The CoStar Office Report

Transcription

1 The CoStar Office Report Y E A R - E N D Houston Office Market

2 Table of Contents Table of Contents A Methodology C Terms & Definitions D Market Highlights & Overview CoStar Markets & Submarkets Employment & Tenant Analysis Employment & Unemployment Analysis Tenant Profiles Inventory & Development Analysis Construction Activity Map Inventory & Development Analysis Select Top Deliveries Select Top Under Construction Properties Figures at a Glance Figures at a Glance by Class & Market Figures at a Glance by Class & Submarket Figures at a Glance Grouped by CBD vs Suburban Historical Figures at a Glance Leasing Activity Analysis Leasing Activity Map Leasing Activity Analysis Select Top Lease Transactions Sales Activity Analysis Sales Activity Analysis Select Top Sales Transactions Select Same Building Sales Select Land Sales Analysis of Individual CoStar Markets Austin County Market Bellaire Market Downtown Market E Fort Bend Co/Sugar Land Market FM 1960 Market Greenway Plaza Market Gulf Freeway/Pasadena Market I-10 East Market Katy Freeway Market Kingwood/Humble Market NASA/Clear Lake Market North Belt Market Northeast Near Market Northwest Market Richmond/Fountainview Market San Felipe/Voss Market San Jacinto County Market South Market South Hwy 35 Market South Main/Medical Center Market Southwest Market West Loop Market Westchase Market 2010 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT A

3 HOUSTON YEAR-END 2010 Houston Office Market Table of Contents (Continued) Woodlands Market B THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

4 Methodology The CoStar Office Report, unless specifically stated otherwise, calculates office statistics using CoStar Group s entire database of existing and under construction office buildings in each metropolitan area. Included are office, office condominium, office loft, office medical, all classes and all sizes, and both multi-tenant and single-tenant buildings, including owner-occupied buildings. CoStar Group's national database includes approximately 71.7 billion square feet of coverage in 3 million properties. All rental rates reported in the CoStar Office Report have been converted to a Full Service equivalent rental rate. For information on subscribing to CoStar s other products and services, please contact us at COSTAR, or visit our web site at Copyright 2010 CoStar Group, Inc. All Rights Reserved. Although CoStar makes efforts to ensure the accuracy and reliability of the information contained herein, CoStar makes no guarantee, representation or warranty regarding the quality, accuracy, timeliness or completeness of the information. The publication is provided as is and CoStar expressly disclaims any guarantees, representations or warranties of any kind, including those of MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. CoStar Group, Inc L ST NW Washington, DC USA (800) NASDAQ: CSGP 2010 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT C

5 HOUSTON YEAR-END 2010 Houston Office Market Terms & Definitions Availability Rate: The ratio of available space to total rentable space, calculated by dividing the total available square feet by the total rentable square feet. Available Space: The total amount of space that is currently being marketed as available for lease in a given time period. It includes any space that is available, regardless of whether the space is vacant, occupied, available for sublease, or available at a future date. Build-to-Suit: A term describing a particular property, developed specifically for a certain tenant to occupy, with structural features, systems, or improvement work designed specifically for the needs of that tenant. A build-to-suit can be leased or owned by the tenant. In a leased build-to-suit, a tenant will usually have a long term lease on the space. Buyer: The individual, group, company, or entity that has purchased a commercial real estate asset. Cap Rate: Short for capitalization rate. The Cap Rate is a calculation that reflects the relationship between one year s net operating income and the current market value of a particular property. The Cap Rate is calculated by dividing the annual net operating income by the sales price (or asking sales price). CBD: Abbreviation for Central Business District. (See also: Central Business District) Central Business District: The designations of Central Business District (CBD) and Suburban refer to a particular geographic area within a metropolitan statistical area (MSA) describing the level of real estate development found there. The CBD is characterized by a high density, well organized core within the largest city of a given MSA. Class A: A classification used to describe buildings that generally qualify as extremely desirable investment-grade properties and command the highest rents or sale prices compared to other buildings in the same market. Such buildings are well located and provide efficient tenant layouts as well as high quality, and in some buildings, one-of-a-kind floor plans. They can be an architectural or historical landmark designed by prominent architects. These buildings contain a modern mechanical system, and have above-average maintenance and management as well as the best quality materials and workmanship in their trim and interior fittings. They are generally the most attractive and eagerly sought by investors willing to pay a premium for quality. Class B: A classification used to describe buildings that generally qualify as a more speculative investment, and as such, command lower rents or sale prices compared to Class A properties. Such buildings offer utilitarian space without special attractions, and have ordinary design, if new or fairly new; good to excellent design if an older non-landmark building. These buildings typically have average to good maintenance, management and tenants. They are less appealing to tenants than Class A properties, and may be deficient in a number of respects including floor plans, condition and facilities. They lack prestige and must depend chiefly on a lower price to attract tenants and investors. Class C: A classification used to describe buildings that generally qualify as no-frills, older buildings that offer basic space and command lower rents or sale prices compared to other buildings in the same market. Such buildings typically have below-average maintenance and management, and could have mixed or low tenant prestige, inferior elevators, and/or mechanical/electrical systems. These buildings lack prestige and must depend chiefly on a lower price to attract tenants and investors. Construction Starts: Buildings that began construction during a specific period of time. (See also: Deliveries) Contiguous Blocks of Space: Space within a building that is, or is able to be joined together into a single contiguous space. Deliveries: Buildings that complete construction during a specified period of time. In order for space to be considered delivered, a certificate of occupancy must have been issued for the property. Delivery Date: The date a building completes construction and receives a certificate of occupancy. Developer: The company, entity or individual that transforms raw land to improved property by use of labor, capital and entrepreneurial efforts. Direct Space: Space that is being offered for lease directly from the landlord or owner of a building, as opposed to space being offered in a building by another tenant (or broker of a tenant) trying to sublet a space that has already been leased. : The square footage of buildings that have received a certificate of occupancy and are able to be occupied by tenants. It does not include space in buildings that are either planned, under construction or under renovation. Flex Building: A type of building designed to be versatile, which may be used in combination with office (corporate headquarters), research and development, quasi-retail sales, and including but not limited to industrial, warehouse, and distribution uses. A typical flex building will be one or two stories with at least half of the rentable area being used as office space, have ceiling heights of 16 feet or less, and have some type of drive-in door, even though the door may be glassed in or sealed off. Full Service Rental Rate: Rental rates that include all operating expenses such as utilities, electricity, janitorial services, taxes and insurance. Gross Absorption: The total change in occupied space over a given period of time, counting space that is occupied but not space that is vacated by tenants. Gross absorption differs from leasing Activity, which is the sum of all space leased over a certain period of time. Unless otherwise noted Gross Absorption includes direct and sublease space. Growth in Inventory: The change in size of the existing square footage in a given area over a given period of time, generally due to the construction of new buildings. Industrial Building: A type of building adapted for such uses as the assemblage, processing, and/or manufacturing of products from raw materials or fabricated parts. Additional uses include warehousing, distribution, and maintenance facilities. The primary purpose of the space is for storing, producing, assembling, or distributing product. Landlord Rep: (Landlord Representative) In a typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the owner/landlord is referred to as the Landlord Rep. Leased Space: All the space that has a financial lease obligation. It includes all leased space, regardless of whether the space is currently occupied by a tenant. Leased space also includes space being offered for sublease. Leasing Activity: The volume of square footage that is committed to and signed under a lease obligation for a specific building or market in a given period of time. It includes direct leases, subleases and renewals of existing leases. It also includes any pre-leasing activity in planned, under construction, or under renovation buildings. Market: Geographic boundaries that serve to delineate core areas that are competitive with each other and constitute a generally accepted primary competitive set of areas. Markets are buildingtype specific, and are non-overlapping contiguous geographic designations having a cumulative sum that matches the boundaries of the entire Region (See also: Region). Markets can be further subdivided into Submarkets. (See also: Submarkets) D THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

