PAYROLL JOB CHANGE IN PERCENTAGE TERMS LARGE METRO AREAS 12 MONTHS ENDING SEPTEMBER % 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 3.

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1 REAL ESTATE OUTLOOK HOUSTON METRO Vibrant regional economy again outperforms Metro job growth leads the nation ECONOMY Job growth exceeds expectations The Houston metro area continued to experience strong economic conditions through the third quarter of Houston s payroll employment rose by 4.0% over the 12 months ending in August, the largest percentage increase among major metros in the nation and well above the national growth rate of 1.9%. The 12-month employment growth of 107,400 jobs through August 2014 is third-most in the U.S. among large metros. The three most impactful drivers for job growth over the last year are energy, construction and engineering services. According to the U.S. Bureau of Economic Analysis (BEA), Houston s economy grew 5.2% in, the fastest of any major metro in the U.S. The BEA estimated the Houston MSA s gross domestic product at $517.4 billion, which would make it the world s 25th largest economy if it was a sovereign country. The number of jobs created in the Houston metro should surpass previous estimates and total around 104,200 for PAYROLL JOB CHANGE IN PERCENTAGE TERMS LARGE METRO AREAS 12 MONTHS ENDING SEPTEMBER 2014 Percent Change in Payroll Jobs PAYROLL JOB GROWTH LARGE METRO AREAS 12 MONTHS ENDING SEPTEMBER 2014 Payroll Jobs in Thousands NY LA Basin Hou DFW SF Bay South FL Atl Bos Phx Chi Denver Was PAYROLL JOB GROWTH HOUSTON METRO AREA Annual Job Growth (in Thousands) 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 3.9% Hou DFW SF Bay South FL Bos Phx Denver Atl LA Basin NY Chi Was SOURCE Bureau of Labor Statistics, Delta Associates Average 100 Job Growth = 47,400/Year * *12-month job growth through August 2014 SOURCE Bureau of Labor Statistics, Delta Associates SOURCE Bureau of Labor Statistics, Delta Associates

2 HOUSTON METRO MARKET UNEMPLOYMENT The Houston area unemployment rate was 5.4% in August, down from 6.3% the year prior. The national unemployment rate was 6.1% in August, down from 7.2% the previous year. Houston s core industries continue to drive growth: ENERGY 8,900 jobs added in the 12 months ending August 2014, a 8.2% increase CONSTRUCTION 10,900 jobs added in the 12 months ending August 2014, a 5.7% increase MANUFACTURING 9,400 jobs added in the 12 months ending August 2014, a 3.7% increase EDUCATION & HEALTH SERVICES 19,000 jobs added in the 12 months ending August 2014, a 5.7% increase TRADE & TRANSPORTATION 14,000 jobs added in the 12 months ending August 2014, a 2.5% increase ENERGY Energy sector employment grew by 8,900 jobs during the 12 months ending in August, an 8.2% increase. The U.S. rotary rig count was 1,922 at the end of September, up 166 from the same time last year. Benchmark crude oil prices stood at $91 per barrel for Brent and $87 for WTI at the close of September. The energy sector and rig count have remained strong and steady despite the decline in oil prices in recent weeks. Houston-based startup Zenith Energy received a $600 million investment to build oil and natural gas terminals in developing nations over the next few years. Zenith Energy plans to capitalize on the increasing demand for terminals, as companies look for ways to easily store oil and other liquids before transporting and exporting them around the globe. Additionally, Houston-based Biofuels Power Corp. is planning to construct a gas-to-liquid facility to demonstrate natural gas can be converted into crude oil profitably. The new plant, located in southwest Houston, will allow Biofuels Power to take advantage of the large supply and low costs of natural gas in the U.S. UNEMPLOYMENT RATES LARGE METRO AREAS AUGUST VS. AUGUST 2014 August August % Unemployment Rate 8% 7.2% National Average 6.1% 6% 4% 2% 0% Den Bos SF Bay Hou DFW Was Phx NY S Fla Chi LA Basin Atl SOURCE Bureau of Labor Statistics, Delta Associates U.S. ROTARY RIG COUNT Gas Misc. Oil 2,000 1,800 Annual Average Working Rigs 1,600 1,400 1,200 1, * *Count as of 10/03/2014 SOURCE Baker Hughes Inc., Delta Associates 2 REAL ESTATE OUTLOOK HOUSTON METRO

3 CONSTRUCTION Construction sector employment expanded by 10,900 jobs during the 12 months ending in August, a 5.7% increase. Houston led the country with more construction jobs added than any other major U.S. market from August to August This growth is being driven by the high, sustained demand for all types of commercial space in the metro, as well as hotel and residential. Over the 12 months ending in August, the City of Houston issued a record $7.8 billion in building permits, a huge 39.2% increase from permits issued the previous year. The biggest challenges for the construction sector continue to be rising material costs and labor shortages. Costs have been increasing steadily since, but jumped significantly in 2014 according to Kirksey Architecture s 2014 Construction Cost report. August marks the sixth consecutive month of record setting building permits. BUILDING PERMITS ISSUED HOUSTON METRO Permits: Single Family Permits: Multifamily 60,000 50,000 40,000 30,000 20,000 10, * SOURCE U.S. Bureau of Census, Transwestern *Through August 2014 HOUSTON MANUFACTURING OUTLOOK PURCHASING MANAGERS INDEX MANUFACTURING Manufacturing sector employment grew by 9,400 jobs over the 12 months ending in August, a gain of 3.7%. The Houston Purchasing Managers Index, a short-term leading indicator of production, dropped slightly to 55.6 in August from 56.4 in July. This was the 60th consecutive month of growth for the indicator. Manufacturing is booming in Houston with demand for new refineries and pipelines helping to drive manufacturing growth along with low electricity costs and increased foreign investment. One beneficiary of these conditions is Teadit North America, a gasket manufacturer in Pasadena, which has seen business increase more than two-fold over the last five years. In order to sustain such growth, the manufacturer moved into a new 111,000 SF facility nearly 70% bigger than its previous operation. In addition, Mitsubishi Caterpillar Forklift America, Inc. is shifting production of its forklifts that handle shipping containers from Japan to Houston. Rising demand for forklifts able to load and unload these containers at the Port of Houston led the company to make the production move. Index * SOURCE ISM Houston, Delta Associates *Through August 2014 Contraction Expansion REAL ESTATE OUTLOOK HOUSTON METRO 3

4 HOUSTON METRO MARKET EDUCATION AND HEALTH SERVICES Education and Health Services sector employment increased by 19,000 jobs over the 12 months ending in August, a gain of 5.7%. The Lone Star College System opened its new Energy and Manufacturing Institute in August of this year. Located at the University Park campus in northwestern Houston, the new institute will focus on preparing students for the boom in job openings in the oil and gas manufacturing industries. The curriculum will be focused on training students for skilled-based trades so they can fill the growing need for electricians, machinists and welders, in addition to many others. In the healthcare sector, the Texas Medical Center (TMC) recently opened a life science innovation center, or accelerator, called TMCx to bring more healthcare startups to Houston. The business accelerator will house legal experts, investors and mentors, among others, to turn academic research into the next new drug or medical device. In another move to further research, education and innovation, TMC is considering the addition of three new member institutions to the healthcare complex. TRADE AND TRANSPORTATION Trade/Transportation employment expanded by 14,000 jobs during the 12 months ending in May, a 2.5% increase. The Houston-Galveston Customs District handled over $173.7 billion in foreign trade in the first eight months of the year, up 5.2% from the same period in. The Port of Houston had a banner month in July with a record number of operating revenues, $24 million, and more steel moving through the port than any month since July 2008, before the recession. The Houston Airport System is also poised to break a record with international passenger numbers up 10.6% through August, setting a pace to hit 10 million passengers by year-end. On the transportation front, voters will decide in November whether to begin diverting half the state s annual oil and gas production tax collections into the State Highway Fund to advance road construction and maintenance projects throughout Texas. If Proposition 1 passes, the Houston metro could receive an additional $221 million in transportation funding according to Texas Infrastructure Now. HOUSTON PORT AUTHORITY CONTAINER TRAFFIC Total TEUs Note: TEU = 20-foot-equivalent container units HOUSTON AIRPORT SYSTEM AIR FREIGHT Air Freight (Metric Tons) *Annualized 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , , , , , Average = 1.7 million TEU/annum Core Industries * Average = 380,000 metric tons/annum SOURCE Houston Port Authority, Delta Associates *Through Aug, annualized * SOURCE Houston Airport System, Delta Associates HOUSTON METRO AREA CORE INDUSTRIES $ (BIL) % GRP Energy/Financial/Professional/Tech $188 40% Trade/Transportation $89 19% Manufacturing $84 18% Federal & State Government $28 6% Construction $23 5% Medical/Educational $23 5% Total Core Industries: $435 93% Other $33 7% Total GRP: $ % GRP = Gross Regional Product; totals are estimates and may not round to 100% NOTE % GRP reflects most recent data available from BEA SOURCE BEA, U.S. Conference of Mayors, GMU Center for Regional Analysis, Delta Associates 4 REAL ESTATE OUTLOOK HOUSTON METRO

