Houston s industrial market continues to expand

Research & Forecast Report HOUSTON INDUSTRIAL Q1 2017 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 Q1 2017 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 Q1 2016 Q4 2016 Q1 2017 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 2017. 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

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 Q1 2016. 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 Q1 2017 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 Q1 2017 Industrial Colliers International

Leasing Activity Houston s industrial leasing activity decreased 32% over the quarter from 5.3M SF in Q4 2016 to 3.6M SF in Q1 2017. The table below highlights some of the larger transactions that occurred in Q1 2017. Q1 2017 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 90 167,753 Exel 2 Mar-17 8203 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 Q1 2017 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 855,000 100% Panattoni Development Jul-17 BTS Amazon Fulfillment Center 8787 W Grand Pky N Northwest Outlier 800,000 100% Unknown Aug-17 BTS for FedEx Cedar Port Distribution Park East-Southeast Far 501,020 100% Clay Development Apr-17 Distribution Ikea 4830 Borusan Rd 1919 FM 565 Rd - Bldg 4 East-Southeast Far 500,000 100% A&F General Contractors Jul-17 BTS for Katoen Natie Carson Bayport 2 - Bldg 1-2 4121 Malone Dr Carson Bayport 3 - Bldg I-3 4111 Malone Dr 3730 S Main St South Hwy 35 210,000 100% American Commercial Contractors Beltway SW Business Park 4 14453 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 110,000 100% Pepperl+Fuchs Apr-17 BTS for Pepperl+Fuchs Carson Bayport 3 - Bldg I-1 4033 Malone Dr East-Southeast Far 107,291 0% Carson Co Apr-17 Spec Warehouse 3 Houston Research & Forecast Report Q1 2017 Industrial Colliers International