6 Multi-Tenant: Buildings that house more than one tenant at a given time. Usually, multi-tenant buildings were designed and built to accommodate many different floor plans and designs for different tenant needs. (See also: Tenancy). Net Absorption: The net change in occupied space over a given period of time. Unless otherwise noted Net Absorption includes direct and sublease space. Net Rental Rate: A rental rate that excludes certain expenses that a tenant could incur in occupying office space. Such expenses are expected to be paid directly by the tenant and may include janitorial costs, electricity, utilities, taxes, insurance and other related costs. New Space: Sometimes called first generation space, refers to space that has never been occupied and/or leased by a tenant. Occupied Space: Space that is physically occupied by a tenant. It does not include leased space that is not currently occupied by a tenant. Office Building: A type of commercial building used exclusively or primarily for office use (business), as opposed to manufacturing, warehousing, or other uses. Office buildings may sometimes have other associated uses within part of the building, i.e., retail sales, financial, or restaurant, usually on the ground floor. Owner: The company, entity, or individual that holds title on a given building or property. Planned/Proposed: The status of a building that has been announced for future development but not yet started construction. Preleased Space: The amount of space in a building that has been leased prior to its construction completion date, or certificate of occupancy date. Price/SF: Calculated by dividing the price of a building (either sales price or asking sales price) by the Rentable Building Area (RBA). Property Manager: The company and/or person responsible for the day-to-day operations of a building, such as cleaning, trash removal, etc. The property manager also makes sure that the various systems within the building, such as the elevators, HVAC, and electrical systems, are functioning properly. Quoted Rental Rate: The asking rate per square foot for a particular building or unit of space by a broker or property owner. Quoted rental rates may differ from the actual rates paid by tenants following the negotiation of all terms and conditions in a specific lease. RBA: Abbreviation for Rentable Building Area. (See also: Rentable Building Area) Region: Core areas containing a large population nucleus, that together with adjacent communities have a high degree of economic and social integration. Regions are further divided into market areas, called Markets. (See also: Markets) Relet Space: Sometimes called second generation or direct space, refers to existing space that has previously been occupied by another tenant. Rentable Building Area: (RBA) The total square footage of a building that can be occupied by, or assigned to a tenant for the purpose of determining a tenant s rental obligation. Generally RBA includes a percentage of common areas including all hallways, main lobbies, bathrooms, and telephone closets. Rental Rates: The annual costs of occupancy for a particular space quoted on a per square foot basis. Sales Price: The total dollar amount paid for a particular property at a particular point in time. Sales Volume: The sum of sales prices for a given group of buildings in a given time period. Seller: The individual, group, company, or entity that sells a particular commercial real estate asset. SF: Abbreviation for Square Feet. Single-Tenant: Buildings that are occupied, or intended to be occupied by a single tenant. (See also: Build-to-suit and Tenancy) Sublease Space: Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation. Sublease space is sometimes referred to as sublet space. Submarkets: Specific geographic boundaries that serve to delineate a core group of buildings that are competitive with each other and constitute a generally accepted primary competitive set, or peer group. Submarkets are building type specific (office, industrial, retail, etc.), with distinct boundaries dependent on different factors relevant to each building type. Submarkets are non-overlapping, contiguous geographic designations having a cumulative sum that matches the boundaries of the Market they are located within (See also: Market). Suburban: The Suburban and Central Business District (CBD) designations refer to a particular geographic area within a metropolitan statistical area (MSA). Suburban is defined as including all office inventory not located in the CBD. (See also: CBD) Tenancy: A term used to indicate whether or not a building is occupied by multiple tenants (See also: Multi-tenant) or a single tenant. (See also: Single-tenant) Tenant Rep: Tenant Rep stands for Tenant Representative. In a typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the tenant is referred to as a Tenant Rep. Time On Market: A measure of how long a currently available space has been marketed for lease, regardless of whether it is vacant or occupied. Under Construction: The status of a building that is in the process of being developed, assembled, built or constructed. A building is considered to be under construction after it has begun construction and until it receives a certificate of occupancy. Rate: A measurement expressed as a percentage of the total amount of physically vacant space divided by the total amount of existing inventory. Under construction space generally is not included in vacancy calculations. Vacant Space: Space that is not currently occupied by a tenant, regardless of any lease obligation that may be on the space. Vacant space could be space that is either available or not available. For example, sublease space that is currently being paid for by a tenant but not occupied by that tenant, would be considered vacant space. Likewise, space that has been leased but not yet occupied because of finish work being done, would also be considered vacant space. Weighted Average Rental Rate: Rental rates that are calculated by factoring in, or weighting, the square footage associated with each particular rental rate. This has the effect of causing rental rates on larger spaces to affect the average more than that of smaller spaces. The weighted average rental rate is calculated by taking the ratio of the square footage associated with the rental rate on each individual available space to the square footage associated with rental rates on all available spaces, multiplying the rental rate by that ratio, and then adding together all the resulting numbers. Unless specifically specified otherwise, rental rate averages include both Direct and Sublet available spaces. Year Built: The year in which a building completed construction and was issued a certificate of occupancy. YTD: Abbreviation for Year-to-Date. Describes statistics that are cumulative from the beginning of a calendar year through whatever time period is being studied COSTAR GROUP, INC. THE COSTAR OFFICE REPORT E

7 OVERVIEW Houston s Decreases to 13.5% Net Absorption Positive 1,249,246 SF in the Quarter The Houston Office market ended the fourth quarter 2010 with a vacancy rate of 13.5%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 1,249,246 square feet in the fourth quarter. Vacant sublease space decreased in the quarter, ending the quarter at 1,738,325 square feet. Rental rates ended the fourth quarter at $22.77, no change over the previous quarter. A total of three buildings delivered to the market in the quarter totaling 317,862 square feet, with 2,170,504 square feet still under construction at the end of the quarter. Absorption Net absorption for the overall Houston office market was positive 1,249,246 square feet in the fourth quarter That compares to positive 142,964 square feet in the third quarter 2010, positive 44,355 square feet in the second quarter 2010, and positive 491,761 square feet in the first quarter Tenants moving out of large blocks of space in 2010 include: Philip Industrial Services (Usa); Inc moving out of 800,000 square feet at Sage Plaza One; Reliant Energy, Inc. moving out of 407,104 square feet at 1000 Main; and Aker Solutions moving out of 253,333 square feet at Western Research Bldg. Tenants moving into large blocks of space in 2010 include: Foster Wheeler USA Corporation moving into 358,138 square feet at Energy Center 1; Aker Solutions ASA moving into 134,550 square feet at Pinnacle Westchase; and Tax Masters, Inc. moving into 107,890 square feet at Dairy Ashford Plaza. The Class-A office market recorded net absorption of positive 1,004,645 square feet in the fourth quarter 2010, compared to positive 172,324 square feet in the third quarter 2010, negative (10,060) in the second quarter 2010, and positive 140,815 in the first quarter The Class-B office market recorded net absorption of positive 138,385 square feet in the fourth quarter 2010, compared to negative (13,209) square feet in the third quarter 2010, positive 97,987 in the second quarter 2010, and positive 200,796 in the first quarter The Class-C office market recorded net absorption of positive 106,216 square feet in the fourth quarter 2010 compared to negative (16,151) square feet in the third quarter 2010, negative (43,572) in the second quarter 2010, and positive 150,150 in the first quarter Net absorption for Houston s central business district was positive 139,061 square feet in the fourth quarter That compares to negative (211,014) square feet in the third quarter 2010, negative (52,672) in the second quarter 2010, and negative (191,211) in the first quarter Net absorption for the suburban markets was positive 1,110,185 square feet in the fourth quarter That compares to positive 353,978 square feet in third quarter 2010, positive 97,027 in the second quarter 2010, and positive 682,972 in the first quarter The office vacancy rate in the Houston market area decreased to 13.5% at the end of the fourth quarter The vacancy rate was 13.9% for the three previous quarters. Class-A projects reported a vacancy rate of 14.1% at the end of the fourth quarter 2010, 14.8% at the end of the third quarter 2010, 14.9% at the end of the second and third quarter Class-B projects reported a vacancy rate of 13.8% at the end of the fourth quarter 2010, 13.9% at the end of the third quarter 2010 and 13.9% as well as for the second and first quarters of Class-C projects reported a vacancy rate of 10.9% at the Rates by Class A B C Total Market 20% 18% 16% 14% Rate 12% 10% 8% 6% 4% 2% 0% COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 1

