2009 3q Houston Office Market Report

HOUSTON

OFFICE

THIRD QUARTER 2009

Office Market HOUSTON MARKET RESEARCH | THIRD QUARTER | 2009

Our Knowledge is your Property

THIRD QUARTER 2009

OFFICE

HOUSTON

COLLIERS INTERNATIONAL

|

HOUSTON

Offi Market Office M k MARKET RESEARCH

|

THIRD QUARTER

|

2009

Houston Office Market Challenged by Job Losses

MARKET INDICATORS Q3-08

Q3-09

Quarterly Net Absorption 86,933 SF (764,481) SF

13.2%

Overall Vacancy 16.1%

Overall Gross Quoted Rental Rate* $22.83 psf $22.95 psf Class A Gross Quoted Rental Rate CBD $38.35 psf $37.45 psf Suburban $27.70 psf $27.31 psf

CBD 7.2% Suburban 12.5%

Class A Vacancy 8.5% 17.5%

*see opening paragraph and page 2 for commentary on office rental rates

JOB GROWTH & UNEMPLOYMENT Aug 08 Aug-08

Houston’s office market indicators continued to slip on both a quarterly and year-over-year basis as demand for office space eroded against the deepening effects of the global economic recession. With falling occupancy and rising negative net absorption, the $0.12 (less than 1%) increase in Houston’s overall quoted rental rate was not driven by increased demand but rather the artificially inflated suburban Class C quoted rental rates up $0.70 (4.7%) from this time last year. Suburban Class C landlords may (unrealistically) be hedging their bets before being forced to lower rates in a market that has yet to hit bottom. For all other property classes, quoted rental rates decreased in the third quarter, with final negotiated rental rates even lower as building landlords aggressively increased generous lease concessions to both attract and retain tenants in a climate where incentivizing clients is a hard sell. With commercial real estate a lagging indicator, office market fundamentals are expected to continue weakening in subsequent quarters even as some economists see a bottoming out of the global economic recession. For Houston, the end is not in sight as business industries across the board including energy board, energ giants, giants reel from the effects of current unstable business conditions. conditions In early October, ConocoPhillips announced plans to cut capital spending an additional 12% in 2010, following a sharp 37% decrease to $12.5 billion in 2009. As the third largest oil company following ExxonMobil and Chevron, Houston-based ConocoPhillips’ outlook is indicative of the prevailing sentiment among business leaders that continued contractions are prudent given the uncertainty regarding the duration of the current global economic recession. The primary challenge to the local office market remains Houston’s dismal job sector, with 95,100 jobs lost in the twelve months ending in August 2009, and the unemployment rate rising to 8.4%, representing severe losses that do not bode well for the market’s recovery. The pullback from businesses across key industries has dealt a major blow to Houston’s office market directly impacting rising vacancy and sublease space – the latter up to 4.6 million sq. ft. from 2.5 million sq. ft. in the third quarter last year – both of which are expected to continue increasing over the next twelve months.

Aug 09 Aug-09

HOUSTON

-3.6% Job Growth 95,100 jobs lost

Unemployment

5.2%

8.4%

ABSORPTION, NEW SUPPLY & VACANCY RATES

2,500,000 17%

2,000,000

15%

1,500,000 TEXAS

-2.8% Job Growth 295,400 jobs lost

Unemployment

5.3%

8.1%

U.S.

-4.4% Job Growth

Unemployment

6.1%

6,047,000 jobs lost 9.6%

13%

1,000,000

11%

500,000 0

9%

-500,000

7%

-1,000,000

Q3-07

Q4-07

Q1-08

Q2-08

Absorption

Q3-08

Q4-0 8

New Supply

Q1-0 9

Q2-0 9

Q3-09

Vacancy

5% www.collierstexas.com

COLLIERS INTERNATIONAL

1

OFFICE

HOUSTON

2009 TOP OFFICE LEASES Hess Corporation Hess Tower (formerly Discovery Twr), CBD Jan-09 844,763 SF Locke Lord Bissell & Liddell* Chase Tower, CBD Aug-09 246,381 SF NRG Texas Te Houston Pavilions, CBD Jun-09 232,962 SF Tax Masters Dairy Ashford Plaza, Energy Corridor Aug-09 107,890 SF Ki & Spalding* King S ldi * 1100 Louisiana, CBD Jul-09 105,151 SF

Washington Group International Richmond Park, Westchase Feb-09 96,225 SF ABB 3700 W. Sam Houston Pkwy, Westchase Jan-09 85,748 SF Linebarger Goggan Blair & Sampson* Travis Tower, CBD Sep-09 58,178 SF *Renewal

CBD VS. SUBURBAN Class A Office Vacancyy & Rents 19.5%

$42

18.0%

$40 $38

16.5%

$36

15.0%

Occupancy & Availability

Absorption & Demand

Houston s office occupancy continued Houston’s to be challenged by weak market conditions and a bleak employment outlook as Houston’s job losses deepened through September 2009. Citywide, occupancy for all property classes stood at 83.9% in the third quarter, falling from 86.8% at this time l t year. Although last Alth gh the th combined bi d CBD Class A office properties maintained occupancy above 90 percent, the current 91.5% occupancy marked a decrease from 92.8% recorded twelve months earlier. CBD Class B office occupancy, in contrast, remained low at 78.2% (from 78.9%).

