2009 2q Houston Office Market Report

HOUSTON

OFFICE

SECOND QUARTER 2009

Office Market HOUSTON MARKET RESEARCH | SECOND QUARTER | 2009

Our Knowledge is your Property

OFFICE

HOUSTON

SECOND QUARTER 2009

COLLIERS INTERNATIONAL

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HOUSTON

Offi Market Office M k MARKET RESEARCH

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SECOND QUARTER

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2009

Houston Class A Office Buoys Market in Q2’09

MARKET INDICATORS Q2-08

Q2-09

Quarterly Net Absorption 862,176 SF (507,767) SF

Overall Gross Rental Rate $22.73 psf $23.18 psf Overall Vacancy 15.6%

12.9%

Class A Gross Rental Rate CBD $38.18 psf $38.78 psf Suburban $27.76 psf $27.59 psf

CBD 7.3% Suburban 12.2%

Class A Vacancy 8.4% 16.0%

Houston’s office market recorded stronger leasing and sales activity in the second quarter of 2009 compared to the first quarter, even as year-over-year vacancy increases and negative net absorption prevailed citywide. In sharp contrast to the previous office market downturn of 2001-2002 when the local Class A office sector was severely battered by the implosion of key energy and financial firms, Houston is currently experiencing a widening gap between Class A and B office properties at midyear 2009, with the latter bearing the brunt of the slowing particularlyy apparent pp in the Central Business District where economic conditions. This is p Class A office vacancy remains in the single-digits, while downtown Class B vacancy has reached over 20%. Also indicative of the property class dichotomy is the year-to-date 1.1 million sq. ft. of negative net absorption for suburban Class B properties, compared to 482,881 sq. ft. of positive net absorption for suburban Class A properties. While strong energy markets and robust job growth shielded the local economy – and by extension, the commercial office sector – from the deepening recession over the past several years, 2009 has h brought b h home h the h complexity l i off today’s d ’ interconnected i d global l b l markets k and d the limits to high commodity prices in the face of eroded global demand. Notwithstanding a slowdown in overall economic indicators – including job losses totaling 56,300 or negative 2.2% job growth in the twelve months ending in May 2009 – Houston remains undeniably among the least affected U.S. major metros. With energy and service-related firms representing a significant component of Houston’s prices – averaging g g $$70 p per office tenant base,, the recent volatilityy in crude oil commodityy p barrel in June 2009 – have benefited Class A office properties, with the top three office leases signed year-to-date representing energy-related firms. Other sectors, however, including professional and trade-related services, are not faring as well and are expected to continue contributing to rising negative job growth in the second half of 2009 and subsequent negative net absorption for the office sector.

JOB GROWTH & UNEMPLOYMENT May 08 May-08

May 09 May-09

ABSORPTION,, NEW SUPPLY & VACANCY RATES

3,000,000

HOUSTON

-2.2% Job Growth 56,300 jobs lost

2,500,000

Unemployment

4.4%

2,000,000

15%

1,500,000

13%

TEXAS

-2.1% Job Growth

1,000,000

222,400 jobs lost

500,000

6.9%

Unemployment

4.5%

6.9%

U.S.

-4.0% Job Growth 5,523,000 jobs lost

Unemployment

5.2%

9.1%

17%

11% 9%

0

7%

-500,000 -1,000,000

Q2-07

Q3-07

Q4-07

Q1-08

Absorption

Q2-08

Q3-08

Q4-08

New Supply

Q1-09

Q2-09

Vacancy

5% www.collierstexas.com

COLLIERS INTERNATIONAL

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OFFICE

HOUSTON

2009 TOP OFFICE LEASES NRG Texas Houston Pavilions, CBD Jun-09 232,962 SF Southwestern Energy One Commerce Green, North Belt May-09