8 HOUSTON YEAR-END 2010 Houston Office Market OVERVIEW end of the fourth quarter 2010, 11.1% at the end of the third and second quarter 2010, and 11.0% at the end of the first quarter The overall vacancy rate in Houston s central business district at the end of the fourth quarter 2010 decreased to 11.5%. The vacancy rate was 11.7% at the end of the third quarter 2010, 11.3% at the end of the second quarter 2010, and 11.2% at the end of the first quarter The vacancy rate in the suburban markets decreased to 13.9% in the fourth quarter The vacancy rate was 14.3% at the end of the third quarter 2010, 14.5% at the end of the second and first quarter Largest Lease Signings The largest lease signings occurring in 2010 included: the 901,925-square-foot lease signed by Kellogg Brown & Root Llc at KBR Tower in the Downtown market; the 387,345-squarefoot deal signed by Invesco Aim Investment Services, Inc. at 11 Greenway Plaza in the Greenway Plaza market; and the 335,027- square-foot lease signed by Weatherford International at 2000 St James Pl in the West Loop market. Sublease The amount of vacant sublease space in the Houston market decreased to 1,738,325 square feet by the end of the fourth quarter 2010, from 1,933,370 square feet at the end of the third quarter There was 2,137,970 square feet vacant at the end of the second quarter 2010 and 2,201,941 square feet at the end of the first quarter Houston s Class-A projects reported vacant sublease space of 1,009,846 square feet at the end of fourth quarter 2010, down from the 1,089,245 square feet reported at the end of the third quarter There were 1,212,655 square feet of sublease space vacant at the end of the second quarter 2010, and 1,249,198 square feet at the end of the first quarter Class-B projects reported vacant sublease space of 705,083 U.S. Comparison Past 10 Quarters Rate 16.0% 14.0% 12.0% 8.0% 6.0% 4.0% 2.0% q 2009 Houston q q 2010 United States q q square feet at the end of the fourth quarter 2010, down from the 807,310 square feet reported at the end of the third quarter At the end of the second quarter 2010 there were 892,365 square feet, and at the end of the first quarter 2010 there were 906,501 square feet vacant. Class-C projects reported decreased vacant sublease space from the third quarter 2010 to the fourth quarter Sublease vacancy went from 36,815 square feet to 23,396 square feet during that time. There was 32,950 square feet at the end of the second quarter 2010, and 46,242 square feet at the end of the first quarter Sublease vacancy in Houston s central business district stood at 336,002 square feet at the end of the fourth quarter It was 418,827 square feet at the end of the third quarter 2010, 443,290 square feet at the end of the second quarter 2010, and 457,442 square feet at the end of the first quarter Sublease vacancy in the suburban markets ended the fourth quarter 2010 at 1,402,323 square feet. At the end of the third quarter 2010 sublease vacancy was 1,514,543 square feet, was 1,694,680 square feet at the end of the second quarter 2010, and was 1,744,499 square feet at the end of the first quarter Rental Rates The average quoted asking rental rate for available office space, all classes, was $22.77 per square foot per year at the end of the fourth quarter 2010 in the Houston market area. This represented no change in quoted rental rates from the end of the third quarter 2010, when rents were also reported at $22.77 per square foot. The average quoted rate within the Class-A sector was $28.55 at the end of the fourth quarter 2010, while Class-B rates stood at $18.74, and Class-C rates at $ At the end of the third quarter 2010, Class-A rates were $28.79 per square foot, Class-B rates were $18.74, and Class-C rates were $ The average quoted asking rental rate in Houston s CBD was $29.77 at the end of the fourth quarter 2010, and $21.57 in the suburban markets. In the third quarter 2010, quoted rates were $29.69 in the CBD and $21.54 in the suburbs. Deliveries and Construction During the fourth quarter 2010, three buildings totaling 317,862 square feet were completed in the Houston market area. This compares to four buildings totaling 100,181 square feet that were completed in the third quarter 2010, six buildings totaling 89,934 square feet completed in the second quarter 2010, and 144,379 square feet in eight buildings completed in the first quarter There were 2,170,504 square feet of office space under construction at the end of the fourth quarter Some of the notable 2010 deliveries include: Texas Children s Hospital West Campus Phase II, a 246,400-square-foot facility that delivered in fourth quarter 2010 and is now 100% occu- Source: CoStar Property 2 THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

9 OVERVIEW pied, and Westgreen Professional Building, an 80,977-square-foot building that delivered in third quarter 2010 and is now 37% occupied. The largest projects underway at the end of fourth quarter 2010 were BG Group Place, a 972,474-square-foot building with 27% of its space pre-leased, and Discovery Tower, an 844,763- square-foot facility that is 100% pre-leased. Inventory Total office inventory in the Houston market area amounted to 261,465,465 square feet in 5,087 buildings as of the end of the fourth quarter The Class-A office sector consisted of 109,587,166 square feet in 361 projects. There were 2,188 Class- B buildings totaling 111,485,953 square feet, and the Class-C sector consisted of 40,392,346 square feet in 2,538 buildings. Within the Office market there were 416 owner-occupied buildings accounting for 24,937,164 square feet of office space. Sales Activity Tallying office building sales of 15,000 square feet or larger, Houston office sales figures rose during the third quarter 2010 in terms of dollar volume compared to the second quarter of In the third quarter, nine office transactions closed with a total volume of $212,526,571. The nine buildings totaled 1,504,203 square feet and the average price per square foot equated to $ per square foot. That compares to 10 transactions totaling $208,546,373 in the second quarter The total square footage in the second quarter was 1,303,701 square feet for an average price per square foot of $ Total office building sales activity in 2010 was up compared to In the first nine months of 2010, the market saw 25 office sales transactions with a total volume of $533,422,944. The price per square foot averaged $ In the same first Absorption & Deliveries Past 10 Quarters (0.5) (1.0) 1.41 (0.06) 2008 Source: CoStar Property q Net Absorption (0.53) q nine months of 2009, the market posted 16 transactions with a total volume of $126,583,815. The price per square foot averaged $ Cap rates have been lower in 2010, averaging 9.07% compared to the same period in 2009 when they averaged 9.72%. One of the largest transactions that has occurred within the last four quarters in the Houston market is the sale of Heritage Plaza in Houston. This 1,149,635-square-foot office building sold for $321,500,000, or $ per square foot. The property sold on 12/9/2010, at a 6.00% cap rate. Reports compiled by: Alfredo Negron, CoStar Senior Research Manager; Liz Wilkinson, CoStar Research Associate; Page Levendis, CoStar Research Associate; Bryan McCaslin, CoStar Research Associate; and Heather Berwanger CoStar Research Associate q 2010 Deliveries q q 2010 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 3

10 HOUSTON YEAR-END 2010 Houston Office Market MARKETS CoStar Markets & Submarkets In analyzing metropolitan areas in the U.S., CoStar has developed geographic designations to help group properties together, called Regions, Markets and Submarkets. Regions are the equivalent of metropolitan areas, or areas containing a large population nucleus, that together with adjacent communities have a high degree of economic and social integration. Regions are then divided into Markets, which are core areas within a metropolitan area that are known to be competitive with each other in terms of attracting and keeping tenants. Markets are then further subdivided into smaller units called Submarkets, which serve to delineate a core group of buildings that are competitive with each other and constitute a generally accepted competitive set, or peer group. Markets Austin County Bellaire Submarkets Austin County Bellaire Downtown CBD* Midtown E Fort Bend Co/Sugar Land E Fort Bend Co/Sugar Land FM 1960 FM 1960/Champions FM 1960/Hwy 249 FM 1960/I-45 North Greenway Plaza Gulf Freeway/Pasadena Greenway Plaza Gulf Freeway/Pasadena I-10 East I-10 East Katy Freeway Katy Freeway East Katy Freeway West Kingwood/Humble NASA/Clear Lake Kingwood/Humble NASA/Clear Lake North Belt Greenspoint/IAH Greenspoint/N Belt West Northeast Near Northeast Near Northwest North Loop West Northwest Far Northwest Near Richmond/Fountainview San Felipe/Voss San Jacinto County South Richmond/Fountainview San Felipe/Voss San Jacinto County South South Hwy 35 South Hwy 35 South Main/Medical Center South Main/Medical Center Southwest Southwest Beltway 8 Southwest/Hillcroft West Loop Galleria/Uptown Post Oak Park Riverway Westchase Woodlands Westchase Woodlands * Submarkets comprising the CBD. For statistics reference the CBD vs Suburban Figures at a Glance Page. 4 THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