Houston s office market posted Houston’s 764,481 sq. ft. of negative net absorption citywide in the third quarter, accounting for almost half of the 1.5 million sq. ft. of negative net absorption recorded year-to-date. With weak market fundamentals and a battered employment sector expected to extend well into next year, year 2009 will likely post the highest negative absorption losses since 2002 when the market recorded 2.0 million sq. ft. of negative net absorption.

By comparison, suburban Class A office properties dropped to 82.5% occupancy – marking the largest decline of all property classes citywide on a year-over-year basis – from 87.5% one year ago. Suburban class B office buildings also recorded a significant decrease to 82.4% from 85.3% in the third quarter last year.

Southwestern Energy One Commerce Green, North Belt May-09 101,330 SF

$34 13.5% $32

Sublet space continued to increase in the third quarter with a total of 4.6 million sq. ft. on the market, including 2.4 million sq. ft. of vacant space and an additional 2.2 million sq. ft. of subleases available at a later date. The largest sublease being marketed is the 403,231 sq. ft. at RRI Energy Plaza (1000 Main, CBD), available for occupancy in October 2010. Outside the CBD, major sublease assignments include the 129,000 sq. ft. at 2103 y ((Westchase); ); 107,000 , sq. q ft. CityWest at 9700 Bissonnet (Southwest) available in the fourth quarter 2009; and 89,000 sq. ft. at 9009 West Loop South (Galleria/West Loop) offered fully furnished at rental rates well below the quoted market average.

12.0% $30 10.5%

$28

9.0%

$26

7.5%

$24

6.0%

$22 3Q-08

4Q-08

1Q-09

2Q-09

3Q-09

CBD Vacancy

Suburban Vacancy

CBD Rents

Suburban Rents

THIRD QUARTER 2009

As job losses continue to mount, direct and sublease office vacant space is expected to increase in subsequent quarters as tenants continue to face challenging economic conditions.

Citywide, the largest losses in occupied space continued to be in suburban Cl Class B office ffi properties ti with ith a combined 1.6 million sq. ft. of negative net absorption year-to-date. The CBD recorded year-to-date negative net absorption of 203,935 sq. ft. for all classes combined, compared to the combined suburban submarkets for all classes at negative net absorption of 1.3 million ll sq. ft. f

Rental Rates Year-over-year office rental rate decreases prevailed citywide in the third quarter for all property classes, with the only exception being the combined suburban Class C rental rate. In addition to falling quoted rental rates, property landlords are aggressively offering generous lease concessions to both attract and retain tenants. g q quoted rental CBD Class A average rates fell 2.3% to $37.45 per sq. ft. (from $38.35), while suburban Class A rental rates slipped 1.4% to $27.31 per sq. ft. (from $27.70). In contrast, CBD Class B average quoted rental rates plummeted 15.6% to $23.62 per sq. ft. (from $28.00), while suburban Class B rates fell 0.9% to $18.33 per sq. ft. (from $18.49) on a full-service basis. Weak tenant demand for office space is expected to continue exerting downward pressure on rental rates. COLLIERS INTERNATIONAL

2

HOUSTON

THIRD QUARTER 2009

OFFICE

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: 91.0%

Leased: 89.0%

Leased: 84.7%

Available: 52,275 52 275 sf

Available 139,162 Available: 139 162 sf

Available: 263,558 263 558 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: 85.0%

Leased: 93.8%

Available: 160,419 sf

Available: 30,411 sf

Rents: $27.51 psf

Rents: $36.05 psf

Owner:

Owner:

Hanover Real Estate Partners

TIAA-CREF

RBA: 567,396 sf Built: 1982 Leased: 89.5% Available: 59,434 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: 92.1%

Leased: 92.8%

Available: 59,998 sf

Available: 18,800 sf

Available: 36,027 sf

Rents: $32.00 psf

Rents: $31.22 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: 90.3%

Leased: 98.4%

Leased: 88.3%

Available: 72,365 sf

Available: 3,557 sf

Available: 9,993 sf

Rents: $32.50 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

3

Bridgestone I* 2600 N. Loop Freeway Northwest Submarket RBA: Built: Buyer: Seller: Sale Date:

135,400 SF 1976 Fuller Realty Partners CHRISTUS Health February 2009

THIRD QUARTER 2009

OFFICE

HOUSTON

Sales Activity

Leasing Activity

Houston’s office investment sales d below b l last l year’s ’ levels l l activity remained with the contraction in the financial sector continuing to challenge the market. Twelve office transactions with a combined 1.1 million sq. ft. traded in the third quarter, bringing the year-todate number of transactions to 51 with a total dollar volume of $106.6 million, averaging $60.95 per sq. ft. and an average 9.0% capitalization rate.