101,330 SF

Washington Group International Richmond Park, Westchase Feb-09

96,225 SF

Quorum Business Solutions* Pinnacle Westchase, Westchase Mar-09

63,084 SF

LENNAR Homes** 550 Greens Parkway, North Belt Apr-09

55,643 SF

Goodrich Petroleum 801 Louisiana, CBD May-09 May 09

36,755 SF

The Automation Group** Town & Country Central, Katy Freeway May-09

33,112 SF

Vestas Technology R&D g Plaza,, CBD Heritage Mar-09

28,534 SF

*Renewal and expansion of 27,084 sq. ft. **Renewal

CBD VS. SUBURBAN Class A Office Vacancyy & Rents $42

16.5%

$40

15.0%

$38 13.5%

$36 $34

12.0%

$32 10.5%

$30 $28

9 0% 9.0%

$26 7.5%

$24

6.0%

$22 2Q-08

CBD3Q-08 Vacancy CBD Rents

4Q-08

Vacancy 1Q-09 Suburban 2Q-09 Suburban Rents

SECOND QUARTER 2009

Occupancy & Availability

Absorption & Demand

Houston office occupancy for all property classes continued to soften on both a quarterly and year-over-year basis at midyear 2009. Citywide, occupancy fell to 84.4% in the second quarter from 87.1% at this time last year. While CBD Class A office buildings continued to perform better than the market k t’s average g with ith 91 6% 91.6% occupancy, suburban Class A properties fell slightly below the average with 84.0% occupancy. In contrast, class B office buildings in both the CBD and combined suburban submarkets recorded the sharpest decreases in occupancy of all property classes. l S b b Class Suburban Cl B occupancy fell to 82.7% from 85.4% , while CBD Class B occupancy’s rate of decrease was even steeper at 78.1% from 81.5% one year earlier.

Houston s office market posted Houston’s 507,767 sq. ft. of negative net absorption citywide in the second quarter, bringing the year-to-date total to 838,140 sq. ft. of negative net absorption, well below the 941,290 sq. ft. of positive net absorption recorded through the second quarter last year. Although net absorption began to soften at the end of 2008, a significant weakening of tenant demand as evidenced by negative absorption did not occur until this year, simultaneously with Houston’s recent job losses that hit the market hard after three consecutive years of above-average job growth exceeding di mostt major j U.S. U S metros. t

As the occupancy numbers above indicate, Houston’s office market is experiencing an ever increasing gap between Class A and Class B properties, particularly in the CBD where Class A remains above the 90% mark, while Class B has declined below the 80% level. This trend is indicative of the recession’s effects on the local office market, where despite early dire forecasts regarding the energy sector in 2009 – a key component to Houston’s office tenant base – energy and servicerelated businesses appear to be holding their ground, while other sectors including professional and trade-related services are being dealt a stronger blow byy the gglobal recession. Recent volatility in energy prices has benefited the local economy and office market, and while prices for both oil and gas remain well below last year’s levels (over 50% lower), the overall outlook for the energy sector appears to be strengthening. Notably, the top three office leases signed year-to-date represent energy and energy-related firms, with increased market activity likely in the second half of this year.

Weak market demand was particularly pervasive among suburban Class B office properties with 1.1 million sq. ft. of negative net absorption year-to-date. Against the deep economic recession, net absorption is expected to remain l for low f the h remainder d off the h year.

Rental Rates Citywide, all office property classes – with the notable exception of CBD Class A – posted year-over-year rental rate decreases at the end of the second quarter. CBD Class A average quoted rental rates increased 1.6% to $38.78 per sq. ft. (from $38.18), while suburban Class A rental rates dipped 0.6% to $27.59 per sq. ft. (from $27.76). In contrast, CBD Class B average quoted rental rates decreased 3.0% to $27.32 per sq. ft. (from $28.17), while suburban Class B rates fell 1.2% to $18.48 per sq. ft. (from $18.70) on a full-service basis. Overall, softening tenant demand for office space, rising sublet space, and a prolonged economic recession are expected to continue exerting downward pressure on office rental rates and mark an increase in concessions through 2009. COLLIERS INTERNATIONAL

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HOUSTON

OFFICE

SECOND QUARTER 2009

TOP PERFORMING OFFICE BUILDINGS Five Houston Center

Bank of America Center

Wells Fargo Plaza

1401 McKinney Street

700 Louisiana

1000 Louisiana

CBD

CBD

CBD

RBA: 580,875 sf

RBA: 1,268,480 sf

RBA: 1,721,242 sf

Built: 2002

Built: 1983

Built: 1983

Leased: 96.2%

Leased: 11.4%

Leased: 84.9%

Available: 18,288 18 288 sf

Available 144,500 Available: 144 500 sf

Available: 259,860 259 860 sf

Rents: $45.27 psf

Rents: $42.25 psf

Rents: $42.95 psf

Owner:

Owner:

Owner:

Wells REIT II

The Novati Group

Metropolitan Life Insurance Company

Marathon Oil Tower

Wells Fargo Tower

Five Post Oak Park

5555 San Felipe

1300 Post Oak Blvd.

4400 Post Oak Pkwy

G ll i /W L Galleria/West Loop

Galleria/West Loop

Galleria/West Loop

RBA: 1,070,209 sf

RBA: 491,254 sf

Built: 1982

Built: 1983

Leased: 88.0%

Leased: 93.5%

Available: 128,081 sf

Available: 32,033 sf

Rents: $37.20 psf

Rents: $39.55 psf

Owner:

Owner:

Hanover Real Estate Partners

TIAA-CREF

RBA: 567,396 sf Built: 1982 Leased: 93.6% Available: 47,233 sf Rents: $37.50 psf Owner: Shorenstein Company

The Plaza at Enclave

One Eldridge Place.