11 EMPLOYMENT AND TENANT Total Employment by Industry Percent of Total Employment by Industry Total Employment Growth Total Number of Jobs Added Per Year 4% 15% 9% 4% 12% 7% Natural Resources & 9% Mining Construction 14% 5% 20% 1% Manufacturing Trade, Transportation & Utilities Information Financial Activities Professional & Business Services Education & Health Services Leisure & Hospitality Other Services Government Percent Growth 5.0% 4.0% 3.0% 2.0% 1.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% Houston U.S. Average Source: Department of Labor, Bureau of Labor Statistics Office* Employment Growth Cumulative Growth in Office* Jobs Over the Past 5 Years Market Employment Growth Inventory Growth Difference Atlanta -9.70% 6.00% % Boston -1.90% 2.70% -4.60% Chicago % 3.50% % Dallas/Ft Worth -0.70% 6.40% -7.10% Denver -3.90% 4.70% -8.60% Los Angeles % 2.80% % New York City -2.80% 1.50% -4.30% Seattle/Puget Sound -4.20% 9.30% % Tampa/St Petersburg % 6.60% % Washington -1.60% 7.50% -9.10% Houston -3.30% 7.60% % Source: Department of Labor, Bureau of Labor Statistics Historical Unemployment Rates Source: Department of Labor, Bureau of Labor Statistics Office* Employment Growth Number of Office* Jobs Added Per Year Percent Growth 6.0% Houston U.S. Average 5.0% 4.0% 3.0% 2.0% 1.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% Source: Department of Labor, Bureau of Labor Statistics. * Office employment is defined as jobs in the Information, Financial Activities, and Professional & Business Services industries 12.0% Houston U.S. Average Percent Unemployment 8.0% 6.0% 4.0% 2.0% Source: Department of Labor, Bureau of Labor Statistics COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 5

12 HOUSTON YEAR-END 2010 Houston Office Market EMPLOYMENT AND TENANT Tenant by Size Range Based on Total Number of Tenants Tenants by Lease Expiration Based on Total Square Footage of Tenants 75,000 SF & Up 2.4% % 50,000-74,999 SF 1.3% % 25,000-49,999 SF 3.5% % 10,000-24,999 SF 11.2% % 5,000-9,999 SF 13.5% 2,500-4,999 SF 20.3% % Up to 2,499 SF 47.6% % 0% 10% 20% 30% 40% 50% 60% 0% 2% 4% 6% 8% 10% 12% 14% 16% Percentage of Tenants Percentage of Tenants Source: CoStar Tenant Source: CoStar Tenant Tenants by Industry SF Per Employee by Industry Based on Total Square Footage of Tenants Based on All Tenants Agri/Mining/Util 20.1% Law Firms Finance/Ins/RE 15.4% Retailers/Wholes Retailers/Wholes 9.2% Services Manufacturing 9.0% Agri/Mining/Util Business-Service 8.6% Transportation Services 8.3% Finance/Ins/RE Law Firms 8.0% Engineers/Archit Engineers/Archit 7.3% Business-Service Medical 6.6% Government Government 2.2% Accountants Transportation 2.1% Communications Communications 1.8% Manufacturing Accountants 1.5% Medical % 5% 10% 15% 20% 25% Percentage of Tenants SF Per Employee Source: CoStar Tenant Source: CoStar Tenant 6 THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

13 INVENTORY & DEVELOPMENT Construction Highlights in Select CoStar Markets Color Coded by Under Construction Square Footage as a Percentage of 2010 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 7

14 HOUSTON YEAR-END 2010 Houston Office Market INVENTORY & DEVELOPMENT Historical Deliveries Deliveries Average Delivered SF Millions of SF * Future deliveries based on current under construction buildings. Construction Activity Markets Ranked by Under Construction Square Footage Under Construction Inventory Average Bldg Size Market # Bldgs Total RBA Preleased SF Preleased % All Existing U/C Downtown 2 1,817,237 1,107, % 107, ,618 FM ,069 12, % 26,006 97,534 North Belt 1 100, , , ,000 Greenway Plaza 1 23,030 11, ,952 23,030 NASA/Clear Lake 1 12,170 4, % 28,889 12,170 South 1 11,987 11, ,365 11,987 Woodlands 1 11, ,701 11,011 San Jacinto County ,882 0 E Fort Bend Co/Sugar Land ,334 0 Bellaire ,093 0 All Other ,389 0 Totals 9 2,170,504 1,247, % 51, ,167 Recent Deliveries Leased & Un-Leased SF in Deliveries Since 2006 Future Deliveries Preleased & Un-Leased SF in Properties Scheduled to Deliver 8.0 Leased Un-Leased 1,200 Preleased Un-Leased Millions of SF Thousands of SF 1, T q THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

15 INVENTORY & DEVELOPMENT Historical Construction Starts & Deliveries Square Footage Per Quarter Starting and Completing Construction 3.0 Construction Starts 2.66 Deliveries Millions of SF q q q q Recent Deliveries by Project Size Breakdown of Year-to-Date Development Based on RBA of Project Building Size # Bldgs RBA SF Leased % Leased Avg Rate Single-Tenant Multi-Tenant < 50,000 SF , , % $ ,979 50,000 SF - 99,999 SF 2 144,977 38, % $ , ,000 SF - 249,999 SF 1 246, , $ 0 246, ,000 SF - 499,999 SF $ 0 0 >= 500,000 SF $ 0 0 Recent Development by Tenancy Comparison Based on RBA Developed for Single & Multi Tenant Use Based on Total RBA 2010 Deliveries Currently Under Construction By Class By Space Type 0% 15% 18% 100% 44% 56% 43% 42% 82% Multi Single Multi Single Class A Class B Class C Multi Single 2010 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 9

16 HOUSTON YEAR-END 2010 Houston Office Market INVENTORY & DEVELOPMENT 10 THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