Houston’s office leasing activity reached 2 5 million 2.5 illi sq. ft. f in i the h third hi d quarter 2009, compared to 4.8 million sq. ft. in the third quarter last year. Despite the slowdown from twelve months earlier, the Houston market posted seven office leases signed year-to-date through the third quarter over 85,000 sq. ft. Significant non-renewal office leases signed through the third quarter included: Hess’ 844,763-sq. ft. lease at Hess Tower (formerly Discovery Tower, Central Business District); NRG Texas’ 232,962-sq. ft. lease at Houston Pavilions (Central Business District); Tax Masters’ 107,890-sq. ft. lease at Dairy Ashford Plaza (Katy Freeway); Washington Group International’s 96,225-sq. ft. lease at Richmond Park Westchase (Westchase); and ABB’s 85,748-sq. ft. lease at 3700 W. Sam Houston Parkway (Westchase).

Although transactions less than 50,000 sq. ft. predominated, several significant transactions over 100,000 sq. ft. closed in the third quarter 2009 including: Hariri Interests purchased the 424,276sq. ft. Chase Center located at 601 Travis (Central Business District) for an undisclosed amount from JP Morgan Chase. The property sale included a 450,000-sq. ft. garage with 1,200 parking spaces.

West Pointe Center* 9420 W. Sam Houston Parkway Northwest Submarket RBA: Built: Buyer: Seller: Sale Date:

170,823 SF 2009 Undisclosed White Rock Commercial May 2009

*Colliers International sales transaction

Keyy office lease renewals signed g to date this year included Locke Lord Bissell & Liddell’s 246,381-sq. ft. lease at Chase Tower (Central Business District); King & Spalding’s 105,151-sq. ft. at 1100 Louisiana (Central Business District); and Linebarger Goggan Blair & Sampson’s 58,178-sq. ft. lease at Travis Tower (Central Business District). For more office lease transactions signed this year, please see the list noted on page 3.

Hartman Income REIT purchased a two-property office portfolio from KBS Realty Advisors for approximately $7.0 million or $34 per sq. ft. The FM 1960 submarket properties included the 134,720-sq. ft. 14550 Torrey Chase Boulevard office building and the 71,830-sq. 71,830 sq. ft. 3707 FM 1960 office building that were 90.0% and 92.0% leased, respectively, at the time of sale.

HOUSTON OFFICE MARKET SUMMARY CBD, SUBURBAN, CITYWIDE Existing Properties Class

T otal y Inventory Sq. Ft.

Direct Vacant Sq. Ft.

Direct Vacancy y Rate

Absorption

Sublease Vacancy y Rate

Sublease Vacant Sq. Ft.

T otal Vacant Sq. Ft.

Q 3 Vacancy Rate

Q3 N et Absorption Sq. Ft.

Q 2 Vacancy Rate

Rent

YT D N et Absorption Sq. Ft.

W gtd. Avg. Q uoted Rate

CEN T RAL BUSIN ESS DIST RICT A

27,837,503

1,972,583

7.1%

397,770

1.4%

2,370,353

8.5%

8.5%

(13,697)

(120,173)

$37.45

B

8,451,302

1,755,709

20.8%

86,025

1.0%

1,841,734

21.8%

21.7%

(9,684)

(128,103)

$23.62

C

1,521,580

737,812

48.5%

0

0.0%

737,812

48.5%

51.1%

39,851

44,341

$15.96

(203,935)

$28.46

180,451

$27.31

T otal

37,810,385

4,466,104

11.8%

483,795

1.3%

4,949,899

13.1%

13.1%

16,470

SU BURBAN T OT AL A

67,299,628

10,656,488

15.8%

1,117,439

1.7%

11,773,927

17.5%

15.7%

(346,952)

B

69,588,763

11,480,952

16.5%

765,839

1.1%

12,246,791

17.6%

16.9%

(466,629)

