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NAI Houston Office Report | First Quarter 2012

1900 West Loop South, Suite 500 Houston, TX 77027

tel 713 629 0500 www.naihouston.com

Houston: Office Report

CITYWIDE OFFICE LEASING STATISTICS: ABSORPTION: Measure of Demand in Square Footage for Office Space Total net absorption for 2012 YTD = +1,635,072 SF

• The Class A buildings recorded net positive absorption of 1.742M SF, while Class B buildings actually posted a slightly negative absorption of 84,531 SF.

VACANCY:

• Decreased to 12.5% to end Q1-2012 citywide for all Class A, B &C buildings. • Vacancy Rates for the last 3 quarters have been as follows: Q4-2011= 12.8% Q3-2011= 13.2% Q2-2011= 13.5% • Class A projects reported a 11.4% Vacancy Rate citywide. • Class B projects reported a 14.1% Vacancy Rate citywide. • Overall Vacancy Rates downtown decreased to 12%.

RENTAL RATES: All Building Classes A, B, & C Combined

• Quoted rental rates up in last 12 months (from $23.02/SF in Q1 2011 to $23.60/SF ending Q1 2012) • Landlord concessions like free rent, parking charge abatements, etc. are on the decline.

NEW CONSTRUCTION: All Building Classes A, B, & C Combined

• Going into Q2 2012, there are 2,332,779* square feet of new office buildings under construction. • By comparison, Q2 2008 had 11,201,715* square feet of new office buildings under construction.

*This significant difference in new construction numbers between Q2 2008 and Q1 2012 is mostly attributed to lending restrictions during the last 4 years. SALES:

• The average price was $294.49/SF in Q4 2011. • Cap rates in Q4 2011 averaged 8.25% compared to 8.87% in Q4 2010. • Record breaking sale of the Hess Tower in Downtown Houston for $442.5 million at $523.81/SF at a

6.6% cap rate. SUBLEASE SPACE:

• In the last 12 months, inventory of sublease space available citywide has been reduced by 757,300

SF.



Source: CoStar Property®

Houston: Office Report Q1-2012 Statistics




Houston, TX—Citywide for all classes of Office Space

Office space statistical changes year over year and quarter over quarter:

OFFICE SPACE STATISTICAL

CHANGES QUARTER

Q4 2011 VS

Q1 2012:

Net Absorption Vacancy Rate Construction Asking Rents

OFFICE SPACE STATISTICAL

CHANGES YEAR

Q1 2011 VS

Q1 2012:

Net Absorption Vacancy Rate Construction Asking Rents




Total Employment Growth Highlight Total Number of Jobs Added Per Year

Recent Deliveries of Office Space (Houston, TX) Leased & Un-Leased SF in Deliveries Since 2006





Absorption & Deliveries for Class A, B & C Office Buildings City Wide Past 8 Quarters

Square Footage per Employee by Industry Based upon All Tenants

Source: CoStar Tenant®

* Measure of Demand

NAI Houston Office Report | First Quarter 2012

Submarket Reports

Absorption (Net) The change in occupied space in a given time period. Available Square Footage Net rentable area considered available for lease; excludes sublease space. Average Asking Rental Rate Rental rate as quoted from each building’s owner/management company. For office space, a full service rate was requested; for retail, a triple net rate requested; for industrial, a NN basis. Building Class Class A Product is office space of steel and con-crete construction, built after 1980, quality ten-ants, excellent amenities & premium rates. Class B product is office space built after 1980, fair to good finishes & wide range of tenants. Direct Vacancy Space currently available for lease directly with the landlord or building owner. Market Size Includes all existing and under construction office buildings (office, office condo, office loft, office medical, all classes and all sizes, both multi-tenant and single-tenant, including owner-occupied buildings) within each market. Overall Vacancy All physically unoccupied lease space, either di-rect or sublease. SF/PSF Square foot/per square foot, used as a unit of measurement. Sublease Arrangement in which a tenant leases rental prop-erty to another, and the tenant becomes the land-lord to the subtenant. Sublease Space Total square footage being marketed for lease by the tenant. Sublease Vacancy Space currently available in the market for sub-lease with an existing tenant within a building act-ing as the landlord. Source: CoStar Property

Downtown 5.5 million SF vacant

12% vacancy rate $31.86 SF/YR avg. rental

West Loop

1.9 million SF vacant 13.5% vacancy rate

$30.05 SF/YR avg. rental

Greenway Plaza 1.2 million SF vacant 9.9% vacancy rate

$24.88 SF/YR avg. rental

The information contained herein has been given to us by sources we deem reliable. We have no reason to doubt its accuracy, however, we do not make any guarantees. All information should be verified before relying thereon.

NAI Houston Methodology / Definitions / Submarket Map

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