5 HOUSING Home sales continue to soar The Houston Association of Realtors reported 6,490 singlefamily home sales in September, up 7.0% over September of last year. The average single-family home sale price was $269,440 in September, an 8.2% increase year-over-year. The median price was $196,000, up 7.7% from September. The inventory of homes was equal to a 2.9 month supply, much lower than the national supply of 5.3 months. High job creation numbers continue to fuel housing demand, pushing sale prices higher and keeping inventory low. Economic Outlook The Houston metro area s economy continued to experience robust growth in the third quarter of Looking forward, the Greater Houston Partnership (GHP) has announced a plan to fill 296,000 middle-skill job openings in the next three years. GHP calls the initiative UpSkill Houston and intends to partner with businesses, schools, community colleges and social services to help fill jobs that require more than a high school diploma. Middleskill positions are growing quickly and will continue to do so over the next few years. These jobs supply industries like oil and gas with the skilled labor needed to handle the shale boom and petrochemical growth. However, Houston s employment growth is broad, and economic indicators point to continued growth across all sectors in the period ahead. A sustained rise in investments along the Houston Ship Channel signals the Panama Canal s 2016 expansion completion date is quickly approaching, creating more opportunities for the future of the Houston metro We expect job growth to total approximately 104,200 in 2014 and remain in the 80,000 to 95,000 per year in 2015 and 2016, well above the long-term average. Houston has remained so far above the nation s growth rate that some deceleration is likely. Houston s employment growth is expected to be among the nation s leaders over the next few years. Average Home Prices SEPTEMBER 2014 JOB FORECAST HOUSTON METRO AREA Annual Job Growth 120, ,000 80,000 60,000 40,000 20, ,000-40,000-60,000-80,000 HOUSTON MSA TEXAS U.S. Average Price $269,440 $240,400 $255,500 Median Price $196,000 $185,500 $209,700 Mos. Inventory Avg. Annual Growth = 87,500/annum Projected Avg. Annual Growth = 93,000/annum SOURCE Bureau of Labor Statistics, Delta Associates REAL ESTATE OUTLOOK HOUSTON METRO 5

6 HOUSTON METRO MARKET OFFICE Leasing velocity strong The Houston office market continued to fire on all cylinders through the third quarter. Vacancy is unchanged from mid-year, rental rates are up and absorption is solid with job creation driving leasing activity. Tenants continue to make significant commitments to quality space in an effort to recruit and retain employees in the competitive job market. DEMAND Net absorption slows in Q3 At the close of the third quarter, net absorption totaled 390,000 SF for a year-to-date total of over 4.8 million SF. The absorption is directly attributed to Class A space which recorded 603,000 SF of positive absorption. Class B space, showing effects of the long-term flight to quality in the market, recorded a negative 169,000 SF. Lower numbers overall for absorption are partially due to a smaller number of deliveries for the quarter. Notable 3rd quarter leases: Technip 104,024 SF prelease, Energy Tower IV, Energy Corridor submarket cpanel 100,588 SF new lease, 2550 North Loop West, North Loop West submarket Pacific Drilling 77,000 SF new lease, Energy Tower I, Energy Corridor submarket Microsoft 76,357 SF prelease, Town Centre I, Energy Corridor submarket Friede & Goldman 38,026 SF new lease, Granite Briarpark Green, Westchase submarket Vacancy remains constant The overall office vacancy rate (including sublet) is 9.9% for the third quarter, up slightly from 9.8% at mid-year. Direct vacancy is 9.3%, unchanged from last quarter. Overall Class A vacancy is at 7.8%, unchanged from the second quarter. The direct Class A vacancy rate is 7.1%, up slightly from 6.9% last quarter. Overall Class B ticked up to 12.4%, from 12.0% in the second quarter. The direct Class B vacancy rate is 11.8%, up marginally from 11.7% at mid-year. The overall office vacancy rate (including sublet) in the Houston metro will likely rise moderately over the next two years as the majority of space now under construction delivers. While we expect demand to remain at high levels, the current development pipeline will have an impact on vacancy rates. Given this, we expect an overall vacancy rate in the low-11% range in two years. Submarkets with highest net absorption: SUBMARKET Galleria Central Business District The Woodlands 181,000 SF 143,000 SF 138,000 SF NET ABSORPTION AND RATE TRENDS HOUSTON METRO AREA Net Absorption in Thousands of SF Note: Delivery of pre-leased space counts as positive net absorption OFFICE RATE HOUSTON METRO AREA Direct Vacancy Rate 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, ,000 14% 13% 12% 11% 10% 9% 14% 13% 12% 11% 10% 9% 8% 7% 6% * 5% SOURCE CoStar, Transwestern *Through 8% * Note: All classes of office space SOURCE CoStar, Transwestern *At Submarkets with lowest direct vacancy: SUBMARKET The Woodlands 4.9% Bellaire 5.7% Katy Freeway/Energy Corridor 6.0% Direct Vacancy Rate 9.3% 6 REAL ESTATE OUTLOOK HOUSTON METRO

7 SUPPLY AND DEVELOPMENT Pipeline steady through Q3 There is more than 17.1 million SF of office space under construction in the Houston area for the third quarter, which is unchanged from mid-year. This space is currently 66% preleased. The Energy Corridor and The Woodlands submarkets continue to account for a large portion of the development activity, about 10.2 million SF. The largest projects under construction include ExxonMobil s 3.0 million SF campus in The Woodlands submarket, Phillips 66 s 1.1 million SF campus in the Westchase submarket and 609 Main at Texas in the CBD submarket at 1.0 million SF. It was a quieter period for deliveries with seven office buildings completing construction in the third quarter. The largest projects include Offices at Greenhouse, 68% preleased to URS Corp, and Jacobs Plaza, 50% preleased to Jacobs Engineering. In total, third quarter deliveries were 837,178 SF and 77% preleased at completion. RENTAL RATES Rent growth continues Asking rental rates for all classes of office space have increased 4.6% to $27.28 from year-end. Class A rents are up 5.5% to $34.52 per SF, full service, and Class B rents are up 4.2% to $20.80 per SF, full service, from the close of last year. These are metro-wide averages as newer buildings in more desirable submarkets are outperforming these market averages. Metro-wide asking rents should continue trending upward through the end of the year and into 2015 as demand for space remains high. Class A rents are climbing at a higher rate than Class B due to the flight to quality in the market, with stronger demand for newer space. Further, with the volume of new construction and recent deliveries pushing rates for new space, Class A rents should see consistent growth in the period ahead. AVERAGE OFFICE RENTS HOUSTON METRO AREA Asking Rents ($ s/sf, GFS) Office space under construction Houston Metro 3 rd Quarter 2014 SUBMARKET $28 $26 $24 $22 $20 $18 SF % PRE- LEASED Downtown 1,631,162 27% FM ,000 82% Greenway Plaza 660,437 29% Gulf Frwy/Pasadena - - Katy Frwy/Energy Corridor 5,670,188 60% Kingwood/Humble - - NASA/Clear Lake 55, % Northeast - - Northwest 1,193,336 22% S Main/Med Center - - SW Frwy/Sugar Land 57,000 57,000 West Loop 698,938 86% Westchase 1,817,000 83% The Woodlands 4,565,837 90% Total 17,116,898 66% $27.28 $ * Note: All classes of office space SOURCE CoStar, Transwestern *At Multi-tenant market vs Transwestern comprehensive market coverage MULTI- TENANT ENTIRE MARKET Inventory MSF MSF Overall Vacancy 12.1% 9.9% Q3 Net absorption 386,059 SF 390,000 SF WHY OUR METHODOLOGY IS THE BEST INDICATOR OF CURRENT MARKET CONDITIONS We include owner occupied and single-tenant buildings in our inventory, vacancy and absorption statistics to capture more market activity than many of our competitors. This allows us to better correlate changes in the market with changes in employment. As single-tenant space does compete with multi-tenant space, we believe it is critical to understand all components of the market. The inclusion of single-tenant and owner-occupied space tends to yield lower vacancy rates and higher absorption totals than some of our competitors results, but our coverage of the market is more comprehensive. REAL ESTATE OUTLOOK HOUSTON METRO 7