C

20 091 025 20,091,025

2 434 600 2,434,600

12 1% 12.1%

45 100 45,100

0 2% 0.2%

2 479 700 2,479,700

12 3% 12.3%

12 5% 12.5%

32 630 32,630

81 178 81,178

$15 51 $15.51

16.9%

15.8%

(780,951)

(1,338,687)

$21.95

60,278

$28.89

T otal GRAN D T O T AL

156,979,416

24,572,040

15.7%

1,928,378

1.2%

26,500,418

(1,600,316)

$18.33

A

95,137,131

12,629,071

13.3%

1,515,209

1.6%

14,144,280

14.9%

13.6%

(360,649)

B

78,040,065

13,236,661

17.0%

851,864

1.1%

14,088,525

18.1%

17.4%

(476,313)

C

21,612,605

3,172,412

14.7%

45,100

0.2%

3,217,512

14.9%

15.2%

72,481

125,519

$15.61

16.1%

15.3%

(764,481)

(1,542,622)

$22.95

T otal

194,789,801

29,038,144

14.9%

2,412,173

1.2%

31,450,317

(1,728,419)

COLLIERS INTERNATIONAL

$19.03

4

THIRD QUARTER 2009

OFFICE

HOUSTON

HOUSTON SUBURBAN OFFICE MARKET Absorption

Class

Total Inventory Sq. Ft.

Suburban Total A 67,299,628 B 69,588,763 C 20,091,025 Total 156,979,416 Baytown B 525 544 525,544 C 60,396 Total 585,940 Bellaire A 1,314,475 B 1,020,904 C 567,560 Total 2,902,939 Conroe A 60,000 B 287,739 C 157 335 157,335 Total 505,074 E.Fort Bend/Sugarland A 2,867,640 B 1,904,437 C 174,013 Total 4,946,090 FM 1960 A 2,532,986 B 5,131,459 C 828,120 Total 8,492,565 Greenway A 6,083,022 B 2,746,088 C 1,008,816 Total 9,837,926 Gulf Freeway/Pasadena B 1,558,337 C 1,144,329 Total 2,702,666 I-10 East B 318,516 C 165,473 Total 483,989 Katy Freeway A 10,918,165 B 6,926,044 C 1,811,831 Total 19,656,040 Kingwood/Humble A 134,000 B 2 469 522 2,469,522 C 716,101 Total 3,319,623 NASA/Clear Lake A 699,707 B 3,102,159 C 1,262,946 Total 5,064,812 Neartown/Allen Parkway A 1,613,358 B 2,528,793 C 1 191 545 1,191,545 Total 5,333,696 Greenspoint/North Belt A 4,883,886 B 4,960,119 C 1,416,929 Total 11,260,934

Direct Vacant Sq. Ft.

Direct Vacancy Rate

Sublease Vacant Sq. Ft.

Sublease Vacancy Rate

Total Vacant Sq. Ft.

Q3 Vacancy Rate

10,656,488 11,480,952 2,434,600 24,572,040

15.8% 16.5% 12.1% 15.7%

1,117,439 765,839 45,100 1,928,378

1.7% 1.1% 0.2% 1.2%

11,773,927 12,246,791 2,479,700 26,500,418

17.5% 17.6% 12.3% 16.9%

5 400 5,400 3,747 9,147

1 0% 1.0% 6.2% 1.6%

0 0 0

0 0% 0.0% 0.0% 0.0%

5 400 5,400 3,747 9,147

1 0% 1.0% 6.2% 1.6%

106,996 85,353 24,579 216,928

8.1% 8.4% 4.3% 7.5%

19,110 0 0 19,110

1.5% 0.0% 0.0% 0.7%

126,106 85,353 24,579 236,038

0 23,736 0 23,736

0.0% 8.2% 0 0% 0.0% 4.7%

0 0 0 0

0.0% 0.0% 0 0% 0.0% 0.0%

508,513 285,504 2,173 796,190

17.7% 15.0% 1.2% 16.1%

13,022 5,661 0 18,683

1,715,537 1,671,285 90,531 3,477,353

67.7% 32.6% 10.9% 40.9%

908,682 303,501 240,287 1,452,470

Q3 Net Absorption Sq. Ft.

Rent

YTD Net Absorption Sq. Ft.

