17,791, , % - 0.0% 318, % (60,134) (60,680) 20, Northeast I-10 3,858,361 95, % - 0.0% 95, % (11,796) (28,689) Northeast Inner Loop 11,563, , % 98, % 358, % 265,719 (62,628) NORTHEAST CORRIDOR 34,511, , % 98, % 810, % 193,789 (151,997) 20, Hwy 290/Tomball Pky 20,682,281 1,754, % 304, % 2,059, % 170, , ,950 12,000 15,300 Northwest Hwy 6 9,284, , % - 0.0% 268, % (30,025) (1,854) 20,250 25,339 10,000 Northwest Inner Loop 59,908,372 2,469, % 134, % 2,603, % (301,287) (117,868) ,000 Northwest Near 17,934, , % - 0.0% 707, % 61,921 81, Northwest Outlier 19,543,230 1,437, % 17, % 1,454, % 95, ,146 11,322 74,840 1,063,790 West Outer Loop 25,068,751 1,068, % 102, % 1,171, % (57,472) 27,322 33, ,600 NORTHWEST CORRIDOR 152,421,358 7,705, % 559, % 8,264, % (60,330) 776, , ,179 1,241,690 South Highway 35 33,851, , % 27, % 1,004, % 90,363 (2,387) 64, , ,290 South Inner Loop 12,318, , % - 0.0% 565, % (30,639) (81,162) SOUTH CORRIDOR 46,170,474 1,542, % 27, % 1,570, % 59,724 (83,549) 64, , ,290 East I-10 Outer Loop 13,598,951 76, % - 0.0% 76, % (23,090) (18,310) East-Southeast Far 58,747,505 3,802, % 30, % 3,832, % 1,702,644 1,061,986 2,752, ,160 1,739,258 Southeast Outer Loop 17,218, , % 125, % 513, % (20,577) (173,506) SOUTHEAST 89,565,078 4,267, % 155, % 4,422, % 1,658, , ,160 1,739,258 CORRIDOR 2,752,785 Highway 59/Highway 22,461,495 1,574, % 99, % 1,674, % 79,909 (116,450) 95, , , Southwest Far 12,355,088 1,143, % 18, % 1,161, % 244, , , , ,072 Southwest Outer Loop 13,170, , % - 0.0% 580, % (178,321) 41,920-12,000 - Sugar Land/Ft Bend Co 20,913, , % 5, % 592, % (40,757) (59,278) - 10,066 61,000 SOUTHWEST CORRIDOR 68,899,698 3,885, % 123, % 4,009, % 105, , ,400 1,046, ,032 4 Houston Research & Forecast Report Q Industrial Colliers International

5 The Port of Houston started the year off strong, experiencing a 17% increase in container volumes in the first two months of 2017 when compared to the first two months of Photo source: porthouston.com Q Highlights FOR MORE INFORMA Lisa Bridges Director of Market Research Houston lisa.bridges@colliers.com Copyright 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. Colliers International Market Houston Address, West Loop Suite South, # Suite Houston, Address, Texas Suite # colliers.com/<<market>> colliers.com/texas/houston 5 North American Research & Forecast Report Q Office Market Outlook Colliers International