8 HOUSTON METRO MARKET COMPARATIVE OFFICE INVESTMENT SALES VOLUME SELECT METRO AREAS Atl Dal Den Hou $6.0 $5.0 $4.0 $3.0 Sales Volume in Billions $2.0 $1.0 $ * SOURCE Real Capital Analytics, Transwestern *Through AVERAGE OFFICE SALE PRICE HOUSTON METRO AREA Average Sale Price Per SF $225 $214 $213 $204 $200 $188 $174 $174 $175 $150 $139 $129 $125 $125 $100 $75 $58 $ * SOURCE Real Capital Analytics, Transwestern *Through INVESTMENT MARKET Transaction volume up in Q3 The Houston metro recorded $710.9 million in total office investment sales transactions during the third quarter, bringing the year-to-date total to $2.6 billion. These are assets for which pricing information could be obtained. Overall pricing averaged $204 per SF this quarter, as compared to $213 per SF for the second quarter. Although sales volume is tracking significantly below the approximately $5.4 billion recorded in, investor interest in Houston remains at high levels as lucrative market conditions, driven by one of the nation s strongest local economies, continue to fuel a positive outlook for the Energy Capital. The shale revolution has given local energy companies the confidence and incentive to expand their workforces, which translates into greater interest in Houston office assets. With the exception of 2009, the low point of the downturn, values in Houston have risen fairly consistently since 2003 and will likely grow in the period ahead, as market conditions continue to strengthen, rents rise, and competition increases for Houston s assets. Investors now consider Houston a gateway city and pricing for high-quality, Class A assets reflects this perception. The average cap rate in the third quarter for Houston office assets was 6.4%, from a second quarter average of 7.5%. However, there is a wide range of cap rates depending on the locations and characteristics of the properties being traded. Most notably, Class A properties generally command much lower yields than Class B due to a variety of factors including quality of the asset, appreciation potential and investor profile. However, due to the rapid increase in rental rates across much of the city during the last months, the Class B sector has witnessed substantial in-place cap rate compression because of leases that have not yet rolled to market rates. Notable 3 rd Quarter Transactions PROPERTY SUBMARKET SALE PRICE CAP RATE SELLER BUYER Richmond Ave Westchase $53 million ($288/SF) 7.00% DRA Advisors Clarion Partners 3040 Post Oak Blvd Galleria $126 million ($295/SF) 6.25% Five Mile Capital & Crocker Partners MetLife Real Estate Investors 580 Westlake Park Blvd Energy Corridor $120 million ($263/SF) undisclosed KBS Realty Advisors Hicks Ventures 8 REAL ESTATE OUTLOOK HOUSTON METRO

9 Well-located Class B assets continue to receive significant interest from investors as a result of the highly competitive Class A investment market. Thus, pricing for well-located Class B assets is expected to continue to improve as competition for these properties increases. We expect overall cap rates to trend downward slightly from year-end as the Class B market improves and high investor interest in Houston s office assets continues. Additionally, the recent decrease in 10-year treasury rates should fuel continued yield compression in the near-term. In the current interest rate environment, even a significant increase in rates should be able to be absorbed without significantly altering current pricing metrics. CAP RATES CORE OFFICE ASSETS HOUSTON METRO AREA 10% 9% Average Cap Rate 8% 7% 6.4% 6% 5% * SOURCE Real Capital Analytics, Transwestern *At OFFICE MARKET OUTLOOK Houston s office market is expected to sustain its positive momentum in the period ahead with the robust job market and vibrant economy driving growth. While the development pipeline is significant, we expect the high level of demand in Houston to translate into positive absorption as these projects deliver. The pipeline, including planned space expected to start construction soon, is at 8.8% of standing inventory, but with owner occupied campuses removed (ExxonMobil, Phillips 66, Shell, etc.), the development pipeline equals 6.1% of inventory. We do anticipate the overall vacancy rate for all classes of space will increase over the next two years, climbing to the low- 11% range. This accounts for space still vacant at delivery and the effects of the flight to quality on Class B and C space. Rents should continue rising modestly through 2014 and 2015, especially for Class A. Office submarkets likely to outperform the market in the months ahead include: Energy Corridor, The Woodlands, Galleria and Central Business District. Demand is extremely high in these submarkets as tenants look to take advantage of new opportunities. REAL ESTATE OUTLOOK HOUSTON METRO 9

10 HOUSTON METRO MARKET Houston Office Market Indicators - All Space SUBMARKET TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT DIRECT WITH SUBLET UNDER CONSTRUCTION NET ABSORPTION NET ABSORPTION YTD 2014 Central Business District 86 47,512,974 3,325, % 7.0% 7.8% 1,463, , ,000 Midtown 31 5,298, , % 10.1% 10.2% 167,562 58,000 37,000 Downtown ,811,156 3,861, % 7.3% 8.0% 1,631, , ,000 FM 1960 / I-45 North 15 1,371, , % 10.4% 10.4% - (7,000) 49,000 FM 1960 / Champions 22 1,850, , % 26.2% 26.2% - 11,000 (10,000) FM 1960 / Highway ,327, , % 11.9% 12.8% 768,000 21, ,000 FM ,550,212 1,261, % 14.8% 15.3% 768,000 25, ,000 North Belt West/Greenspoint 74 10,036,449 1,666, % 16.6% 17.5% - (171,000) (82,000) Greenspoint / IAH 21 2,754, , % 10.5% 11.4% - 17,000 21,000 Greenspoint / North Belt 95 12,790,980 1,955, % 15.3% 16.2% - (154,000) (61,000) Greenway Plaza 48 10,416, , % 7.7% 7.8% 660,437 10, ,000 Gulf Freeway/Pasadena 31 2,380, , % 8.7% 8.7% ,000 Katy Freeway East 58 8,431, , % 6.6% 7.1% 1,077,752 17,000 65,000 Katy Freeway West ,210,062 1,346, % 5.8% 6.9% 4,592,436 20,000 1,728,000 Katy Frwy / Energy Corridor ,641,112 1,902, % 6.0% 7.0% 5,670,188 37,000 1,793,000 Kingwood / Humble 9 881,561 60, % 6.9% 6.9% ,000 NASA / Clear Lake 62 6,996,599 1,056, % 15.1% 15.2% 55,000 49, ,000 Northeast 15 1,155, , % 16.0% 16.0% - (1,000) 68,000 North Loop West 29 4,133, , % 16.3% 17.7% - 79,000 (6,000) Northwest Near 13 1,319,023 21, % 1.6% 1.6% - (4,000) 61,000 Northwest Far 54 6,410, , % 10.6% 10.9% 1,193,336 (19,000) (2,000) Northwest 96 11,862,803 1,374, % 11.6% 12.2% 1,193,336 56,000 53,000 South Main / Medical Center 49 10,469, , % 8.2% 8.2% - 4,000 94,000 Southwest / Hillcroft 35 4,269, , % 18.1% 18.1% - 21,000 (36,000) Southwest Beltway ,620,512 1,180, % 21.0% 21.0% - (124,000) (171,000) East Ft Bend Co. / Sugar Land 43 6,186, , % 11.2% 13.1% 57,000 (6,000) 203,000 Southwest Fwy / Sugar Land ,077,076 2,646, % 16.5% 17.2% 57,000 (109,000) (4,000) Bellaire 29 4,374, , % 5.7% 6.3% - (4,000) 38,000 Post Oak Park 28 4,226, , % 16.2% 16.2% 98,938 (17,000) 15,000 Galleria 55 15,804,024 1,058, % 6.7% 7.8% 600, , ,000 Riverway 16 2,868, , % 9.4% 9.6% - (9,000) 3,000 Richmond / Fountainview , , % 26.6% 26.6% - 7,000 (29,000) San Felipe / Voss 33 5,041, , % 9.5% 9.8% - 5,000 58,000 West Loop ,135,145 2,959, % 8.9% 9.6% 698, , ,000 Westchase 85 15,515,357 1,272, % 8.2% 8.6% 1,817,000 (31,000) 189,000 The Woodlands 79 10,229, , % 4.9% 5.7% 4,565, ,000 1,170,000 Conroe ,345 98, % 10.9% 10.9% - 2,000 44,000 TOTAL - Houston 1, ,815,937 21,002, % 9.3% 9.9% 17,116, ,000 4,826,000 Vacancy Rate with Sublet Space 10.8% 9.9% 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 10 REAL ESTATE OUTLOOK HOUSTON METRO