Market Summary Q1 2017 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 28,563,479 5.3% 1,382,319 0.3% 29,945,798 5.6% 1,657,760 1,939,520 3,435,460 2,237,980 4,909,420 CBD-NW Inner Loop 11,566,399 429,495 3.7% 103,671 0.9% 533,166 4.6% (23,045) (66,612) - - - Downtown 31,100,901 1,726,912 5.6% - 0.0% 1,726,912 5.6% (159,229) (74,078) - - - North Inner Loop 4,838,090 231,405 4.8% - 0.0% 231,405 4.8% 17,500 (9,300) - - - Southwest Inner Loop 7,184,578 47,601 0.7% - 0.0% 47,601 0.7% (12,015) (11,836) - - - INNER LOOP CORRIDOR 54,689,968 2,435,413 4.5% 103,671 0.2% 2,539,084 4.6% (176,789) (161,826) - - - North Fwy/Tomball Pky 22,076,554 2,502,462 11.3% 31,906 0.1% 2,534,368 11.5% 208,852 46,705 34,715 70,000 880,000 North Hardy Toll Rd 33,483,975 3,487,621 10.4% 213,955 0.6% 3,701,576 11.1% (146,629) 273,752 49,700 253,125 19,700 North Outer Loop 19,759,301 975,451 4.9% 54,560 0.3% 1,030,011 5.2% (391) (11,354) - - 35,000 The Woodlands/Conroe 16,940,867 1,048,633 6.2% 14,600 0.1% 1,063,233 6.3% (184,707) (54,700) - 11,875 79,450 NORTH CORRIDOR 92,260,697 8,014,167 8.7% 315,021 0.3% 8,329,188 9.0% (122,875) 254,403 84,415 335,000 1,014,150 Northeast Hwy 321 1,298,073 37,700 2.9% - 0.0% 37,700 2.9% - - - - - Northeast Hwy 90 17,791,968 318,777 1.8% - 0.0% 318,777 1.8% (60,134) (60,680) 20,088 - - Northeast I-10 3,858,361 95,949 2.5% - 0.0% 95,949 2.5% (11,796) (28,689) - - - Northeast Inner Loop 11,563,222 260,056 2.2% 98,031 0.8% 358,087 3.1% 265,719 (62,628) - - - NORTHEAST CORRIDOR 34,511,624 712,482 2.1% 98,031 0.3% 810,513 2.3% 193,789 (151,997) 20,088 - - Hwy 290/Tomball Pky 20,682,281 1,754,580 8.5% 304,919 1.5% 2,059,499 10.0% 170,974 681,007 212,950 12,000 15,300 Northwest Hwy 6 9,284,346 268,179 2.9% - 0.0% 268,179 2.9% (30,025) (1,854) 20,250 25,339 10,000 Northwest Inner Loop 59,908,372 2,469,025 4.1% 134,252 0.2% 2,603,277 4.3% (301,287) (117,868) - - 19,000 Northwest Near 17,934,378 707,693 3.9% - 0.0% 707,693 3.9% 61,921 81,105 - - - Northwest Outlier 19,543,230 1,437,240 7.4% 17,595 0.1% 1,454,835 7.4% 95,559 107,146 11,322 74,840 1,063,790 West Outer Loop 25,068,751 1,068,780 4.3% 102,701 0.4% 1,171,481 4.7% (57,472) 27,322 33,450-133,600 NORTHWEST CORRIDOR 152,421,358 7,705,497 5.1% 559,467 0.4% 8,264,964 5.4% (60,330) 776,858 277,972 112,179 1,241,690 South Highway 35 33,851,543 977,353 2.9% 27,500 0.1% 1,004,853 3.0% 90,363 (2,387) 64,800 120,000 257,290 South Inner Loop 12,318,931 565,580 4.6% - 0.0% 565,580 4.6% (30,639) (81,162) - - - SOUTH CORRIDOR 46,170,474 1,542,933 3.3% 27,500 0.1% 1,570,433 3.4% 59,724 (83,549) 64,800 120,000 257,290 East I-10 Outer Loop 13,598,951 76,700 0.6% - 0.0% 76,700 0.6% (23,090) (18,310) - - - East-Southeast Far 58,747,505 3,802,293 6.5% 30,000 0.1% 3,832,293 6.5% 1,702,644 1,061,986 2,752,785 624,160 1,739,258 Southeast Outer Loop 17,218,622 388,109 2.3% 125,000 0.7% 513,109 3.0% (20,577) (173,506) - - - SOUTHEAST 89,565,078 4,267,102 4.8% 155,000 0.2% 4,422,102 4.9% 1,658,977 870,170 624,160 1,739,258 CORRIDOR 2,752,785 Highway 59/Highway 22,461,495 1,574,918 7.0% 99,966 0.4% 1,674,884 7.5% 79,909 (116,450) 95,400 324,860 351,960 90 Southwest Far 12,355,088 1,143,063 9.3% 18,463 0.1% 1,161,526 9.4% 244,433 569,269 140,000 699,715 244,072 Southwest Outer Loop 13,170,015 580,717 4.4% - 0.0% 580,717 4.4% (178,321) 41,920-12,000 - Sugar Land/Ft Bend Co 20,913,100 587,187 2.8% 5,200 0.0% 592,387 2.8% (40,757) (59,278) - 10,066 61,000 SOUTHWEST CORRIDOR 68,899,698 3,885,885 5.6% 123,629 0.2% 4,009,514 5.8% 105,264 435,461 235,400 1,046,641 657,032 4 Houston Research & Forecast Report Q1 2017 Industrial Colliers International

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 2016. Photo source: porthouston.com Q1 2017 Highlights FOR MORE INFORMA Lisa Bridges Director of Market Research Houston +1 713 830 2125 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 000 1233 Address, West Loop Suite South, # Suite 900 000 Houston, Address, Texas Suite 77027 # +1 000 713 222 0002111 0000 colliers.com/<<market>> colliers.com/texas/houston 5 North American Research & Forecast Report Q4 2014 Office Market Outlook Colliers International