One BriarLake Plaza

1254 Enclave Parkway

777 N. Eldridge Parkway

2000 W. Sam Houston Pkwy

Energy Corridor

Energy Corridor

Westchase

RBA 343, RBA: 343 541 sff

RBA: 239,417 239 417 sf

RBA 502, RBA: 502 410 sff

Built: 2008

Built: 1985/2001

Built: 2000

Leased: 82.5%

Leased: 91.2%

Leased: 94.2%

Available: 59,998 sf

Available: 21,055 sf

Available: 29,325 sf

Rents: $32.00 psf

Rents: $31.25 psf

Rents: $40.50 psf

Owner:

Owner:

Owner:

Core Real Estate

Behringer Harvard

Behringer Harvard

11 Greenway Place

Waterway Plaza I

Offices at Kensington

11 Greenway

10003 Woodloch Forest

1600 Highway 6

Greenway

Woodlands

Sugar Land/E. Fort Bend

RBA: 745,956 sf

RBA: 223,483 sf

RBA: 85,218 sf

Built: 1979

Built: 2000

Built: 1998

Leased: 90.2%

Leased: 98.1%

Leased: 91.7%

Available: 73,125 sf

Available: 4,169 sf

Available: 7,093 sf

Rents: $34.50 psf

Rents: $33.50 psf

Rents: $25.00 psf

Owner:

Owner:

Owner:

Crescent RE Equities

Triple Net Properties

KBS Real Estate Investment Trust

COLLIERS INTERNATIONAL

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OFFICE

HOUSTON

HEWLETT-PACKARD CAMPUS 20555 STATE HIGHWAY 249 Northwest Submarket RBA: Built: Buyer: Seller: Sale Date:

1,171,118 SF 1987-1990 Lone Star College System Hewlett Packard April 2009

SECOND QUARTER 2009

Sales Activity

Leasing Activity

Houston’s office investment sales, l h h by b all ll measures still ll sluggish l h although given the continued limited availability of credit, increased in the second quarter following a dismal showing in the first three months of this year. Sixteen transactions with a combined 2.7 million sq. ft. traded in the second quarter for a total dollar volume of $97 million, averaging $55.37 per sq. ft. with a capitalization rate of 8.5%.

Houston’s office leasing activity reached 2 0 million 2.0 illi sq. ft. f in i the h second d quarter 2009, compared to 4.7 million sq. ft. at this time last year. Although decidedly weaker from twelve months earlier, on a quarterly basis leasing activity in the second quarter marked an improvement in the increased square feet per transaction. Significant non-renewal office leases signed through the second quarter included: NRG Texas’ 232,000-sq. ft. lease at Houston Pavilions (Central Business District); Southwestern Energy’s 101,330-sq. ft. lease at One Commerce Green (North Belt); Washington Group International’s 96,225-sq. ft. lease at Richmond Park (Central Business District); and Goodrich Petroleum’s 36,750-sq. ft. lease at 801 Louisiana (Central Business District).

Although the majority of sales were less than 50,000 sq. ft., several significant transactions over 100,000 sq. ft. closed in the second quarter 2009 including: Lone Star College purchased the eightbuilding, 1.2-million sq. ft. former Hewlett Packard office campus totaling 45 acres (Northwest submarket) for $42.2 million or $36 per sq. ft. Lone Star College has announced plans to establish a new university system in y, as well as a northwest Harris County, regional instruction training facility.

1717 ST. JAMES PLACE West Loop/Galleria Submarket RBA: Built: B Buyer: Seller: Sale Date:

110,000 SF 1975 B Beacon Investment I Properties P i Parkway Properties June 2009

Keyy office lease renewals signed g to date this year included Lennar Homes’ 55,643-sq. ft. lease at 550 Greens Parkway (North Belt); Quorum Business Solutions’ 36,000-sq. ft. at Pinnacle Westchase (Westchase); and The Automation Groups’s 33,112-sq. ft. lease at Town & Country Central (Katy Freeway). For more office lease transactions signed year-to-date, please see the list noted on page 3.

Beacon Realty Investments purchased the 110,000-sq. ft. 1717 St. James Place office building (West Loop/Galleria) from Parkway Properties for $8.7 million or $79 per sq. ft. The 88% leased property previously sold in May 2002 for approximately $6.7 million or $61 per sq. ft..

HOUSTON OFFICE MARKET SUMMARY CBD, SUBURBAN, CITYWIDE Rent

Absorption Class

T otal Inventory Sq. Ft.