11 Houston Office Market Indicators - Class A SUBMARKET TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT WITH SUBLET UNDER CONSTRUCTION NET ABSORPTION NET ABSORPTION YTD 2014 Central Business District 33 31,444,591 1,792, % 6.7% 1,463,600 94, ,000 Midtown 6 2,033, , % 11.0% 167,562 71,000 8,000 Downtown 39 33,477,725 2,015, % 7.0% 1,631, , ,000 FM 1960 / I-45 North 1 204, % 0.0% FM 1960 / Champions 1 150, % 0.0% FM 1960 / Highway ,499, , % 14.6% 768,000 7, ,000 FM ,854, , % 13.3% 768,000 7, ,000 North Belt West/Greenspoint 17 4,343, , % 11.6% - (135,000) (101,000) Greenspoint / IAH 7 1,093, , % 12.9% - 21,000 - Greenspoint / North Belt 24 5,437, , % 11.9% - (114,000) (101,000) Greenway Plaza 15 6,190, , % 5.8% 660,437 (12,000) 99,000 Gulf Freeway/Pasadena % 0.0% Katy Freeway East 17 4,246, , % 3.4% 1,077,752 (34,000) 14,000 Katy Freeway West 62 14,773, , % 5.0% 4,592, ,000 1,728,000 Katy Fwy / Energy Corridor 79 19,020, , % 4.6% 5,670, ,000 1,742,000 Kingwood / Humble 1 86,665 26, % 30.3% - - 1,000 NASA / Clear Lake 15 2,127,855 89, % 4.3% 55,000 49,000 60,000 Northeast % 0.0% North Loop West 5 1,058, , % 28.4% - (31,000) 28,000 Northwest Near 1 237, % 0.0% Northwest Far 16 2,681, , % 7.2% 1,193,336 (13,000) 3,000 Northwest 22 3,977, , % 12.4% 1,193,336 (44,000) 31,000 South Main / Medical Center 16 4,618, , % 5.6% - 43,000 74,000 Southwest / Hillcroft 6 1,485, , % 12.3% - (1,000) (6,000) Southwest Beltway , , % 19.1% - 2,000 17,000 East Ft Bend Co. / Sugar Land 20 4,066, , % 11.9% 57,000 (8,000) 189,000 Southwest Fwy / Sugar Land 29 6,124, , % 12.7% 57,000 (7,000) 200,000 Bellaire 7 1,203,314 68, % 7.4% - 25,000 50,000 Post Oak Park 6 1,911, , % 15.3% 98,938 (25,000) 51,000 Galleria 30 11,982, , % 8.1% 600, , ,000 Riverway 5 1,885, , % 7.7% - (15,000) (4,000) Richmond / Fountainview % 0.0% San Felipe / Voss 3 1,714, , % 11.5% - 19,000 47,000 West Loop 51 18,698,394 1,502, % 9.1% 698, , ,000 Westchase 27 7,652, , % 8.4% 1,817,000 84, ,000 The Woodlands 27 5,457, , % 7.1% 4,565, , ,000 Conroe 2 128,832 10, % 8.5% - 2,000 2,000 TOTAL - Houston ,853,695 8,261, % 7.8% 17,116, ,000 4,081,000 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 REAL ESTATE OUTLOOK HOUSTON METRO 11

12 HOUSTON METRO MARKET Houston Office Market Indicators - Class B SUBMARKET TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT WITH SUBLET UNDER CONSTRUCTION NET ABSORPTION NET ABSORPTION YTD 2014 Central Business District 38 14,511,526 1,117, % 7.9% - 44, ,000 Midtown 19 2,883, , % 5.0% - (6,000) 62,000 Downtown 57 17,394,873 1,258, % 7.4% - 38, ,000 FM 1960 / I-45 North 12 1,016, , % 14.0% - (6,000) 3,000 FM 1960 / Champions 20 1,632, , % 29.7% - 11,000 4,000 FM 1960 / Highway ,609, , % 8.6% - 10,000 41,000 FM ,258, , % 18.0% - 15,000 48,000 North Belt West/Greenspoint 44 4,595, , % 22.1% - (32,000) (14,000) Greenspoint / IAH 13 1,608, , % 9.4% - (3,000) 28,000 Greenspoint / North Belt 57 6,204,092 1,084, % 18.8% - (35,000) 14,000 Greenway Plaza 27 3,764, , % 6.8% - 23,000 49,000 Gulf Freeway/Pasadena 25 1,929, , % 9.7% ,000 Katy Freeway East 29 3,064, , % 14.7% - 34,000 49,000 Katy Freeway West 73 8,194, , % 11.0% - (172,000) (62,000) Katy Fwy / Energy Corridor ,259,127 1,125, % 12.0% - (138,000) (13,000) Kingwood / Humble 8 794,896 34, % 4.4% ,000 NASA / Clear Lake 43 4,511, , % 22.2% - (32,000) 147,000 Northeast , , % 14.1% - 15, ,000 North Loop West 21 2,879, , % 15.0% - 104,000 (17,000) Northwest Near 8 802,294 6, % 0.8% - 2,000 31,000 Northwest Far 35 3,481, , % 14.5% - 0 (13,000) Northwest 64 7,163, , % 13.2% - 106,000 1,000 South Main / Medical Center 18 3,991, , % 13.8% - (64,000) (11,000) Southwest / Hillcroft 16 1,598, , % 27.9% - 6,000 (43,000) Southwest Beltway ,413,473 1,098, % 24.9% - 26,000 (29,000) East Ft Bend Co. / Sugar Land 21 1,906, , % 17.1% - (4,000) 48,000 Southwest Fwy / Sugar Land 69 7,918,168 1,788, % 23.6% - 28,000 (24,000) Bellaire 18 2,781, , % 4.7% - 11,000 22,000 Post Oak Park 20 2,154, , % 18.6% - 4,000 48,000 Galleria 24 3,745, , % 7.1% - 49,000 (15,000) Riverway 9 870, , % 14.7% - 5,000 2,000 Richmond / Fountainview 7 559, , % 31.7% - 2,000 5,000 San Felipe / Voss 30 3,326, , % 8.9% - (10,000) (19,000) West Loop ,438,193 1,352, % 10.4% - 61,000 43,000 Westchase 53 7,301, , % 9.3% - (146,000) (31,000) The Woodlands 50 4,491, , % 4.3% - (40,000) 174,000 Conroe 9 619,727 87, % 14.1% ,000 TOTAL - Houston ,782,973 11,342, % 12.4% - (169,000) 846,000 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 12 REAL ESTATE OUTLOOK HOUSTON METRO