(346,952) (466,629) 32,630 (780,951)

Wgtd. Avg. Quoted Gross Rate

180,451 (1,600,316) 81,178 (1,338,687) $

$27.31 $18.33 $15.51 21.95

0 0 0

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

$17.74 $17 74 $15.00 16.62

9.6% 8.4% 4.3% 8.1%

17,330 (2,620) 10,603 25,313

(34,895) (24,614) 9,017 (50,492) $

$23.19 $19.15 $15.25 20.70

0 23,736 0 23,736

0.0% 8.2% 0 0% 0.0% 4.7%

0 1,864 0 1,864

0 (5,660) 0 (5,660) $

$15.21 15.21

0.5% 0.3% 0.0% 0.4%

521,535 291,165 2,173 814,873

18.2% 15.3% 1.2% 16.5%

(20,668) 30,742 (1,669) 8,405

42,434 26,541 (1,373) 67,602 $

$26.70 $19.66 $15.45 24.14

23,511 80,132 13,619 117,262

0.9% 1.6% 1.6% 1.4%

1,739,048 1,751,417 104,150 3,594,615

68.7% 34.1% 12.6% 42.3%

45,009 6,337 11,077 62,423

27,354 (82,043) 17,838 (36,851) $

$27.46 $16.41 $14.41 21.81

14.9% 11.1% 23.8% 14.8%

202,736 0 1,287 204,023

3.3% 0.0% 0.1% 2.1%

1,111,418 303,501 241,574 1,656,493

18.3% 11.1% 23.9% 16.8%

(36,489) (37,929) 4,498 (69,920)

(143,173) (36,495) 32,902 (146,766) $

$30.29 $20.70 $16.35 25.98

215,008 136,646 351,654

13.8% 11.9% 13.0%

13,584 6,564 20,148

0.9% 0.6% 0.7%

228,592 143,210 371,802

14.7% 12.5% 13.8%

(14,441) (10,121) (24,562)

(38,809) (35,962) (74,771) $

$18.48 $14.72 17.02

90,474 16,748 107,222

28.4% 10.1% 22.2%

0 0 0

0.0% 0.0% 0.0%

90,474 16,748 107,222

28.4% 10.1% 22.2%

3,320 0 3,320

14,787 0 14,787

$

$15.21 $8.70 14.19

1,873,966 1,051,031 214,306 3,139,303

17.2% 15.2% 11.8% 16.0%

138,729 80,347 2,575 221,651

1.3% 1.2% 0.1% 1.1%

2,012,695 1,131,378 216,881 3,360,954

18.4% 16.3% 12.0% 17.1%

29,469 (94,709) (10,785) (76,025)

1,007,762 (230,964) (34,413) 742,385 $

$26.81 $19.07 $14.93 23.41

25,904 217,118 217 118 21,246 264,268

19.3% 8 8% 8.8% 3.0% 8.0%

0 4,659 4 659 0 4,659

0.0% 0 2% 0.2% 0.0% 0.1%

25,904 221,777 221 777 21,246 268,927

19.3% 9 0% 9.0% 3.0% 8.1%

0 845 106 951

0 (13,410) (13 410) 10,112 (3,298) $

$27.50 $19 71 $19.71 $17.63 20.31

29,515 297,906 150,465 477,886

4.2% 9.6% 11.9% 9.4%

9,152 16,879 0 26,031

1.3% 0.5% 0.0% 0.5%

38,667 314,785 150,465 503,917

5.5% 10.1% 11.9% 9.9%

9,827 (8,172) 16,508 18,163

(9,895) (12,646) (10,431) (32,972) $

$23.65 $20.75 $14.11 18.84

253,992 125,221 374 400 374,400 753,613

15.7% 5.0% 31 4% 31.4% 14.1%

130,867 37,159 0 168,026

8.1% 1.5% 0 0% 0.0% 3.2%

384,859 162,380 374 400 374,400 921,639

23.9% 6.4% 31 4% 31.4% 17.3%

(146,603) 10,627 (36 000) (36,000) (171,976)

(183,859) 101,510 (55 246) (55,246) (137,595) $

$24.06 $20.63 $19 20 $19.20 21.08

328,104 1,124,213 254,002 1,706,319

6.7% 22.7% 17.9% 15.2%

115,161 108,675 6,977 230,813

2.4% 2.2% 0.5% 2.0%

443,265 1,232,888 260,979 1,937,132

9.1% 24.9% 18.4% 17.2%

(96,497) (254,636) (15,506) (366,639)

(72,412) (369,841) 30,526 (411,727) $

$21.16 $16.90 $13.21 17.17

COLLIERS INTERNATIONAL

5

THIRD QUARTER 2009

OFFICE

HOUSTON

HOUSTON SUBURBAN OFFICE MARKET Absorption

Class

Total Inventory Sq. Ft.