Direct Vacant Sq. Ft.

Direct Vacancy Rate

Sublease Vacant Sq. Ft.

Sublease Vacancy Rate

T otal Vacant Sq. Ft.

Q2 Vacancy Rate

Q1 Vacancy Rate

Q 2 N et Absorption Sq. Ft.

YT D N et Absorption Sq. Ft.

W gtd. Avg. Q uoted Rate

CEN T RAL BU SIN ESS DIST RICT A

27,837,503

1,919,159

6.9%

420,691

1.5%

2,339,850

8.4%

8.5%

13,070

(118,399)

$38.78

B

8,519,485

1,784,064

20.9%

77,495

0.9%

1,861,559

21.9%

21.1%

(66,991)

(115,237)

$27.32

777,663

49.4%

0

0.0%

777,663

C T otal

1,575,515 37,932,503

4,480,886

49.4%

48.9%

(7,262)

4,490

$15.78

11.8%

498,186

1.3%

4,979,072

13.1%

13.0%

(61,183)

(229,146)

$30.23

SU BURBAN T O T AL A

65,967,344

9,485,131

14.4%

1,074,234

1.6%

10,559,365

16.0%

14.3%

(146,617)

B

69,823,547

11,282,914

16.2%

808,238

1.2%

12,091,152

17.3%

16.8%

(229,149)

2,586,348

12.9%

51,461

0.3%

2,637,809

13.2%

12.8%

(70,818)

(27,594)

$15.34

16.2%

15.2%

(446,584)

(608,994)

$21.83

C T otal GRAN D T OT AL

20,024,399 155,815,290

23,354,393

15.0%

1,933,933

1.2%

25,288,326

482,881 (1,064,281)

A

93,804,847

11,404,290

12.2%

1,494,925

1.6%

12,899,215

13.8%

12.5%

(133,547)

B

78,343,032

13,066,978

16.7%

885,733

1.1%

13,952,711

17.8%

17.3%

(296,140)

3,364,011

15.6%

51,461

0.2%

3,415,472

15.8%

15.5%

(78,080)

(23,104)

$15.44

15.6%

14.8%

(507,767)

(838,140)

$23.18

C T otal

21,599,914 193,747,793

27,835,279

14.4%

2,432,119

1.3%

30,267,398

364,482

$27.59 $18.48

(1,179,518)

COLLIERS INTERNATIONAL

$29.47 $19.69

4

OFFICE

HOUSTON

SECOND QUARTER 2009

HOUSTON SUBURBAN OFFICE MARKET

Class

Total Inventory Sq. Ft.

Suburban Total A 65,967,344 B 69,823,547 C 20,024,399 Total 155,815,290 Baytown B 525,544 C 60 396 60,396 Total 585,940 Bellaire A 889,375 B 1,451,499 C 567,560 Total 2,908,434 Conroe A 60,000 B 287,739 C 157,335 Total 505,074 E.Fort Bend/Sugarland A 2,867,640 B 1,979,183 C 174,563 Total 5,021,386 FM 1960 A 2,456,965 B 5,185,117 C 807,414 Total 8,449,496 , , Greenway A 6,083,022 B 2,745,605 C 951,305 Total 9,779,932 Gulf Freeway/Pasadena B 1,502,116 C 1,042,962 Total 2,545,078 I-10 East B 318 516 318,516 C 165,473 Total 483,989 Katy Freeway A 10,139,334 B 6,953,337 C 1,881,991 Total 18,974,662 Kingwood/Humble A 134,000 B 2,438,731 C 754,834 Total 3,327,565 NASA/Clear Lake A 699,707 B 3,020,657 C 1,275,068 Total 4,995,432 Neartown/Allen Parkway A 1,613,358 B 2,506,351 C 1,191,545 Total 5,311,254 North Belt A 4,883,886 B 4,902,986 C 1,416,929 Total 11,203,801

Direct Vacant Sq. Ft.

Direct Vacancy Rate

Sublease Vacant Sq. Ft.

Sublease Vacancy Rate

Total Vacant Sq. Ft.