13 Houston Office Market Indicators - Asking Rental Rates SUBMARKET 2011 CLASS A 2011 CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B % CHANGE 12/13-09/14 CLASS A % CHANGE 12/13-09/14 CLASS B Central Business District $36.68 $23.61 $38.18 $25.06 $39.32 $25.99 $42.86 $ % 7.6% Midtown $28.77 $22.49 $30.12 $24.07 $30.32 $26.03 $36.01 $ % 3.2% Downtown $35.61 $23.49 $37.09 $24.96 $38.10 $25.99 $42.10 $ % 7.1% FM 1960 / I-45 North - $ $ $ $ % FM 1960 / Champions - $ $ $ $ % FM 1960 / Highway 249 $25.35 $21.22 $24.34 $20.39 $25.71 $20.80 $27.01 $ % -0.5% FM 1960 $25.35 $13.90 $24.34 $14.92 $25.71 $15.48 $27.01 $ % 1.8% North Belt West/Greenspoint $20.73 $15.95 $23.76 $16.44 $29.51 $15.63 $30.23 $ % 0.6% Greenspoint / IAH $20.72 $16.25 $20.47 $16.38 $21.36 $16.34 $21.62 $ % -6.9% Greenspoint / North Belt $20.73 $15.99 $22.85 $16.43 $27.24 $15.73 $28.57 $ % -0.5% Greenway Plaza $28.70 $21.43 $30.22 $23.29 $32.11 $23.72 $36.50 $ % 5.3% Gulf Freeway/Pasadena - $ $ $ $ % Katy Freeway East $33.97 $17.74 $35.45 $21.38 $35.52 $21.79 $36.90 $ % 6.2% Katy Freeway West $32.40 $18.80 $31.62 $19.55 $33.69 $20.52 $35.17 $ % 9.9% Katy Fwy / Energy Corridor $32.73 $18.30 $32.44 $20.41 $34.08 $21.12 $35.40 $ % 8.5% Kingwood / Humble $30.10 $19.28 $32.13 $18.50 $32.13 $19.00 $32.13 $ % 0.0% NASA / Clear Lake $24.40 $19.42 $23.57 $19.40 $23.58 $18.33 $24.72 $ % 2.5% Northeast - $ $ $ $ % North Loop West $23.13 $16.84 $25.18 $16.57 $23.81 $18.25 $26.74 $ % 11.2% Northwest Near - $ $ $ $ % Northwest Far $24.63 $16.04 $22.10 $17.35 $25.71 $16.77 $26.11 $ % 9.7% Northwest $23.79 $16.44 $23.83 $16.93 $24.64 $17.52 $26.47 $ % 10.4% South Main / Medical Center $29.75 $23.86 $29.72 $23.42 $28.54 $24.00 $28.14 $ % 3.2% Southwest / Hillcroft $21.16 $14.24 $21.24 $14.61 $21.75 $14.18 $22.18 $ % -1.8% Southwest Beltway 8 $25.11 $16.18 $24.70 $16.37 $23.24 $16.68 $22.13 $ % 0.0% East Ft Bend Co. / Sugar Land $27.78 $18.83 $27.22 $19.98 $26.68 $21.32 $26.84 $ % 0.1% Southwest Fwy / Sugar Land $25.75 $16.05 $25.37 $16.41 $24.95 $16.67 $25.00 $ % -0.3% Bellaire $24.34 $20.86 $25.06 $20.43 $25.86 $21.08 $26.49 $ % 5.4% Post Oak Park $32.32 $21.17 $32.48 $24.40 $35.43 $26.36 $35.89 $ % 2.8% Galleria $31.22 $22.71 $34.36 $23.90 $35.70 $26.70 $36.84 $ % 2.1% Riverway $26.55 $19.91 $29.57 $22.02 $30.82 $23.72 $31.88 $ % 5.3% Richmond / Fountainview - $ $ $ $ % San Felipe / Voss $31.77 $19.99 $32.70 $20.96 $32.44 $22.40 $33.81 $ % -0.1% West Loop $30.69 $20.40 $32.89 $21.99 $34.25 $23.68 $35.31 $ % 2.8% Westchase $26.83 $17.80 $34.27 $18.22 $35.38 $19.75 $37.31 $ % 5.7% The Woodlands $34.69 $22.75 $35.37 $23.79 $35.95 $23.38 $37.14 $ % 14.6% Conroe $30.67 $19.52 $29.54 $23.96 $28.42 $25.73 $28.40 $ % -2.3% TOTAL - Houston $29.99 $18.60 $31.56 $19.46 $32.71 $19.96 $34.52 $ % 4.2% SUBMARKET 2011 CLASS AA CLASS AA CLASS AA CLASS AA % CHANGE 12/13-09/14 CLASS AA Central Business District $45.32 $46.77 $ % Galleria $41.79 $44.93 $ % SOURCE Transwestern analysis of CoStar data - rents for properties using triple net terms have been grossed up to full service with operating expense data, rents reflect full service equivalent NOTE Asking rents for Class AA assets have been separated out for two submarkets due to the large differential in rental rates for this class. REAL ESTATE OUTLOOK HOUSTON METRO 13

14 HOUSTON METRO MARKET INDUSTRIAL Warehouse/Distribution sector remains dominant Net absorption of industrial space again totaled 2.3 million SF for the quarter, for a year-to-date total of close to 6.9 million SF. The Houston metro s ever increasing visibility and strong distribution channels are resulting in high absorption and development of warehouse space. This trend has been very evident in recent quarters with warehouse/distribution space accounting for the majority of industrial space absorbed. Notable 3 rd quarter leases: DB Schenker - 150,000 SF prelease, Kenswick AirFreight & Logistics Centre, North Far submarket Office Furniture Connection - 125,278 SF new lease, Almeda Rd, South Far submarket American Tile & Stone - 121,795 SF new lease, ClayPoint Distribution Park, Northwest Near submarket Composite Advanced Technologies - 80,625 SF new lease, 8441 E Orem Dr, South Far submarket Salvation Army - 70,000 SF renewal, West by Northwest Industrial Park, Northwest Near submarket Industrial vacancy dips in Q3 The overall industrial vacancy rate (including sublet) is 4.6% for the third quarter, down from 5.0% in the second quarter. Direct vacancy is also 4.6%, down from 4.9% last quarter. All sectors of space recorded positive absorption, as well as a drop in vacancy rates for the quarter, reflecting the high demand. Houston s industrial vacancy rate will likely rise slightly to the low-5% range over the next 12 months, as high demand keeps pace with new supply delivered. The development pipeline is expected to continue at this level in the period ahead given the market s strong demand and low vacancy rate. SUPPLY AND DEVELOPMENT Pipeline soars higher There is 5.2 million SF of industrial space under construction in the Houston area for the third quarter, compared to 4.5 million SF last quarter. This space is 18% preleased. The Northwest Far and North Far submarkets account for 88% of this space, about 4.6 million SF, and warehouse/distribution product comprises 96% of the space under construction. The largest project under construction is a 441,000 SF warehouse/distribution facility in Beltway Crossing Northwest in the Northwest Far submarket. With the development pipeline at only 1.9% of standing inventory, investors continue to break ground on new projects. RENTAL RATES Asking rents hold steady Asking rental rates for all sectors remain at $5.93 per SF, triple net, in the third quarter, from $5.92 per SF, triple net, in the second quarter. Quoted base rents for new distribution space are between $4.92 and $5.24 per SF, triple net, and typically include an initial allowance of $5.00-$6.00 per SF for improvements. Net absorption by sector SECTOR Flex Manufacturing Warehouse/Distribution Vacancy by sector 198,000 SF 198,000 SF 1,910,000 SF SECTOR DIRECT OVERALL Flex 6.7% 6.8% Manufacturing 2.0% 2.0% Warehouse/ Distribution 4.9% 4.9% Industrial space under construction SUBMARKET SF % PRE- LEASED East-Southeast Far 117,334 47% North Far 1,662,963 31% North Near 120, % Northeast Near 40,000 50% Northwest Far 2,891,792 7% Northwest Near - - South Far 219,841 0% Southwest Far 26,250 0% Southwest Near 90,000 0% Sugar Land 31,000 0% Total 5,199,180 18% 14 REAL ESTATE OUTLOOK HOUSTON METRO

15 Sustained high demand should support moderate rent increases for the period ahead, particularly in the warehouse/distribution sector. The Houston industrial market is one of the healthiest in the U.S. and one of the best-positioned for future rent growth. INDUSTRIAL NET ABSORPTION AND HOUSTON METRO AREA 14, % INVESTMENT MARKET Transaction volume slows after mid-year The Houston metro recorded $130.7 million in total industrial investment sales transactions during the third quarter, bringing the mid-year total to $786 million. These are assets for which pricing information could be obtained. Overall pricing averaged $63 per SF this quarter, compared to $65 per SF for the second quarter. Cap rates covered a wide range depending on the type and class of product sold. Class A properties sold in the 5-6% range for the third quarter, while Class B product traded in the 7-9% range. However, well-located Class A distribution projects are currently trading in the low-5% range, and in some cases, well-positioned Class A assets are dipping into the high-4% range. Active industrial buyers continue to be Clarion, TA Realty, Stockbridge, Prologis, Invesco, Liberty, TIAA-CREF, Duke, Cornerstone and IIT. Houston is now considered a gateway city by the investor community, and many investment funds have allocated capital ready to invest. This, coupled with a lack of quality product on the market, will continue to keep downward pressure on cap rates as long as interest rates remain low. Investor demand for industrial properties in Houston will remain strong with the abundance of capital (core and value-add funds) chasing industrial product. INDUSTRIAL MARKET OUTLOOK For the period ahead, we expect continued strong performance from the Houston industrial market. Vacancy should remain constant or edge upward slightly as construction accelerates to meet demand. In the near term, if construction remains in check, industrial rents will rise, and market conditions will turn further in favor of landlords. Industrial submarkets likely to outperform the market in the months ahead include: North, Northwest, South, Southeast and West. As the Houston economy continues to far outpace the national, the need for industrial space will grow further over the intermediate to long-term. Net Absorption in Thousands of SF 12,000 10,000 8,000 6,000 4,000 2,000 0 Note: Delivery of pre-leased space counts as positive net absorption * 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% Direct Vacancy Rate SOURCE CoStar, Transwestern *Through Multi-tenant market vs Transwestern comprehensive market coverage MULTI- TENANT ENTIRE MARKET Inventory MSF MSF Overall Vac 9.0% 4.6% Q3 Net absorption 1.4 MSF 2.3 MSF WHY OUR METHODOLOGY IS THE BEST INDICATOR OF CURRENT MARKET CONDITIONS We include owner occupied and single-tenant buildings in our inventory, vacancy and absorption statistics to capture more market activity than many of our competitors. This allows us to better correlate changes in the market with changes in employment. As single-tenant space does compete with multi-tenant space, we believe it is critical to understand all components of the market. The inclusion of single-tenant and owner-occupied space tends to yield lower vacancy rates and higher absorption totals than some of our competitors results, but our coverage of the market is more comprehensive. Notable 3 rd Quarter Transactions PROPERTY SUBMARKET SALE PRICE SELLER BUYER Interport II East-Southeast Far $36.85 million ($50/SF) CalSTRS Prologis 1601 Gillingham Sugar Land $16.6 million ($45/SF) Northstar Commercial Partners Dalfen America Corp Prologis Park NorthPark North Far undisclosed JA Billipp Co Prologis REAL ESTATE OUTLOOK HOUSTON METRO 15