17 INVENTORY & DEVELOPMENT 2010 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 11

18 HOUSTON YEAR-END 2010 Houston Office Market FIGURES AT A GLANCE Class A Market Statistics Year-End 2010 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Austin County $ Bellaire 11 1,489, , , % (18,447) 0 0 $23.48 Downtown 35 31,053,487 2,402,841 2,827, % (224,708) 0 1,817,237 $33.87 E Fort Bend Co/Sugar Land 22 3,916,497 1,130,718 1,142, % (330,385) 0 0 $28.52 FM ,926,138 1,330,031 1,350, % 434, ,000 $26.08 Greenway Plaza 17 6,267, , , % 38, $26.91 Gulf Freeway/Pasadena 2 75,066 22,183 28, % 11,077 22,704 0 $27.78 I-10 East $ Katy Freeway 76 16,388,958 2,491,636 2,518, % 646, ,377 0 $27.48 Kingwood/Humble 3 158,640 25,904 25, % 4, $29.50 NASA/Clear Lake 12 1,228, , , % 15, $23.36 North Belt 22 5,207, , , % 62, ,000 $19.61 Northeast Near $ Northwest 25 4,184,931 1,319,911 1,321, % 86, $25.28 Richmond/Fountainview $ San Felipe/Voss 3 1,737, , , % (28,381) 0 0 $29.21 San Jacinto County $ South 3 188,500 38,600 38, % 59, $26.63 South Hwy $ South Main/Medical Center 14 3,916, , , % 49, $29.13 Southwest 8 1,849, , , % 14, $15.20 West Loop 42 16,452,181 1,521,051 1,657, % 134, $29.08 Westchase 27 7,794,880 1,325,592 1,406, % 226, $29.83 Woodlands 21 3,752, , , % 125, $29.48 Totals ,587,166 14,457,662 15,467, % 1,307, ,081 2,073,237 $28.55 Class B Market Statistics Year-End 2010 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Austin County 3 16, $ Bellaire 21 2,580, , , % (122,412) 0 0 $19.26 Downtown ,704,432 2,361,667 2,395, % (113,162) 0 0 $23.52 E Fort Bend Co/Sugar Land 187 3,720, , , % 95, ,884 0 $21.15 FM ,870,033 1,478,019 1,543, % 116,723 38,854 39,069 $16.48 Greenway Plaza 44 3,966, , , % 3, ,030 $21.54 Gulf Freeway/Pasadena 134 3,295, , , % (17,587) 0 0 $20.54 I-10 East ,701 94, , % 39, $14.02 Katy Freeway ,262,490 1,030,008 1,092, % 292,453 3,500 0 $18.62 Kingwood/Humble 59 1,798, , , % 37,606 22,929 0 $20.07 NASA/Clear Lake 147 5,287, , , % 55,996 32,462 12,170 $20.31 North Belt 75 6,436,864 1,224,278 1,336, % (133,236) 0 0 $15.52 Northeast Near ,124 91,872 91, % 21, $18.68 Northwest 158 9,139,845 1,644,469 1,670, % (34,941) 0 0 $15.54 Richmond/Fountainview ,675 98,245 98, % 10, $15.55 San Felipe/Voss 36 3,530, , , % 4, $19.66 San Jacinto County 1 2, $ South 65 1,209, , , % 67, ,987 $20.37 South Hwy ,101 5,574 5, % $16.24 South Main/Medical Center 58 3,947, , , % (73,730) 9,646 0 $21.25 Southwest 121 7,613,014 1,315,864 1,462, % 80, $15.41 West Loop 64 5,969,450 1,347,914 1,362, % 23, $20.27 Westchase 64 6,976, , , % 26, $18.44 Woodlands 207 5,614, , , % 42,967 94,000 11,011 $20.79 Totals 2, ,485,953 14,710,838 15,415, % 423, ,275 97,267 $ THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

19 FIGURES AT A GLANCE Class C Market Statistics Year-End 2010 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Austin County 6 22, $ Bellaire , , , % (3,479) 0 0 $15.31 Downtown 346 6,333,671 1,520,278 1,520, % 61, $17.73 E Fort Bend Co/Sugar Land 86 1,016,174 66,495 67, % (2,292) 0 0 $20.76 FM ,584, , , % 55, $15.54 Greenway Plaza 157 1,963, , , % (8,877) 0 0 $17.90 Gulf Freeway/Pasadena 241 2,798, , , % 42, $13.48 I-10 East ,563 23,324 29, % (21,183) 0 0 $14.62 Katy Freeway 177 3,460, , , % 26, $14.66 Kingwood/Humble ,712 27,950 27, % $15.60 NASA/Clear Lake 145 2,266, , ,097 (12,446) 0 0 $16.39 North Belt 63 1,975, , , % (44,258) 0 0 $13.51 Northeast Near ,456 45,338 45, % (7,503) 0 0 $16.92 Northwest 215 2,869, , , % 56, $13.55 Richmond/Fountainview 84 1,240,411 65,052 65, % 14, $14.70 San Felipe/Voss ,980 22,573 22, % (673) 0 0 $19.44 San Jacinto County $ South ,721 66,146 66, % 14, $15.71 South Hwy ,522 17,872 17, % (11,196) 0 0 $20.76 South Main/Medical Center 129 3,297, , , % 52, $18.08 Southwest 149 4,035, , , % 10, $12.51 West Loop ,808 1,190 1, % 22, $16.87 Westchase 30 1,083,769 59,929 59, % 3, $15.31 Woodlands , , , % (52,377) 0 0 $21.37 Totals 2,538 40,392,346 4,368,566 4,391, % 196, $15.64 Total Office Market Statistics Year-End 2010 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Austin County 9 39, $ Bellaire 67 4,964, , , % (144,338) 0 0 $20.61 Downtown ,091,590 6,284,786 6,743, % (276,209) 0 1,817,237 $28.87 E Fort Bend Co/Sugar Land 295 8,653,481 1,563,232 1,579, % (237,605) 100,884 0 $25.08 FM ,381,156 3,045,395 3,132, % 606,560 38, ,069 $19.10 Greenway Plaza ,197,614 1,404,183 1,541, % 33, ,030 $24.57 Gulf Freeway/Pasadena 377 6,168, , , % 35,724 22,704 0 $18.26 I-10 East 85 1,099, , , % 18, $14.07 Katy Freeway ,111,857 3,779,059 3,868, % 965, ,877 0 $23.13 Kingwood/Humble 128 2,627, , , % 42,714 22,929 0 $19.68 NASA/Clear Lake 304 8,782, , , % 59,339 32,462 12,170 $19.93 North Belt ,619,806 1,755,014 1,939, % (114,752) 0 100,000 $16.00 Northeast Near 100 1,436, , , % 14, $18.08 Northwest ,194,744 3,115,571 3,143, % 107, $19.49 Richmond/Fountainview 111 2,236, , , % 25, $15.34 San Felipe/Voss 50 5,495, , , % (24,858) 0 0 $23.09 San Jacinto County 1 2, $ South 156 2,084, , , % 141, ,987 $20.66 South Hwy ,623 23,446 23, % (10,845) 0 0 $17.41 South Main/Medical Center ,162, , , % 28,916 9,646 0 $23.76 Southwest ,497,716 2,116,069 2,304, % 104, $14.94 West Loop ,181,439 2,870,155 3,021, % 179, $26.17 Westchase ,854,730 2,149,029 2,294, % 256, $25.01 Woodlands ,239,487 1,157,085 1,299, % 115,754 94,000 11,011 $24.18 Totals 5, ,465,465 33,537,066 35,275, % 1,928, ,356 2,170,504 $ COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 13

20 HOUSTON YEAR-END 2010 Houston Office Market FIGURES AT A GLANCE Class A Submarket Statistics Year-End 2010 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Austin County $ Bellaire 11 1,489, , , % (18,447) 0 0 $23.48 CBD 30 29,203,387 2,190,951 2,495, % (241,532) 0 1,817,237 $34.57 E Fort Bend Co/Sugar Land 22 3,916,497 1,130,718 1,142, % (330,385) 0 0 $28.52 FM 1960/Champions 1 150, $ FM 1960/Hwy ,429,123 1,277,977 1,285, % 441, ,000 $26.68 FM 1960/I-45 North 2 347,015 52,054 64, % (6,811) 0 0 $18.90 Galleria/Uptown 28 12,071,207 1,225,953 1,301, % 92, $29.69 Greenspoint/IAH 4 680,397 62,325 62, % 19, ,000 $21.47 Greenspoint/N Belt West 18 4,527, , , % 43, $19.11 Greenway Plaza 17 6,267, , , % 38, $26.91 Gulf Freeway/Pasadena 2 75,066 22,183 28, % 11,077 22,704 0 $27.78 I-10 East $ Katy Freeway East 14 3,555, , , % 297, $33.00 Katy Freeway West 62 12,833,344 2,166,612 2,190, % 349, ,377 0 $26.83 Kingwood/Humble 3 158,640 25,904 25, % 4, $29.50 Midtown 5 1,850, , , % 16, $26.17 NASA/Clear Lake 12 1,228, , , % 15, $23.36 North Loop West 5 1,054, , , % 24, $24.20 Northeast Near $ Northwest Far 19 2,893,049 1,032,187 1,032, % 62, $25.61 Northwest Near 1 237, $ Post Oak Park 9 2,497, , , % (4,835) 0 0 $28.82 Richmond/Fountainview $ Riverway 5 1,883, , , % 46, $23.93 San Felipe/Voss 3 1,737, , , % (28,381) 0 0 $29.21 San Jacinto County $ South 3 188,500 38,600 38, % 59, $26.63 South Hwy $ South Main/Medical Center 14 3,916, , , % 49, $29.13 Southwest Beltway , , , % 22, $16.79 Southwest/Hillcroft 5 1,275, , , % (8,699) 0 0 $14.58 Westchase 27 7,794,880 1,325,592 1,406, % 226, $29.83 Woodlands 21 3,752, , , % 125, $29.48 Totals ,587,166 14,457,662 15,467, % 1,307, ,081 2,073,237 $ THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