Q2 Vacancy Rate

9,485,131 11,282,914 2,586,348 23,354,393

14.4% 16.2% 12.9% 15.0%

1,074,234 808,238 51,461 1,933,933

1.6% 1.2% 0.3% 1.2%

10,559,365 12,091,152 2,637,809 25,288,326

16.0% 17.3% 13.2% 16.2%

5,400 3,747 3 747 9,147

1.0% 6.2% 6 2% 1.6%

0 0 0

0.0% 0 0% 0.0% 0.0%

5,400 3 747 3,747 9,147

1.0% 6 2% 6.2% 1.6%

45,576 156,939 35,182 237,697

5.1% 10.8% 6.2% 8.2%

8,701 21,342 0 30,043

1.0% 1.5% 0.0% 1.0%

54,277 178,281 35,182 267,740

6.1% 12.3% 6.2% 9.2%

0 25,600 0 25,600

0.0% 8.9% 0.0% 5.1%

0 0 0 0

0.0% 0.0% 0.0% 0.0%

0 25,600 0 25,600

490,745 289,492 504 780,741

17.1% 14.6% 0.3% 15.5%

10,122 5,661 0 15,783

0.4% 0.3% 0.0% 0.3%

1,685,286 1,638,433 101,608 3,425,327 , ,

68.6% 31.6% 12.6% 40.5%

26,356 86,942 13,619 126,917 ,

873,296 263,768 244,785 1,381,849

14.4% 9.6% 25.7% 14.1%

200,514 141,230 341,744

Q2 Net Absorption Sq. Ft.

YTD Net Absorption Sq. Ft.

(146,617) (229,149) (70,818) (446,584)

Wgtd. Avg. Quoted Gross Rate

482,881 (1,064,281) (27,594) (608,994) $

$27.59 $18.48 $15.34 21.83

(850) (621) (1,471) $

$17.98 $13 00 $13.00 15.94

(8,045) (13,546) 318 (21,273)

(4,344) (69,875) (1,586) (75,805) $

$22.73 $21.57 $16.00 20.97

0.0% 8.9% 0.0% 5.1%

0 (5,786) 0 (5,786)

0 (7,524) 0 (7,524) $

$15.71 15.71

500,867 295,153 504 796,524

17.5% 14.9% 0.3% 15.9%

81,817 (11,084) (504) 70,229

63,102 21,399 296 84,797

$

$26.85 $19.80 $15.18 24.23

1.1% 1.7% 1.7% 1.5%

1,711,642 1,725,375 115,227 3,552,244 , ,

69.7% 33.3% 14.3% 42.0%

(15,978) (68,055) (13,222) ((97,255) , )

(18,992) (83,501) (3,729) ((106,222) , ) $

$27.58 $16.55 $14.36 21.91

201,633 1,804 1,287 204,724

3.3% 0.1% 0.1% 2.1%

1,074,929 265,572 246,072 1,586,573

17.7% 9.7% 25.9% 16.2%

23,671 14,755 (31,945) 6,481

(106,684) 1,434 (29,107) (134,357) $

$30.98 $21.36 $16.45 26.57

13.3% 13.5% 13.4%

13,637 0 13,637

0.9% 0.0% 0.5%

214,151 141,230 355,381

14.3% 13.5% 14.0%

3,163 (22,415) (19,252)

(24,368) (25,841) (50,209) $

$17.26 $15.06 16.35

93,794 93 794 16,748 110,542

29.4% 29 4% 10.1% 22.8%

0 0 0

0.0% 0 0% 0.0% 0.0%

93,794 93 794 16,748 110,542

29.4% 29 4% 10.1% 22.8%

16,896 16 896 0 16,896

1,147,882 986,096 228,518 2,362,496

11.3% 14.2% 12.1% 12.5%

142,880 65,735 5,888 214,503

1.4% 0.9% 0.3% 1.1%

1,290,762 1,051,831 234,406 2,576,999

12.7% 15.1% 12.5% 13.6%

25,904 225,900 32,271 284,075

19.3% 9.3% 4.3% 8.5%

0 12,276 0 12,276

0.0% 0.5% 0.0% 0.4%

25,904 238,176 32,271 296,351

39,342 284,096 174,513 497,951

5.6% 9.4% 13.7% 10.0%

9,152 14,977 0 24,129

1.3% 0.5% 0.0% 0.5%

87,381 128,862 338,400 554,643

5.4% 5.1% 28.4% 10.4%

150,875 36,600 0 187,475

320,950 902,877 233,771 1,457,598

6.6% 18.4% 16.5% 13.0%

25,818 108,675 11,702 146,195

0 0 0

11,467 11 467 0 11,467

$

$15.10 $15 10 $8.70 14.13

373,591 (41,197) (15,753) 316,641

950,864 (157,355) (22,023) 771,486 $

$25.90 $19.51 $14.66 22.15

19.3% 9.8% 4.3% 8.9%

0 (8,150) 5,949 (2,201)

0 (26,072) 10,006 (16,066) $

$27.50 $20.34 $17.85 20.71

48,494 299,073 174,513 522,080

6.9% 9.9% 13.7% 10.5%

(5,233) 32,222 (16,848) 10,141

(19,722) (7,774) (26,939) (54,435) $

$23.33 $21.07 $14.48 18.94

9.4% 1.5% 0.0% 3.5%

238,256 165,462 338,400 742,118

14.8% 6.6% 28.4% 14.0%

(71,058) 9,866 2,600 (58,592)