16 HOUSTON METRO MARKET Houston Industrial Market Indicators SUBMARKET Central Business District INVENTORY SF AVAILABLE IMMEDIATELY DIRECT DIRECT WITH SUBLET UNDER CONSTRUCTION NET ABSORPTION NET ABSORPTION YTD 2014 Flex/R & D 583,281 48, % 8.3% 8.3% - 12,000 11,000 Manufacturing 6,137,612 30, % 0.5% 0.5% Warehouse/Distribution 23,497,545 1,456, % 6.2% 6.2% Total - Central Business District 30,218,438 1,535, % 5.1% 5.1% - 12,000 11,000 East-Southeast Far Flex/R & D 1,850, , % 6.6% 6.6% - 67,000 39,000 Manufacturing 6,195, , % 5.1% 5.1% - 2, ,000 Warehouse/Distribution 36,732,918 3,122, % 8.5% 8.5% 117, ,000 1,041,000 Total - East-Southeast Far 44,778,610 3,560, % 8.0% 8.0% 117, ,000 1,209,000 North Far Flex/R & D 8,088, , % 7.4% 7.4% - (40,000) 110,000 Manufacturing 7,459,233 96, % 1.3% 1.3% ,000 Warehouse/Distribution 42,608,620 3,579, % 8.4% 8.4% 1,662,963 21,000 1,076,000 Total - North Far 58,156,827 4,274, % 7.4% 7.4% 1,662,963 (19,000) 1,274,000 North Near Flex/R & D 1,097,470 98, % 9.0% 9.0% - 5,000 39,000 Manufacturing 3,163, , % 3.6% 3.6% 120,000-62,000 Warehouse/Distribution 13,243, , % 7.1% 7.1% - 26, ,000 Total - North Near 17,504,441 1,152, % 6.6% 6.6% 120,000 31, ,000 Northeast Far Flex/R & D 22, % 0.0% 0.0% Manufacturing 182, % 0.0% 0.0% Warehouse/Distribution 859, % 0.0% 0.0% - - 4,000 Total - Northeast Far 1,064, % 0.0% 0.0% - - 4,000 Northeast Near Flex/R & D 419,469 26, % 6.2% 6.2% - 13,000 19,000 Manufacturing 5,931, % 0.0% 0.0% ,000 Warehouse/Distribution 23,710, , % 2.1% 2.1% 40, ,000 44,000 Total - Northeast Near 30,061, , % 1.7% 1.7% 40, ,000 87,000 Northwest Far Flex/R & D 4,798, , % 3.0% 3.4% 44,000 (4,000) 74,000 Manufacturing 8,871, , % 1.8% 1.8% - 144, ,000 Warehouse/Distribution 44,664,582 2,143, % 4.8% 4.8% 2,847, ,000 1,048,000 Total - Northwest Far 58,334,324 2,447, % 4.2% 4.2% 2,891, ,000 1,445,000 Northwest Near Flex/R & D 10,791, , % 8.0% 8.4% - 54, ,000 Manufacturing 9,289, , % 2.9% 2.9% - (46,000) (210,000) Warehouse/Distribution 66,788,433 2,003, % 3.0% 3.1% - 283, ,000 Total - Northwest Near 86,869,130 3,136, % 3.6% 3.7% - 291, ,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 See next page for balance of industrial indicators. 16 REAL ESTATE OUTLOOK HOUSTON METRO

17 Houston Industrial Market Indicators SUBMARKET South Far INVENTORY SF AVAILABLE IMMEDIATELY DIRECT DIRECT WITH SUBLET UNDER CONSTRUCTION NET ABSORPTION NET ABSORPTION YTD 2014 Flex/R & D 1,303,105 24, % 1.9% 1.9% - 21,000 (7,000) Manufacturing 6,675,011 66, % 1.0% 1.0% - 80, ,000 Warehouse/Distribution 21,371, , % 2.6% 2.7% 219, , ,000 Total - South Far 29,349, , % 2.2% 2.3% 219, , ,000 South Near Flex/R & D 689, , % 18.6% 18.6% - 34,000 45,000 Manufacturing 1,509, , % 6.7% 6.7% ,000 Warehouse/Distribution 9,955, , % 3.4% 3.4% - 50, ,000 Total - South Near 12,154, , % 4.7% 4.7% - 84, ,000 Southeast Near Flex/R & D 363,962 40, % 11.0% 11.0% - 4,000 (16,000) Manufacturing 9,947, % 0.0% 0.0% - 30,000 40,000 Warehouse/Distribution 20,423, , % 2.3% 2.3% - 82, ,000 Total - Southeast Near 30,734, , % 1.7% 1.7% - 116, ,000 Southwest Far Flex/R & D 1,502, , % 8.7% 8.7% 26,250 (9,000) 84,000 Manufacturing 1,580, , % 8.7% 8.7% - 28,000 15,000 Warehouse/Distribution 6,012, , % 3.7% 3.7% - (24,000) (57,000) Total - Southwest Far 9,095, , % 5.4% 5.4% 26,250 (5,000) 42,000 Southwest Near Flex/R & D 6,602, , % 5.8% 5.8% - 53, ,000 Manufacturing 4,608, , % 3.1% 3.1% - 5,000 (4,000) Warehouse/Distribution 27,355, , % 3.2% 3.2% 90, ,000 (110,000) Total - Southwest Near 38,566,794 1,401, % 3.6% 3.6% 90, ,000 - Sugar Land Flex/R & D 3,082, , % 4.6% 4.7% - (12,000) (12,000) Manufacturing 2,510,135 45, % 1.8% 1.8% - (45,000) (45,000) Warehouse/Distribution 12,353, , % 7.5% 7.5% 31,000 25,000 74,000 Total - Sugar Land 17,945,559 1,113, % 6.2% 6.2% 31,000 (32,000) 17,000 Houston Flex/R & D 41,194,378 2,749, % 6.7% 6.8% 70, , ,000 Manufacturing 74,061,705 1,480, % 2.0% 2.0% 120, , ,000 Warehouse/Distribution 349,577,533 17,132, % 4.9% 4.9% 5,008,930 1,910,000 5,396,000 Total - Houston 464,833,616 21,361, % 4.6% 4.6% 5,199,180 2,306,000 6,866,000 Vacancy Rate with Sublet Space 4.3% 4.6% 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 REAL ESTATE OUTLOOK HOUSTON METRO 17