21 FIGURES AT A GLANCE Class B Submarket Statistics Year-End 2010 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Austin County 3 16, $ Bellaire 21 2,580, , , % (122,412) 0 0 $19.26 CBD 50 14,556,947 2,014,530 2,046, % (116,403) 0 0 $23.64 E Fort Bend Co/Sugar Land 187 3,720, , , % 95, ,884 0 $21.15 FM 1960/Champions 85 2,695, , , % 32,859 9,558 0 $13.16 FM 1960/Hwy ,296, , , % 88,524 6,296 39,069 $21.04 FM 1960/I-45 North 68 1,877, , , % (4,660) 23,000 0 $15.56 Galleria/Uptown 26 2,876, , , % 64, $20.88 Greenspoint/IAH 26 1,905, , , % (73,870) 0 0 $16.40 Greenspoint/N Belt West 49 4,531,339 1,016,622 1,128, % (59,366) 0 0 $15.32 Greenway Plaza 44 3,966, , , % 3, ,030 $21.54 Gulf Freeway/Pasadena 134 3,295, , , % (17,587) 0 0 $20.54 I-10 East ,701 94, , % 39, $14.02 Katy Freeway East 68 3,265, , , % 14, $18.41 Katy Freeway West 133 7,996, , , ,510 3,500 0 $18.69 Kingwood/Humble 59 1,798, , , % 37,606 22,929 0 $20.07 Midtown 89 4,147, , , % 3, $22.89 NASA/Clear Lake 147 5,287, , , % 55,996 32,462 12,170 $20.31 North Loop West 64 3,722, , , % (22,664) 0 0 $16.18 Northeast Near ,124 91,872 91, % 21, $18.68 Northwest Far 73 4,494, , , % (29,230) 0 0 $14.80 Northwest Near , , , % 16, $14.94 Post Oak Park 24 2,054, , , % (25,608) 0 0 $19.45 Richmond/Fountainview ,675 98,245 98, % 10, $15.55 Riverway 14 1,039, , , % (15,399) 0 0 $20.27 San Felipe/Voss 36 3,530, , , % 4, $19.66 San Jacinto County 1 2, $ South 65 1,209, , , % 67, ,987 $20.37 South Hwy ,101 5,574 5, % $16.24 South Main/Medical Center 58 3,947, , , % (73,730) 9,646 0 $21.25 Southwest Beltway ,827, ,624 1,049, % 61, $15.36 Southwest/Hillcroft 26 1,785, , , % 18, $15.59 Westchase 64 6,976, , , % 26, $18.44 Woodlands 207 5,614, , , % 42,967 94,000 11,011 $20.79 Totals 2, ,485,953 14,710,838 15,415, % 423, ,275 97,267 $ COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 15

22 HOUSTON YEAR-END 2010 Houston Office Market FIGURES AT A GLANCE Class C Submarket Statistics Year-End 2010 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Austin County 6 22, $ Bellaire , , , % (3,479) 0 0 $15.31 CBD 66 3,236, , , % 42, $18.23 E Fort Bend Co/Sugar Land 86 1,016,174 66,495 67, % (2,292) 0 0 $20.76 FM 1960/Champions ,553 69,940 69, % 27, $13.31 FM 1960/Hwy ,055,599 80,579 83, % 12, $15.49 FM 1960/I-45 North ,833 86,826 86, % 16, $18.26 Galleria/Uptown 8 316, $ Greenspoint/IAH ,884 56,369 56, % (1,026) 0 0 $13.73 Greenspoint/N Belt West 45 1,697, , , % (43,232) 0 0 $13.46 Greenway Plaza 157 1,963, , , % (8,877) 0 0 $17.90 Gulf Freeway/Pasadena 241 2,798, , , % 42, $13.48 I-10 East ,563 23,324 29, % (21,183) 0 0 $14.62 Katy Freeway East 126 2,641, , , % 25, $14.55 Katy Freeway West ,914 78,455 78, % $14.94 Kingwood/Humble ,712 27,950 27, % $15.60 Midtown 280 3,097, , , % 19, $16.84 NASA/Clear Lake 145 2,266, , ,097 (12,446) 0 0 $16.39 North Loop West 115 1,258,004 49,999 49, % 19, $15.51 Northeast Near ,456 45,338 45, % (7,503) 0 0 $16.92 Northwest Far 75 1,043,373 58,211 58, % 35, $13.14 Northwest Near ,591 42,981 42, % 1, $12.24 Post Oak Park , % (250) 0 0 $24.00 Richmond/Fountainview 84 1,240,411 65,052 65, % 14, $14.70 Riverway 4 159, % 22, $16.50 San Felipe/Voss ,980 22,573 22, % (673) 0 0 $19.44 San Jacinto County $ South ,721 66,146 66, % 14, $15.71 South Hwy ,522 17,872 17, % (11,196) 0 0 $20.76 South Main/Medical Center 129 3,297, , , % 52, $18.08 Southwest Beltway ,782, , , % (10,648) 0 0 $13.16 Southwest/Hillcroft 70 2,252, , , % 20, $12.16 Westchase 30 1,083,769 59,929 59, % 3, $15.31 Woodlands , , , % (52,377) 0 0 $21.37 Totals 2,538 40,392,346 4,368,566 4,391, % 196, $ THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

23 FIGURES AT A GLANCE Total Office Submarket Statistics Year-End 2010 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Austin County 9 39, $ Bellaire 67 4,964, , , % (144,338) 0 0 $20.61 CBD ,996,812 5,045,686 5,381, % (315,836) 0 1,817,237 $29.77 E Fort Bend Co/Sugar Land 295 8,653,481 1,563,232 1,579, % (237,605) 100,884 0 $25.08 FM 1960/Champions 175 3,829, , , % 59,992 9,558 0 $13.18 FM 1960/Hwy ,781,588 1,886,498 1,919, % 541,565 6, ,069 $23.53 FM 1960/I-45 North 104 2,770, , , % 5,003 23,000 0 $16.25 Galleria/Uptown 62 15,263,793 1,955,504 2,040, % 157, $27.74 Greenspoint/IAH 48 2,863, , , % (55,834) 0 100,000 $17.15 Greenspoint/N Belt West ,756,000 1,428,664 1,612, % (58,918) 0 0 $15.73 Greenway Plaza ,197,614 1,404,183 1,541, % 33, ,030 $24.57 Gulf Freeway/Pasadena 377 6,168, , , % 35,724 22,704 0 $18.26 I-10 East 85 1,099, , , % 18, $14.07 Katy Freeway East 208 9,462, , , % 338, $21.57 Katy Freeway West ,649,220 2,997,592 3,070, % 627, ,877 0 $23.51 Kingwood/Humble 128 2,627, , , % 42,714 22,929 0 $19.68 Midtown 374 9,094,778 1,239,100 1,361, % 39, $22.84 NASA/Clear Lake 304 8,782, , , % 59,339 32,462 12,170 $19.93 North Loop West 184 6,035,259 1,246,764 1,260, % 20, $18.11 Northeast Near 100 1,436, , , % 14, $18.08 Northwest Far 167 8,430,450 1,695,767 1,709, % 68, $21.13 Northwest Near 47 1,729, , ,040 18, $14.05 Post Oak Park 44 4,836, , , % (30,693) 0 0 $22.37 Richmond/Fountainview 111 2,236, , , % 25, $15.34 Riverway 23 3,081, , , % 53, $22.21 San Felipe/Voss 50 5,495, , , % (24,858) 0 0 $23.09 San Jacinto County 1 2, $ South 156 2,084, , , % 141, ,987 $20.66 South Hwy ,623 23,446 23, % (10,845) 0 0 $17.41 South Main/Medical Center ,162, , , % 28,916 9,646 0 $23.76 Southwest Beltway ,182,851 1,137,323 1,304, % 73, $15.31 Southwest/Hillcroft 101 5,314, , , % 30, $14.36 Westchase ,854,730 2,149,029 2,294, % 256, $25.01 Woodlands ,239,487 1,157,085 1,299, % 115,754 94,000 11,011 $24.18 Totals 5, ,465,465 33,537,066 35,275, % 1,928, ,356 2,170,504 $ COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 17