Northeast A 0 B 291,773 C 143,647 Total 435,420 Northwest A 3,233,211 B 6 330 687 6,330,687 C 1,584,361 Total 11,148,259 Northwest Outlier A 89,750 B 135,457 C 0 Total 225,207 Richmond/Fountainview A 0 B 642,245 C 693,259 Total 1,335,504 San Felipe/Voss A 1,741,228 B 3,264,838 C 319,861 Total 5,325,927 South A 25,000 B 370,101 C 223 029 223,029 Total 618,130 South Main/Med Center A 4,287,933 B 3,771,688 C 2,745,096 Total 10,804,717 Southeast/Outlier A 159,304 B 461,945 C 22,783 T t l Total 644 032 644,032 Southwest A 726,310 B 6,936,026 C 2,595,669 Total 10,258,005 Southwest Outlier A 87,710 B 372,488 C 150,735 Total 610,933 West Loop A 16,245,407 B 5,461,113 C 426,332 Total 22,132,852 Westchase A 7,540,651 B 5,004,398 C 509,063 Total 13,054,112 Woodlands A 2,055,885 B 3,066,343 C 171,796 Total 5,294,024

Direct Vacant Sq. Ft.

Direct Vacancy Rate

Sublease Vacant Sq. Ft.

Sublease Vacancy Rate

Total Vacant Sq. Ft.

Q3 Vacancy Rate

Q3 Net Absorption Sq. Ft.

0 50,291 17,047 67,338

#DIV/0! 17.2% 11.9% 15.5%

0 0 0 0

#DIV/0! 0.0% 0.0% 0.0%

0 50,291 17,047 67,338

#DIV/0! 17.2% 11.9% 15.5%

0 10,484 26,489 36,973

1,103,733 1,323,434 1 323 434 126,412 2,553,579

34.1% 20 9% 20.9% 8.0% 22.9%

32,543 50 930 50,930 0 83,473

1.0% 0 8% 0.8% 0.0% 0.7%

1,136,276 1,374,364 1 374 364 126,412 2,637,052

35.1% 21 7% 21.7% 8.0% 23.7%

(13,081) (128,752) (128 752) 28,925 (112,908)

0 10,848 0 10,848

0.0% 8.0%

0.0% 0.0% 0.0%

0 10,848 0 10,848

0.0% 8.0%

4.8%

0 0 0 0

0 71,069 71,515 142,584

0.0% 11.1% 10.3% 10.7%

0 0 0 0

0.0% 0.0% 0.0% 0.0%

211,796 305,978 37,477 555,251

12.2% 9.4% 11.7% 10.4%

31,733 27,602 0 59,335

25,000 41,850 36 220 36,220 103,070

100.0% 11.3% 16 2% 16.2% 16.7%

386,363 213,066 218,670 818,099

Rent

YTD Net Absorption Sq. Ft.

0 4,612 34,976 39,588

Wgtd. Avg. Quoted Gross Rate

$

$0.00 $17.17 $11.95 15.85

112,289 (271,792) (271 792) (2,986) (162,489) $

$23.18 $16 50 $16.50 $13.50 19.24

4.8%

0 (1,594) 0 (1,594)

89,750 (5,788) 0 83,962

$13.80 $13.80

0 71,069 71,515 142,584

0.0% 11.1% 10.3% 10.7%

0 (4,668) 0 (4,668)

0 10,823 (8,484) 2,339 $

$0.00 $13.88 $12.63 13.25

1.8% 0.8% 0.0% 1.1%

243,529 333,580 37,477 614,586

14.0% 10.2% 11.7% 11.5%

(51,940) (20,176) (7,859) (79,975)

(65,821) (57,927) (8,653) (132,401) $

$31.26 $20.11 $17.45 24.18

0 0 0 0

0.0% 0.0% 0 0% 0.0% 0.0%

25,000 41,850 36 220 36,220 103,070

100.0% 11.3% 16 2% 16.2% 16.7%

0 5,366 7 150 7,150 12,516

0 (20,684) 13 942 13,942 (6,742) $

$30.10 $24.11 $16 98 $16.98 23.06

9.0% 5.6% 8.0% 7.6%

0 4,800 0 4,800

0.0% 0.1% 0.0% 0.0%

386,363 217,866 218,670 822,899

9.0% 5.8% 8.0% 7.6%

18,445 40,823 (26,395) 32,873

153,135 77,365 (6,358) 224,142 $

$31.50 $20.62 $18.27 25.13

0 71,479 9,036 80 515 80,515

0.0% 15.5% 39.7% 12 5% 12.5%

0 0 0 0

0.0% 0.0% 0.0% 0 0% 0.0%

0 71,479 9,036 80 515 80,515

0.0% 15.5% 39.7% 12 5% 12.5%

0 (7,800) 0 (7 800) (7,800)

0 (10,492) 0 (10 492) $ (10,492)

$23.04 $15.00 22 14 22.14

195,535 1,521,243 269,723 1,986,501

26.9% 21.9% 10.4% 19.4%

20,719 105,234 0 125,953

2.9% 1.5% 0.0% 1.2%

216,254 1,626,477 269,723 2,112,454

29.8% 23.4% 10.4% 20.6%

(53,578) (80,938) 25,231 (109,285)