18 HOUSTON METRO MARKET RETAIL JOB GROWTH HOUSTON METRO AREA Jobs in Thousands * SOURCE U.S. Bureau of Labor Statistics, Transwestern *12-month employment change through August 2014 RETAIL RATE TRENDS HOUSTON METRO AREA 17% 16% 15% 14% Vacancy Rate 13% 12% 11% 10% 9% 8% * SOURCE O Connor & Associates, Transwestern *Through AVERAGE RETAIL RENTAL RATE HOUSTON METRO AREA $19.00 $18.50 Average Rental Rate ($ per SF) $18.00 $17.50 $17.00 $16.50 $ * SOURCE O Connor & Associates, Transwestern *Through RETAIL Retail sector thriving Houston s retail market continues to gain momentum and further growth is anticipated in the period ahead. The retail sector added 4,400 jobs over the 12 months ending in August, a 1.5% increase. Retail employment should continue to rise as consumer spending remains high and the regional economy flourishes. Houston s retail sector is supported by one of the nation s best regional economies and high metro area employment gains. Grocery-anchored properties and mixed-use projects continue to draw investors and drive new development. In addition, there are major expansions underway at The Galleria and Baybrook malls at a time when enclosed-mall construction is stagnant in the rest of the U.S. Retail vacancy drops in Q3 Retail vacancy is 9.7% for the third quarter, down slightly from 9.8% last quarter. We expect vacancy to remain steady or decline modestly in the period ahead as the market tightens and construction activity ramps up. Both established Houston-area retailers and tenants new to the metro are seeking unique, quality spaces to capitalize on the growing market. RENTAL RATES Rents on the rise Retail rents for all classes of space increased to $17.26 per SF for the second quarter, from $17.16 last quarter, though rents will vary greatly by a number of factors including property type and location. With occupancy up and prime space in high demand, rents are on the rise, especially in well-located pad and end-cap spaces. Retail rents will likely experience moderate growth through the end of 2014 and into 2015, as consumer spending accelerates and market conditions remain strong. GROSS SALES Retail sales strong The most recent data from the Texas Comptroller s Office shows that gross retail sales in the Houston metro are on pace for $124.0 billion in sales, compared to $116.4 billion recorded in. Retail sales should continue to grow throughout the metro in the period ahead, in part due to Houston s growing population base and employment gains. 18 REAL ESTATE OUTLOOK HOUSTON METRO

19 INVESTMENT MARKET Transaction volume strong Retail investment sales activity totaled $268.1 million in the third quarter for transactions where pricing information was available. In comparison, recorded sales volume for last quarter was $335.6 million. RETAIL MARKET OUTLOOK A growth cycle in the retail market should continue in the period ahead making investment, especially in grocery-anchored centers, very attractive. Retail and restaurant tenants are flocking to urban infill locations as metro job growth has caused residential construction to amp up. Neighborhoods such as Montrose and The Heights should continue to see increased activity as investors commit capital in high-performing areas. Grocery chains are under construction in key locations throughout the metro, including HEB, Kroger, Whole Foods, Trader Joe s and Costco, further expanding their market presence. Also, fast casual concepts like Mod Pizza, Torchy s Tacos, Raising Cane s and Chipotle are among many that are quickly snatching up retail space. Mixed-use projects such as the River Oaks District development and Uptown Park redevelopment are further defining the live-work-play dynamic in the Houston market. GROSS RETAIL SALES HOUSTON METRO AREA Total Gross Retail Sales (Billions of $) $130 $120 $110 $100 $90 $80 $70 $ * SOURCE Texas Comptroller s Office, Transwestern *Through Q1 2014, annualized REAL ESTATE OUTLOOK HOUSTON METRO 19

20 HOUSTON METRO MARKET MULTIFAMILY Flurry of activity continues Houston remains a safe and attractive market for multifamily investment with its long-term job market success and the nation s sixth-lowest median age of housing inventory, trailing behind the Bay Area/Silicon Valley, Seattle and Denver. Currently, there are over 24,000 units under construction and another 18,000 proposed. Houston has absorbed 8,760 units over the last six months and rental rates have increased 9.5% over the same period. With the enduring velocity of job creation, Houston should continue to experience success across all multifamily asset classes. OCCUPANCY Occupancy remains consistent Houston s multifamily market averaged occupancy of 91.0% in the third quarter, identical to same period in. During the third quarter, the largest occupancy increases occurred in the following submarkets (figures are on an annualized basis): Heights %, Inner Loop West - 9.9%, Medical Center/Bellaire - 9.0% and Conroe/Montgomery - 5.7%. Class B properties posted the highest occupancies, averaging 93.7%, followed by Class C at 93.5%, Class D at 87.7% and Class A properties at 81.7%. The top occupied submarkets in the third quarter were Galena Park/Jacinto City %, Friendswood/ Pearland %, Bear Creek/ Copperfield %, Gulfton/Bissonnet % and Lake Houston/Kingwood %. APARTMENT OCCUPANCY QUARTERLY 91.5% 91.0% 90.5% 90.0% 89.5% 89.0% 88.5% 2Q 3Q 4Q 1Q APARTMENT ABSORPTION QUARTERLY 7,000 6,000 5,000 4,000 3,000 2Q 3Q 4Q 1Q Q Q 2014 SOURCE Apartment Data Services, Transwestern ABSORPTION Absorption dips in Q3 Third quarter absorption fell to 3,539 units, from 5,221 units absorbed in the second quarter. The decrease in absorption is due to the natural seasonal downturn experienced yearly between the second and third quarter. Submarkets with the highest absorption levels were: Katy/Far West units, Woodlands Far North units, Medical Center/Bellaire units and Inner Loop West/Greenway Plaza units. 14,760 units have been absorbed in 2014, while 16,153 units were absorbed over the same period last year. 2,000 1, Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Q Q 2014 SOURCE Apartment Data Services, Transwestern 20 REAL ESTATE OUTLOOK HOUSTON METRO

21 RENTAL RATES Rents on the rise Average effective rents ended the quarter at $920 per unit, $1.05 per SF, compared to $904 per unit, $1.03 per SF, in the previous quarter. Rental rates, on an annualized basis, have increased 6.9% over the past three months, 9.5% over the past six months and 8.8% over the past twelve months. The submarkets registering the highest annualized rental rate growth in the third quarter are Galena Park/Jacinto City %, Lake Houston/Kingwood %, Westchase %, Galveston/Brazoria % and Bear Creek/ Copperfield %. Concessions were reported in 24% of the market with the average special offered at 4.8%. The third quarter marked the 19th consecutive period of effective rental rate increases since the fourth quarter of APARTMENT RENTS/UNIT QUARTERLY $940 $920 $900 $880 $860 $840 $820 $800 $780 $760 $740 $720 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Q Q 2014 SOURCE Apartment Data Services, Transwestern SUPPLY AND DEVELOPMENT Construction of communities still soaring 20,197 units, comprised of 73 communities, have delivered in the past twelve months and 24,562 units in 85 communities are currently under construction. Proposed construction is currently at 18,282 units, 61 communities, of which 49% is concentrated in the following four submarkets: Montrose/Museum District - 3,476 infill units, Katy/Far West - 3,192 suburban units, West Memorial/Briar Forest - 3,134 suburban units and Inner Loop West/Greenway Plaza - 2,158 infill units. APARTMENT RENTS/SF QUARTERLY $1.100 $1.050 $1.000 $0.950 INVESTMENT MARKET Sales grow through quarter Third quarter sales continued to strengthen with 60 properties sold, comprised of 14,270 units, compared to 57 buildings, comprised of 12,975 units in the second quarter. While sales velocity and pricing are positive across all multifamily asset classes, assets with a value-add play continue to be the most attractive deals to investors. Demand for multifamily assets, readily available debt and projected rental increases across the market have kept cap rates in the 5-7% range. $0.900 $0.850 $ Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Q Q 2014 SOURCE Apartment Data Services, Transwestern REAL ESTATE OUTLOOK HOUSTON METRO 21