24 HOUSTON YEAR-END 2010 Houston Office Market FIGURES AT A GLANCE Class A Market Statistics Year-End 2010 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD 30 29,203,387 2,190,951 2,495, % (241,532) 0 1,817,237 $34.57 Suburban ,383,779 12,266,711 12,972, % 1,549, , ,000 $27.08 Totals ,587,166 14,457,662 15,467, % 1,307, ,081 2,073,237 $28.55 Class B Market Statistics Year-End 2010 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD 50 14,556,947 2,014,530 2,046, % (116,403) 0 0 $23.64 Suburban 2,138 96,929,006 12,696,308 13,369, % 540, ,275 97,267 $18.11 Totals 2, ,485,953 14,710,838 15,415, % 423, ,275 97,267 $18.74 Class C Market Statistics Year-End 2010 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD 66 3,236, , , % 42, $18.23 Suburban 2,472 37,155,868 3,528,361 3,551, % 154, $15.39 Totals 2,538 40,392,346 4,368,566 4,391, % 196, $15.64 Class A & B Market Statistics Year-End 2010 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD 80 43,760,334 4,205,481 4,541, % (357,935) 0 1,817,237 $30.42 Suburban 2, ,312,785 24,963,019 26,341, % 2,089, , ,267 $22.24 Totals 2, ,073,119 29,168,500 30,883, % 1,731, ,356 2,170,504 $23.49 Total Office Market Statistics Year-End 2010 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD ,996,812 5,045,686 5,381, % (315,836) 0 1,817,237 $29.77 Suburban 4, ,468,653 28,491,380 29,893, % 2,244, , ,267 $21.57 Totals 5, ,465,465 33,537,066 35,275, % 1,928, ,356 2,170,504 $ THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

25 FIGURES AT A GLANCE Class A Market Statistics Year-End 2010 Net Deliveries UC Inventory Period # Blds Total RBA Direct SF Total SF Vac % Absorption # Blds Total RBA # Blds Total RBA Rates q ,587,166 14,457,662 15,467, % 1,004, , ,073,237 $ ,340,766 15,136,508 16,225, % 172, , ,319,637 $ q ,259,789 15,104,445 16,317, % (10,060) 1 22, ,400,614 $ ,237,085 15,035,138 16,284, % 140, ,167,318 $ q ,237,085 15,160,318 16,425, % 155, , ,167,318 $ ,658,294 14,642,462 16,001, % (196,091) 10 2,085, ,746,109 $ q ,573,123 12,490,578 13,720, % 492, ,155, ,727,599 $ ,417,342 11,871,400 13,057, % 349, ,503, ,863,005 $ ,913,355 10,950,250 11,902, % 2,749, ,487, ,209,373 $ ,425,580 8,307,477 9,164, % 4,048, ,873, ,009,541 $ ,552,225 10,169,917 11,339, % 4,976, ,329, ,660,320 $ ,222,464 13,440,274 14,985, % 2,751, ,734, ,716,191 $ ,488,189 14,245,690 16,003, % 100, , ,276,128 $ ,884,234 13,350,789 15,499, % 134, ,118, ,490,163 $ ,765,342 10,804,639 13,515, % (618,325) 4 2,746, ,224,494 $ ,019,191 7,816,434 10,150, % 735, ,555, ,548,332 $22.36 Quoted Class B Market Statistics Year-End 2010 Net Deliveries Period # Blds Total RBA Direct SF Total SF Vac % Absorption # Blds Total RBA # Blds Total RBA Rates q 2, ,485,953 14,710,838 15,415, % 138, , ,267 $ , ,414,491 14,675,534 15,482, % (13,209) 3 19, ,729 $ q 2, ,395,287 14,558,066 15,450, % 97, , ,834 $ , ,328,057 14,574,687 15,481, % 200, , ,077 $ q 2, ,183,678 14,579,902 15,537, % 160, , ,255 $ , ,137,797 14,802,492 15,652, % 156, , ,490 $ q 2, ,825,663 14,682,929 15,496, % 32, , ,124 $ , ,421,818 14,319,107 15,124, % (834,043) , ,573 $ , ,202,379 13,247,996 14,071, % 598, ,662, ,000,141 $ , ,603,905 12,530,898 13,071, % 2,865, ,069, ,499,593 $ , ,941,277 13,686,627 14,273, % 2,569, ,856, ,826,080 $ , ,151,443 14,211,266 15,052, % 2,410, ,720, ,133,800 $ , ,430,971 14,534,002 15,742, % 1,648, ,015, ,048,613 $ , ,512,409 14,819,188 16,472, % (51,875) 58 1,409, ,097,118 $ , ,103,094 13,495,952 15,011, % 1,017, ,994, ,033,265 $ ,607 99,108,495 12,126,933 14,034, % (690,462) 40 1,346, ,929,900 $17.17 UC Inventory Quoted Total Office Market Statistics Year-End 2010 Net Deliveries UC Inventory Period # Blds Total RBA Direct SF Total SF Vac % Absorption # Blds Total RBA # Blds Total RBA Rates q 5, ,465,465 33,537,066 35,275, % 1,249, , ,170,504 $ , ,147,603 34,273,405 36,206, % 142, , ,488,366 $ q 5, ,047,422 34,111,588 36,249, % 44, , ,526,448 $ , ,957,488 34,002,038 36,203, % 491, , ,348,395 $ q 5, ,813,109 34,301,447 36,551, % 346, , ,440,573 $ , ,188,437 34,009,987 36,273, % 24, ,397, ,055,599 $ q 5, ,791,132 31,808,472 33,900, % 439, ,559, ,277,723 $ , ,231,506 30,754,007 32,780, % (525,333) 27 1,846, ,711,578 $ , ,508,080 28,724,502 30,531, % 2,868, ,150, ,209,514 $ , ,501,331 24,945,819 26,393, % 7,324, ,975, ,509,134 $ , ,959,612 28,390,386 30,175, % 7,234, ,199, ,519,478 $ , ,021,153 32,057,451 34,472, % 5,462, ,565, ,862,905 $ , ,587,964 33,495,606 36,501, % 2,243, ,742, ,427,219 $ , ,007,933 33,305,260 37,164, % (822,640) 71 3,581, ,698,139 $ , ,678,812 28,741,438 33,012, % 503, ,858, ,311,150 $ , ,880,313 24,443,070 28,717, % (122,989) 56 3,024, ,591,502 $18.65 Quoted 2010 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 19

26 HOUSTON YEAR-END 2010 Houston Office Market LEASING ACTIVITY Leasing Highlights in Select CoStar Markets Color Coded by Rate 20 THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

27 LEASING ACTIVITY Historical Rental Rates Based on Full-Service Equivalent Rental Rates A B C Total Market $35.00 $3 Dollars/SF/Year $25.00 $2 $15.00 $1 $5.00 $ by Available Space Type by Class Percent of All Vacant Space in Direct vs. Sublet Percent of All Vacant Space by Class Houston United States Houston United States 5% 5% 12% 15% 44% 44% 48% 37% 95% 95% Direct Sublet Direct Sublet Class A Class B Class C Class A Class B Class C U.S. Rental Rate Comparison Based on Full-Service Equivalent Rental Rates Future Space Available Space Scheduled to be Available for Occupancy* $25.00 Houston United States $2 2.5 Dollars/SF/Year $15.00 $1 $5.00 Millions $ q q q q q q q q * Includes Under Construction Spaces 2010 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 21