(37,256) 80,595 (19,246) 24,093 $

$24.21 $21.64 $19.20 20.56

0.5% 2.2% 0.8% 1.3%

346,768 1,011,552 245,473 1,603,793

7.1% 20.6% 17.3% 14.3%

16,790 (79,127) 7,553 (54,784)

24,085 (117,305) 46,032 (47,188) $

$21.16 $17.09 $13.21 17.36

COLLIERS INTERNATIONAL

5

OFFICE

HOUSTON

SECOND QUARTER 2009

HOUSTON SUBURBAN OFFICE MARKET

Class

Total Inventory Sq. Ft.

Northeast A 315,554 B 291,773 C 143,647 Total 750,974 Northwest A 3,144,728 B 6,394,871 C 1 84 3 1 1,584,361 Total 11,123,960 Northwest Outlier A 89,750 B 131,057 C 0 Total 220,807 Richmond/Fountainview A 0 B 651,776 C 693 259 693,259 Total 1,345,035 San Felipe/Voss A 1,714,029 B 3,265,947 C 319,861 Total 5,299,837 South A 25,000 B 297,815 C 223,029 Total 545,844 South Main/Med Center A 4,287,933 B 3,663,487 C 2,850,872 Total 10,802,292 Southeast/Outlier A 159,304 B 372,381 C 22,783 Total 554 468 554,468 Southwest A 718,926 B 6,904,890 C 2,482,138 Total 10,105,954 Southwest Outlier A 87,710 B 372,488 C 149,883 Total 610,081 West Loop A 16,178,999 B 5,511,576 C 426,332 Total 22,116,907 Westchase A 7,542,239 B 4,968,901 C 509,063 Total 13,020,203 W dl d Woodlands A 1,875,885 B 3,179,204 C 171,796 Total 5,226,885

Direct Vacant Sq. Ft.

Direct Vacancy Rate

Sublease Vacant Sq. Ft.

Sublease Vacancy Rate

Total Vacant Sq. Ft.

Q2 Vacancy Rate

YTD Net Absorption Sq. Ft.

Q2 Net Absorption Sq. Ft.

Wgtd. Avg. Quoted Gross Rate

315,554 60,775 43,536 419,865

100.0% 20.8% 30.3% 55.9%

0 0 0 0

0.0% 0.0% 0.0% 0.0%

315,554 60,775 43,536 419,865

100.0% 20.8% 30.3% 55.9%

0 (1,238) 8,487 7,249

0 (5,872) 8,487 2,615 $

$27.53 $18.11 $11.95 24.55

1,040,258 1,452,164 1 33 155,337 2,647,759

33.1% 22.7% 9 8% 9.8% 23.8%

6,163 71,256 0 77,419

0.2% 1.1% 0 0% 0.0% 0.7%

1,046,421 1,523,420 1 33 155,337 2,725,178

33.3% 23.8% 9 8% 9.8% 24.5%

8,180 (41,870) (20 82 ) (20,825) (54,515)

124,940 (157,092) (31 911) (31,911) (64,063) $

$22.40 $16.55 $13 41 $13.41 18.66

0 9,254 0 9,254

0.0% 7.1%

0.0% 0.0% 0.0%

0 9,254 0 9,254

0.0% 7.1%

4.2%

0 0 0 0

4.2%

0 0 0 0

0 66,401 71 515 71,515 137,916

0.0% 10.2% 10 3% 10.3% 10.3%

0 0 0 0

0.0% 0.0% 0 0% 0.0% 0.0%

0 66,401 71 515 71,515 137,916

0.0% 10.2% 10 3% 10.3% 10.3%

175,983 305,105 29,618 510,706

10.3% 9.3% 9.3% 9.6%

15,606 22,217 0 37,823

0.9% 0.7% 0.0% 0.7%

191,589 327,322 29,618 548,529

25,000 38,050 43,370 106,420

100.0% 12.8% 19.4% 19.5%

0 9,166 0 9,166

0.0% 3.1% 0.0% 1.7%

392,786 234,120 262,844 889,750

9.2% 6.4% 9.2% 8.2%

4,022 4,800 0 8,822

0 63,679 9,036 72 715 72,715

0.0% 17.1% 39.7% 13 1% 13.1%

141,957 1,418,552 294,954 1,855,463

89,750 (4,194) 0 85,556

$13.80 $13.80

0 14,076 366 14,442

0 15,491 (8 484) (8,484) 7,007 $

$0.00 $13.77 $12 63 $12.63 13.18

11.2% 10.0% 9.3% 10.3%

7,833 (6,289) (1,260) 284

(13,881) (51,669) (794) (66,344) $

$31.86 $20.36 $18.45 24.21

25,000 47,216 43,370 115,586

100.0% 15.9% 19.4% 21.2%

0 (20,000) 3,705 (16,295)