(155,044) (171,975) 130,961 (196,058) $

$18.57 $15.37 $13.00 15.36

20,693 59,402 5,750 85,845

23.6% 15.9% 3.8% 14.1%

0 0 0 0

0.0% 0.0% 0.0% 0.0%

20,693 59,402 5,750 85,845

23.6% 15.9% 3.8% 14.1%

3,680 (9,218) 1,700 (3,838)

(1,381) (5,338) 8,850 2,131 $

$27.61 $26.69 $16.08 26.20

1,534,631 1,197,088 23,358 2,755,077

9.4% 21.9% 5.5% 12.4%

218,969 51,415 0 270,384

1.3% 0.9% 0.0% 1.2%

1,753,600 1,248,503 23,358 3,025,461

10.8% 22.9% 5.5% 13.7%

(60,061) 26,307 10,110 (23,644)

(463,713) (335,578) (17,431) (816,722) $

$30.82 $22.22 $16.50 26.96

985,277 759,996 65,185 1,810,458

13.1% 15.2% 12.8% 13.9%

108,843 67,770 14,078 190,691

1.4% 1.4% 2.8% 1.5%

1,094,120 827,766 79,263 2,001,149

14.5% 16.5% 15.6% 15.3%

(4,721) 33,449 (4,426) 24,302

(208,891) (173,518) (22,223) (404,632) $

$27.86 $20.56 $15.04 24.33

442,251 359,458 25,077 826,786

21.5% 11.7% 14.6% 15.6%

52,344 110,992 0 163,336

2.5% 3.6% 0.0% 3.1%

494,595 470,450 25,077 990,122

24.1% 15.3% 14.6% 18.7%

12,926 28,860 2,994 44,780

86,811 32,470 (3,765) 115,516 $

$26.21 $20.63 $19.60 23.58

COLLIERS INTERNATIONAL

6

HOUSTON

THIRD QUARTER 2009

OFFICE

OFFICE DEVELOPMENT PIPELINE Houston’s development activity slowed significantly by the end of the third quarter with 2.1 million sq. ft. of new office space added in the past three months (bringing the year-to-date total to 4.2 million sq. ft.) and an additional 2.5 million sq. ft. under construction. Even while the majority of activity continued to be centered in historically strong market areas, lease-up of the mostly speculative projects is expected to be slow given the prevailing weak office market fundamentals and dismal employment conditions projected to extend into 2010. Houston’s Energy Corridor/Katy Freeway submarket continued to dominate the development pipeline accounting for 48% of the 4 2 million sq. 4.2 sq ft. ft of new office space added this year. year The largest five office buildings delivered year-to-date year to date are in the Energy Corridor, including three buildings completed in the third quarter MacHaik’s 428,831-sq. ft. Energy Tower II (11720 Katy Freeway), Transwestern’s 350,000-sq. ft. Eldridge Oaks (1080 Eldridge Parkway), and Behringer Harvard’s 305,528-sq. ft. Three Eldridge Place (737 Eldridge Parkway). Outside the Energy Corridor, two new office buildings over 100,000 sq. ft. were completed in the third quarter including Simmons Vedder Partners’ 270,000-sq. ft. 3700 W. Sam Houston Parkway office building in the Westchase submarket and Stream Realty’s 180,000-sq. ft. The Reserve at Sierra Pines in The Woodlands submarket. Of the 2.5 million sq. ft. of office space under construction at the end of the third quarter, only one project – The Woodlands D l Development C Company’s ’ 232,364-sq. 232 364 f Water ft. W S Square – is i scheduled h d l d for f delivery d li b f before year’s ’ end. d Of the h six i remaining i i projects j underway, five suburban office buildings with a combined 1.3 million sq. ft. are scheduled for completion in 2010, with one new building in the CBD – Hines’ 972,474-sq. ft. Main Place – slated for delivery in 2011. With the notable exception of Trammell Crow Company’s Hess Tower (formerly Discovery Tower) 100% preleased to Hess Corporation, the majority of speculative office projects underway have reported little to no preleasing activity.

SELECT UNDER CONSTRUCTION OFFICE BUILDINGS Submarket CBD CBD The Woodlands E. Fort Bend Co/Sugar Land E. Fort Bend Co/Sugar Land Northwest Galleria/West Loop

Building Name MainPlace Hess Tower Waterway Square Sugar Land Town Center Eco Centre at Lake Pointe Two Westway High Street

Building Address 811 Main St 1501 McKinney St 4 Waterway Square 2245 Texas Dr 16750 Creek Bend Dr 11025 Equity Dr 4410 Westheimer Rd

Total office properties under construction listed above Grand total office properties under construction over 20,000 sq. ft.