22 HOUSTON METRO MARKET Houston Multifamily Market Indicators SUBMARKET # OF APT. COMMUNITIES # OF APT. UNITS AVERAGE OCCUPANCY AVERAGE UNIT/SF AVG. EFFECTIVE RENT/ MONTH AVG. EFFECTIVE RENT/SF UNITS UNDER CONSTRUCTION UNITS ABSORBED 1 Montrose/Museum District 54 13, % 924 $1,632 $ , Inner Loop West/Greenway Plaza 66 15, % 960 $1,722 $ , Medical Center/Bellaire 71 20, % 877 $1,273 $ , Heights 20 3, % 842 $1,419 $ , Inner Loop East 56 8, % 822 $1,007 $ , Northshore/Wood Forest 40 8, % 812 $682 $ Eastex Frwy/Near Northeast 30 5, % 929 $751 $ Northline/Aldine 61 9, % 847 $651 $ Greenspoint 37 9, % 760 $589 $ FM 1960 East/IAH Airport 46 8, % 854 $765 $ Lake Houston/Kingwood 45 11, % 932 $1,022 $ Far East 28 4, % 930 $772 $ Brookhollow 94 20, % 828 $756 $ Spring Branch 98 18, % 917 $795 $ Inwood/Northwest 39 7, % 895 $723 $ FM 1960 West/ Champions , % 878 $809 $ FM 1960 West/Steeplechase 73 19, % 915 $970 $ Bear Creek/Copperfield 48 13, % 881 $856 $ Katy/Far West 67 17, % 952 $1,135 $ , Tomball/Far Northwest 25 5, % 930 $1,122 $ Woodlands/Far North 53 15, % 933 $1,140 $ Conroe/Montgomery 43 7, % 899 $849 $ Hwy 288/South 58 13, % 961 $962 $ Gulfgate/Almeda Mall 95 21, % 817 $686 $ Galena Park/Jacinto City % 740 $721 $ Pasadena/Deer Park , % 847 $717 $ Friendswood/Pearland 29 5, % 866 $897 $ Clear Lake 97 24, % 878 $934 $ Baytown 51 9, % 849 $726 $ Galveston/Brazoria , % 829 $738 $ Galleria , % 893 $1,267 $ , Woodlake/Westheimer 37 11, % 883 $985 $ West Memorial/Briar Forest 83 25, % 949 $1,112 $ , Westchase 48 14, % 835 $924 $ Alief , % 873 $775 $ Sharpstown/Westwood , % 791 $606 $ Gulfton/Bissonnet 58 16, % 810 $670 $ Braeswood/Fondren SW 84 21, % 839 $666 $ Almeda/South Main 22 4, % 848 $756 $ Fort Bend 47 12, % 945 $1,146 $ , Richmond/Rosenberg 28 4, % 861 $869 $ Greater Houston 2, , % 876 $920 $ ,562 3,539 SOURCE Apartment Data Services, Transwestern 22 REAL ESTATE OUTLOOK HOUSTON METRO

23 Houston Multifamily Communities Recently Opened SUBMARKET PROPERTY UNITS MOVE-INS 1 Inner Loop West/Greenway Plaza 21 Eleven Jan 2 Inner Loop West/Greenway Plaza Olympia At Willowick Park Dec 3 Far East Villas At Colt Run Nov 4 Inner Loop West/Greenway Plaza Sunrise By The Park Nov 5 Tomball/Far Northwest Modera Spring Town Center Nov 6 Galleria Hanover Post Oak Nov 7 Inner Loop West/Greenway Plaza Aria At Willowick Park Nov 8 Woodlake/Westheimer Vargos On The Lake Oct 9 West Memorial/Briar Forest Sunrise Briar Forest Oct 10 Katy/ Far West Grand Fountain Oct 11 Woodlands/Far North Broadstone Sierra Pines Oct 12 Galleria Astor Tanglewood Oct 13 Katy/ Far West Aldeia West Oct 14 Inner Loop West/Greenway Plaza 2929 Weslayan Oct 15 Tomball/Far Northwest Waterford Springs Sep 16 Inner Loop West/Greenway Plaza Townhomes At Willowick Park Sep 17 Woodlands/Far North Towers Woodland, The Sep 18 Fort Bend Telfair Lofts Sep 19 Montrose/Museum District Sovereign At Regent Square, The Sep 20 Inner Loop West/Greenway Plaza Sola Uptown River Oaks Sep 21 Hwy 288/South Radius At Shadow Creek Ranch Sep 22 Tomball/Far Northwest Fairfield Creek Estates Senior Sep 23 West Memorial/Briar Forest Arrabella Sep 24 Montrose/Museum District 3800 Main I Sep 25 Fort Bend Villas At Sienna Plantation Aug 26 Fort Bend Landmark At Grand Parkway, The Aug 27 West Memorial/Briar Forest Alexan Enclave Aug 28 Woodlands/Far North Alexan Auburn Lakes Aug Total 20,197 SOURCE Apartment Data Services, Transwestern REAL ESTATE OUTLOOK HOUSTON METRO 23

24 HOUSTON METRO MARKET Recent Houston Multifamily Sales PROPERTY SOLD SUBMARKET YEAR BUILT UNITS CLOSE DATE Pebble Brook Braeswood/Fondren SW Sep-14 Sugar Ridge Fort Bend 1985/ Sep-14 Woodbridge Crossing Alief Sep-14 Wyndham Oaks West Memorial/Briar Forest Sep-14 Westway Spring Branch Sep-14 Clay Creek Bear Creek/Copperfield Sep-14 Post Oak Park Inner Loop West/Greenway Sep-14 Alden Landing Woodlands/Far North Sep-14 The Plantation at the Woodlands Woodlands/Far North Sep-14 7 Square Galleria Sep-14 Yorktown Crossing Bear Creek/Copperfield Aug-14 The Grand on Memorial West Memorial/Briar Forest Aug-14 Constellation Pointe Apartments Clear Lake Aug-14 Cypress Parc FM 1960 West/Champions Aug-14 Cleme Manor Inner Loop East Aug-14 Hawthorne at South Shore Clear Lake Aug-14 Meadows Southwest Alief Aug-14 Richmond Chase Woodlake/Westheimer Aug-14 Live Oak Bend FM 1960 West/Champions Aug-14 Balboa Clear Lake Jul-14 Avenue R Galleria 392 Jul-14 Victoria Villas Gulfton/Bissonnet Jul-14 Chatham Village Clear Lake Jul-14 Woodcreek of Northwest Crossing Brookhollow Jul-14 Summerstone Alief Jul-14 Promenade Jersey Village FM 1960 West/Steeplechase 1994/ Jul-14 Residences at Cinco Ranch Katy/Far West Jul-14 Chestnut Hill Sharpstown/Westwood Jul-14 Kendall Manor FM 1960 East/IAH Airport Jul-14 Braeburn Colony Sharpstown/Westwood Jul-14 The Crosby at Westchase Westchase Jul-14 Marquis At Cinco Ranch I Katy/Far West Jul-14 Wynhaven at Hollister Inwood/Northwest Jul-14 Polo Club on Cranbrook FM 1960 West/Champions Jul-14 The Verano Alief Jul-14 Fairways at South Shore Clear Lake Jul-14 Lodge at Baybrook, The Friendswood/Pearland Jul-14 Champions Park FM 1960 West/Champions Jul-14 Cottages of Champions Forest FM 1960 West/Champions Jul-14 Tall Timbers Northshore/Woodforest Jul-14 Arrowood Alief Jul-14 SOURCE Apartment Data Services, Transwestern 24 REAL ESTATE OUTLOOK HOUSTON METRO

25 Houston Multifamily Under Construction SUBMARKET PROPERTY UNITS MOVE-INS Fort Bend Imperial Ballpark Lofts Nov Fort Bend Retreat At Riverstone, The Nov Inner Loop West/Greenway Plaza Gables Upper Kirby II & III Dec Katy/ Far West Grand Crossing Dec Katy/ Far West Sorrel Dec Galleria 1900 Yorktown Dec West Memorial/Briar Forest Parkside At Memorial Dec Montrose/Museum District Susanne, The Jan Heights Alexan Heights Jan Far East Newport Village Jan Katy/Far West Sovereign At Cinco, The Jan Woodlands/Far North One Lake's Edge Jan West Memorial/Briar Forest Aura Memorial Jan West Memorial/Briar Forest Domain West Jan FM 1960 West/Champions Parkside Place Feb Katy/Far West Vue Kingsland Feb Katy/Far West West Lake Park Feb Montrose/Museum District Dolce Living Midtown Mar Inner Loop West/Greenway Plaza Hanover Southampton High Rise Mar Inner Loop West/Greenway Plaza SkyHouse River Oaks High Rise Mar Inner Loop East 500 Crawford Mar Inner Loop East Texaco Building High Rise Mar Lake Houston/Kingwood Ravella At Kingwood Mar Galleria 2626 Fountain View Mar Galleria High Point Uptown Mar West Memorial/Briar Forest H Mar Westchase Heights At Westchase, The Mar Westchase Portico At West 8 Phase II Mar Fort Bend 7970 Grand Mar SOURCE Apartment Data Services, Transwestern; list includes communities with move-ins through Q CONTACT Rachel Alexander Director of Market Research Transwestern rachel.alexander@transwestern.com Alexander (Sandy) Paul, CRE Executive Vice President Delta Associates alexander.paul@deltaassociates.com METHODOLOGY The information in this report is the result of a compilation of information on office, industrial retail and multifamily properties located in the Houston metropolitan area. This report includes single-tenant, multi-tenant and owner-user office properties, excluding properties owned and occupied by a government agency West Loop South, Suite 1300 Houston, Texas T F Copyright 2014 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. Transwestern s research affiliate, Delta Associates, prepared the economic portion of this report, and Transwestern prepared the balance of the market analysis. The information contained in this report was gathered by Transwestern from various primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.