0 (26,050) 6,792 (19,258) $

$28.00 $24.11 $17.08 22.16

0.1% 0.1% 0.0% 0.1%

396,808 238,920 262,844 898,572

9.3% 6.5% 9.2% 8.3%

32,968 (14,918) 28,955 47,005

142,690 46,288 10,291 199,269

$

$31.49 $20.70 $17.53 24.53

0 0 0 0

0.0% 0.0% 0.0% 0 0% 0.0%

0 63,679 9,036 72 715 72,715

0.0% 17.1% 39.7% 13 1% 13.1%

0 (3,892) 0 (3 892) (3,892)

0 (2,692) 0 (2 692) $ (2,692)

$23.04 $15.00 22 04 22.04

19.7% 20.5% 11.9% 18.4%

0 89,397 0 89,397

0.0% 1.3% 0.0% 0.9%

141,957 1,507,949 294,954 1,944,860

19.7% 21.8% 11.9% 19.2%

(42,672) 80,860 36,320 74,508

(80,747) (90,234) 105,730 (65,251) $

$19.37 $15.35 $12.59 15.22

24,373 50,184 7,450 82,007

27.8% 13.5% 5.0% 13.4%

0 0 0 0

0.0% 0.0% 0.0% 0.0%

24,373 50,184 7,450 82,007

27.8% 13.5% 5.0% 13.4%

(4,502) 6,710 1,250 3,458

(5,061) 3,880 7,150 5,969 $

$28.87 $23.03 $15.87 24.12

1,452,273 1,226,523 33,468 2,712,264

9.0% 22.3% 7.9% 12.3%

258,442 48,287 0 306,729

1.6% 0.9% 0.0% 1.4%

1,710,715 1,274,810 33,468 3,018,993

10.6% 23.1% 7.9% 13.7%

(354,169) (31,558) (33,468) (419,195)

(487,236) (361,885) (27,541) (876,662) $

$32.12 $22.15 $16.50 27.42

928,512 791,852 55,872 1,776,236

12.3% 15.9% 11.0% 13.6%

159,016 60,640 18,965 238,621

2.1% 1.2% 3.7% 1.8%

1,087,528 852,492 74,837 2,014,857

14.4% 17.2% 14.7% 15.5%

(165,954) (80,034) (1,122) (247,110)

(212,512) (206,133) (17,797) (436,442) $

$27.61 $20.08 $15.53 23.87

272,073 364,484 28,071 664,628

14.5% 11.5% 16.3% 12.7%

55,448 134,826 0 190,274

3.0% 4.2% 0.0% 3.6%

327,521 499,310 28,071 854,902

17.5% 15.7% 16.3% 16.4%

(23,856) 19,047 (8,959) (13,768)

73,885 155,610 (6,759) 222,736 $

$26.59 $20.80 $17.12 23.01

COLLIERS INTERNATIONAL

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SECOND QUARTER 2009

OFFICE DEVELOPMENT PIPELINE Houston added 1.3 million sq. ft. of new office space in the second quarter 2009, bringing the year-to-date total to 2.4 million sq. ft. Leading office development activity citywide were the Katy Freeway submarket (which includes the Energy Corridor) accounting for 42.0% of the total year-to-date deliveries with 991,085 sq. ft., followed by the Northwest with 21.4% or 506,117 sq. ft., and The Woodlands with 12.0% or 282,626 sq. ft. Seven new office buildings over 100,000 sq. ft. were completed in the second quarter, three of these in the Katy Freeway/Energy Corridor submarket including MetroNational’s 336,000-sq. ft. CEMEX Center (9200 Memorial City Way, 63% leased); Midway Company’s 129,200-sq. ft. CityCenter II (811 Town & Country Way, 56% leased); and Yancey-Hausman’s 150,000-sq. ft. The Reserve at Park Ten (15721 Park Ten Place), the latter opening without preleasing activity. Rounding out the most significant new deliveries, White Rock Commercial’s 166,367-sq. ft. West Point Center (9420 West Sam Houston Parkway) in the Northwest and The Radler’s 160,556-sq. ft. Beltway Lakes II in the Northeast, both opened without preleasing, while MK Equity Partners’ 153,342-sq. ft. One Oak Park opened 26% leased in the Westchase submarket. Of the 4.3 million sq. ft. of office space under construction at the end of the second quarter, eleven new buildings with a combined 2.0 million sq. ft. are scheduled for delivery by year-end 2009, followed by five buildings totaling or 1.3 million sq. ft. in 2010, and one buildingg with 973,000 , sq. q ft. ((Hines’ MainPlace in the CBD)) slated for completion p in 2011. With the notable exception p of Trammell Crow Company’s Hess Tower (100% preleased to Hess Corporation) and MacHaik’s Energy Tower II (88% preleased to Technip USA), the majority of speculative office projects underway have been slow to attract tenants.