Sq. Ft.

% Leased 972,474 844,763 232,364 157,619 152,619 95,269 78,966

11.2 100 23.97 0 0 0 0

Developer Hines Holdings Inc. TCC Development The Woodlands Development Co. Planned Community Developers Midway Companies Opus Corporation Trademark Property

Estimated Delivery Feb-11 May-10 Dec-09 Mar-10 Feb-10 Jan-10 Oct-10

2,534,074 2,534,074

SELECT YEAR-TO-DATE OFFICE BUILDING DELIVERIES Submarket Katy Freeway Katy Freeway Katy Freeway Katy Freeway Katy Freeway Westchase Northwest The Woodlands The Woodlands Northwest Northwest Westchase Katy Freeway Katy Freeway Northwest Gulf Freeway/Pasadena South Westchase The Woodlands Greenspoint/North Belt FM 1960 FM 1960

Building Name Energy Tower II Eldridge Oaks Cemex Center Energy Center II Three Eldridge Place Westchase Park DNA Westway II US Oncology HQ The Reserve at Sierra Pines West Pointe Center Beltway Lakes II One Oak Park The Reserve at Park Ten I CityCentre Two Det Norkse Veritas Deerwood Glen Office Park Shadow Creek Business Center g 3131 Briarpark Office Building Woodlands 45 Corporate Center 15109 Heathrow Office Bldg. Wortham Green Stress Engineering Office Bldg.

Building Address 11720 Katy Freeway 1080 Eldridge Parkway 920 Memorial City Way 575 N. Dairy Ashford 737 Eldridge Parkway 3700 W. Sam Houston Pkwy 4424 W. Sam Houston Pkwy 10101 Woodloch Forest Place 1585 Sawdust Road 9420 W. Sam Houston Pkwy 5875 N. Sam Houston Pkwy 6002 Rogerdale Road 15721 Park Ten Place 811 Town & Country Way 22535 Colonial Parkway 4400 Highway 225 11233 Shadow Creek Pkwy 3131 Briarpark Drive 24624 I-45 North 15109 Heathrow Forest Pkwy 13100 Wortham Center 13606 Westland East Blvd.

Total office properties delivered year-to-date listed above Grand total delivered year-to-date (including properties below 50,000 sq. ft. not listed above)

Sq. Ft.

% Leased 428,831 350,000 336,000 305,585 305,528 270,000 250,000 196,000 180,000 170,823 162,416 154,205 150,000 129,200 89,750 88,000 80,000 69,000 64,822 63,621 63,218 55,468

87.9 0 63.2 73.8 0 38.4 68.0 100 2.8 100 0 37.7 0 56.3 100 50.0 0 75.4 59.5 0 20.8 100

Developer MacHaik Management Transwestern Commercial Services MetroNational Trammell Crow Company Behringer Harvard Simmons Vedder Partners Dienna Nelson Augustine Company The Woodlands Land Development Stream Realty Partners, L.P. White Rock Commercial The Radler Limited Partnership MK Equity Partners Yancey-Hausman Midway Companies Duke Realty Clay Development & Construction Wallace Bajjali Development PGAL PHA/Houston LLC Transwestern Panattoni Westfair East Ltd.

Delivered Aug-09 Sep-09 Sep-09 Jan-09 Sep-09 Sep-09 Feb-09 Feb-09 Jul-09 Apr-09 Apr-09 Apr-09 Jun-09 Apr-09 Mar-09 Sep-09 Aug-09 Jun-09 Mar-09 Jun-09 Mar-09 Jul-09

3,962,467 4,166,013

COLLIERS INTERNATIONAL

7

THIRD QUARTER 2009

OFFICE

HOUSTON

Colliers International has 294 Offices Worldwide 133 Americas 94 USA 22 Canada 17 Latin America

61 Countries on 6 Continents

64 Asia/Pacific 97 Europe/Middle East/Africa

NORTH AMERICA AFRICA

EUROPE AND MIDDLE EAST

$1.6 Billion in Global Revenue

HAWAII

1.1 Billion Square Feet under Management

SOUTH AMERICA

12,700 Professionals Colliers International office locations are indicated by yellow dots on the map.

ASIA PACIFIC AUSTRALIA

COLLIERS INTERNATIONAL 1300 Post Oak Blvd, 2nd Floor Houston, Texas 77056 Main: 713.222.2111 Fax: 713.830.2118 www.collierstexas.com

COLLIERS INTERNATIONAL

8

HOUSTON

OFFICE

THIRD QUARTER 2009

www.collierstexas.com

Our Knowledge is your Property