SELECT UNDER CONSTRUCTION OFFICE BUILDINGS Submarket

Building Name

Building Address

CBD CBD Katy Freeway West Katy Freeway West Katy Freeway West Westchase Woodlands Woodlands E Fort Bend Co/Sugar Land Woodlands Northwest Far Gulf Freeway/Pasadena South Post Oak Park Woodlands

Main Place Hess Tower Energy Tower II Eldridge Oaks Phase 1 Three Eldridge Place Westchase Park Waterway Square The Reserve at Sierra Pines Eco Centre at Lake Pointe The Vision Shenandoah Two Westway Deerwood Glen Office Park Shadow Creek Business Center, Phase I High Street Willow Office Condominiums @ Portofino

811 Main St 1501 McKinney St 11720 Katy Freeway 1080 Eldridge Pkwy 737 Eldridge Pkwy 3700 W Sam Houston Pkwy 4 Waterway Square 1585 Sawdust Rd 16750 Creek Bend Dr 18388 I 45 Hwy S 11025 Equity Dr 4400 Highway 225 11233 Shadow Creek Pkwy 4410 Westheimer Rd 250 Ed English Dr

Total u/c properties listed above Grand total u/c (including properties below 50,000 sq. ft. not listed above)

Sq. Ft. 972,474 844,763 428,831 350,000 305,528 270,000 232,364 180,000 152,619 150,000 95,269 88,000 80,000 78 966 78,966 50,000

% Leased 11.2 100 87.87 0 0 38.39 5.97 2.76 0 0 0 50 0 0 100

Developer Hines Holdings Inc. TCC Development I-10 Energy Investments Transwestern Commercial Services Behringer Harvard Simmons Vedder Partners The Woodlands Development Co. Stream Realty Partners, L.P. Midway Companies Nowlin Interests Opus Corporation Clay Development & Construction Wallace Bajjali Development Ptrs Trademark Property Portofino Office Condominiums

Estimated Delivery Feb-11 May-10 Aug-09 Sep-09 Sep-09 Jul-09 Dec-09 Dec-09 Feb-10 Dec-10 Jul-09 Aug-09 Aug-09 Mar-10 Jan-10

4,278,814 4,326,443

SELECT YEAR-TO-DATE OFFICE BUILDING DELIVERIES Submarket Katy Freeway East Katy Freeway West Northwest Far Woodlands Northwest Far Northeast Near Westchase Katy Freeway West Katy Freeway East Northwest Outlier Westchase Woodlands North Belt East FM 1960/Hwy 249

Building Name Cemex Center Energy Center II DNA Westway II US Oncology HQ West Pointe Center Beltway Lakes, Phase Two One Oak Park The Reserve at Park Ten, Phase I CityCentre Two Det Norkse Veritas Woodlands 45 Corporate Center Wortham Green

Building Address 920 Memorial City Way 575 N Dairy Ashford 4424 W Sam Houston Pky N 10101 Woodloch Forest Pl 9420 W Sam Houston Pky N 5875 N Sam Houston Pky W 6002 Rogerdale Rd 15721 Park Ten Pl 811 Town & Country Way 22535 Colonial Pky 3131 Briarpark Dr 24624 I-45 I 45 N 15109 Heathrow Forest Pky 13100 Wortham Ctr

Total delivered properties listed above Grand deliveries (including properties below 50,000 sq. ft. not listed above)

Sq Ft. Sq. Ft 336,000 305,585 250,000 196,000 166,367 160,556 153,342 150,000 129,200 89,750 69,000 64 822 64,822 63,621 63,218

% Leased 63.21 55.96 68.04 100 0 0 26.19 0 56.25 100 63.77 59 54 59.54 0 12.93

Developer Built MetroNational May-09 Trammell Crow Company Jan-09 Dienna Nelson Augustine Company Feb-09 The Woodlands Land Development Feb-09 White Rock Commercial Apr-09 The Radler Limited Partnership Apr-09 MK Equity Partners, LP Apr-09 Yancey-Hausman Jun-09 Midway Companies Apr-09 Duke Realty Mar-09 PGAL Jun-09 PHA/Houston LLC Mar-09 Mar 09 Transwestern Jun-09 Panattoni Mar-09

2,197,461 2,364,027

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