28 HOUSTON YEAR-END 2010 Houston Office Market LEASING ACTIVITY Select Top Office Leases Based on Leased Square Footage For Deals Signed in 2010 Building Submarket SF Qtr Tenant Name Tenant Rep Company Landlord Rep Company 1 KBR Tower* CBD 901,925 1st Kellogg Brown & Root Llc Jones Lang LaSalle Americas, Inc. Brookfield Properties Management, L 2 11 Greenway Plaza* Greenway Plaza 387,345 4th Invesco Aim Investment Services, Inc. Studley Crescent Real Estate St James Pl Galleria/Uptown 335,027 4th Weatherford International CB Richard Ellis Core Real Estate, LLC Main CBD 316,763 3rd Shell Trading Cushman & Wakefield, Inc. PM Realty Group Jefferson Bldg* CBD 314,000 1st Kellogg Brown & Root Jones Lang LaSalle Americas, Inc. Brookfield Properties Management, L 6 Ten West Corporate Center II* Katy Freeway West 248,872 3rd Mustang Engineering CB Richard Ellis Despain, Joel 7 Clay Road Building* Katy Freeway East 227,499 4th AMEC Paragon Engineering Services, Inc. Studley Behringer Harvard 8 One Commerce Green Bldg* Greenspoint/N Belt West 213,645 2nd Nabors Industries Ltd. N/A Parkway Realty Services, LLC 9 Galleria Tower II Galleria/Uptown 192,550 3rd Southern Union Company Jones Lang LaSalle Americas, Inc. Colvill Office Properties 10 Two Eldridge Place* Katy Freeway West 186,939 3rd J. Ray McDermott, Inc. Jones Lang LaSalle Americas, Inc. CB Richard Ellis 11 BG Group Place CBD 164,188 4th BG Group Plc Cushman & Wakefield, Inc. Hines Holdings Inc North Freeway Office Bldg Greenspoint/N Belt West 143,500 1st Exon Mobil Corporation Transwestern N/A 13 Pinnacle Westchase Westchase 134,550 2nd Aker Solutions ASA Studley Stream Realty Partners, L.P. 14 Post Oak Central Three* Galleria/Uptown 130,846 2nd SUEZ Energy Newmark Knight Frank CAPSTAR Commercial Real Estate Svcs 15 Wells Fargo Plaza CBD 122,896 1st U.S. General Services Administration Jones Lang LaSalle Americas, Inc. CB Richard Ellis 16 River Oaks Plaza Greenway Plaza 104,671 4th N/A N/A Cushman & Wakefield, Inc. 17 Two WestLake Park* Katy Freeway West 92,507 3rd British Petroleum Jones Lang LaSalle Americas, Inc. PM Realty Group Westway Park Blvd Northwest Far 92,420 1st CyrusOne Direct Deal Stan Johnson Company CityWest* Westchase 72,185 3rd TGS-Nopec Geophysical Company, L.P. NAI Houston N/A 20 Park Towers South* Post Oak Park 66,750 4th Cameron International Corp. CB Richard Ellis TPMC Realty Corporation 21 The Reserve at Sierra Pines Woodlands 60,903 2nd Praxair NAI Houston Stream Realty Partners, L.P. 22 The Lake Corporate Center E Fort Bend Co/Sugar Land 60,693 2nd Money Management International Jones Lang LaSalle Americas, Inc. Colvill Office Properties 23 Thirty Forty Post Oak* Galleria/Uptown 57,549 2nd Bechtel Corporation CB Richard Ellis Palermo Barr CREA 24 One Allen Center* CBD 56,186 3rd Macquarie Bank N/A CB Richard Ellis 25 Beltway Lakes Phase I Northwest Far 55,520 2nd N/A N/A Colliers International Hollister Rd* Northwest Far 52,432 1st Telvent N/A N/A 27 Marathon Oil Tower Galleria/Uptown 46,796 2nd Aon Corporation Jones Lang LaSalle Americas, Inc. CB Richard Ellis 28 Koch Bldg Greenway Plaza 45,565 2nd Merrill Lynch Global Commodities N/A Transwestern 29 First City Tower CBD 41,410 1st Sutherland Asbill & Brennan, LLP Cushman & Wakefield, Inc. Colvill Office Properties 30 Greenspoint Park II Greenspoint/N Belt West 40,385 2nd N/A N/A Grubb & Ellis 31 One Riverway* Riverway 39,617 2nd Texas Capital Bank Texas Capital Bank N/A 32 FM 1960 MEDICAL CENTER - Building 1 FM 1960/I-45 North 38,513 2nd 1960 Family Practice N/A N/A Milam* CBD 37,276 2nd Valerus Compression Studley Transwestern 34 Bridgewood I* Greenspoint/N Belt West 33,759 1st ENGlobal Corporation Grubb & Ellis PM Realty Group 35 Brooktree Bldg North Loop West 32,960 1st Houston Area Community Services, Inc. B.K. Witt & Associates Colliers International Cutten Rd FM 1960/Champions 31,500 4th FMA Alliance, Ltd. Direct Deal JacksonCooksey 37 The Esperson Bldgs* CBD 30,387 3rd Martin, Disiere, Jefferson & Wisdom, L.L.P. N/A Transwestern Kurland Dr* Gulf Freeway/Pasadena 27,610 4th L-Con Constructors, Inc. N/A N/A 39 Park Ten Plaza Katy Freeway West 27,306 1st Multiphase Solutions; Inc. N/A Transwestern 40 Energy Center II* Katy Freeway West 27,259 1st CARBO Ceramics Studley CB Richard Ellis * Renewal 22 THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

29 SALES ACTIVITY The Optimist Sales Index Average of Two Highest Price/SF's and Two Lowest Cap Rates Per Quarter 12.0% Cap Rate Price/SF $300 $250 Cap Rate Percentage 8.0% 6.0% 4.0% $200 $150 $100 Dollars/SF 2.0% $ q q q q q q 2010 $0 Source: CoStar COMPS Sales Volume & Price Sales Analysis by Building Size Based on Office Building Sales of 15,000 SF and Larger Based on Office Building Sales From Oct Sept Sales Volume Price/SF Bldg Size # RBA $ Volume Price/SF Cap Rate $1,200 $250 Millions of Sales Volume Dollars $1,000 $800 $600 $400 $200 $200 $150 $100 $50 Price/SF < 50,000 SF ,347 $ 31,567,500 $ % 50K-249K SF 20 2,700,165 $ 326,146,571 $ % 250K-499K SF 4 1,418,203 $ 249,825,873 $ % $ $0 >500K SF 1 807,586 $ 166,000,000 $ Source: CoStar COMPS Source: CoStar COMPS U.S. Price/SF Comparison Based on Office Building Sales of 15,000 SF and Larger U.S. Cap Rate Comparison Based on Office Building Sales of 15,000 SF and Larger $320 Houston US 11.0% Houston US Dollars per SF $270 $220 $170 $120 $70 Cap Rate Percentage 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% $ % Source: CoStar COMPS Source: CoStar COMPS 2010 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 23

30 HOUSTON YEAR-END 2010 Houston Office Market SALES ACTIVITY 24 THE COSTAR OFFICE REPORT 2010 COSTAR GROUP, INC.

31 SALES ACTIVITY Select Land Sales Based on Commercially Zoned Land Sales Occurring From Oct Dec Post Oak Blvd, Houston East Fwy, Houston 300 W 17th St, Houston Sale Price: $13,024,440 Sale Price: $4,000,000 Sale Price: $2,600,000 Acres: 2.29 Acres: Acres: 2.76 Price/SF: $ Price/SF: $2.35 Price/SF: $21.63 Closing Date: 09/20/2010 Closing Date: 04/23/2010 Closing Date: 08/10/2010 Zoning: N/Ap Zoning: none Zoning: N/A Intended Use: Office Intended Use: Warehouse Intended Use: Hold for Development Buyer: Skanska USA Commercial Development In Buyer: J D Fields & Co., Inc. Buyer: Sullivan Interests, LP Seller: Hines Seller: Ritchie Bros Auctioneers (America) Inc Seller: Houston Independent School District 800 W 34th St, Houston Kolbe Rd, Cypress Ronan Rd, Houston Sale Price: $2,442,180 Sale Price: $1,500,000 Sale Price: $1,421,654 Acres: 5.75 Acres: Acres: 5.08 Price/SF: $9.75 Price/SF: $1.32 Price/SF: $6.42 Closing Date: 03/04/2010 Closing Date: 08/31/2010 Closing Date: 05/21/2010 Zoning: None Zoning: None Zoning: None Intended Use: Office Intended Use: Retail Intended Use: Industrial Buyer: Covenant Community Capital Corporation Buyer: Klein Funeral Home Cy Fair, Inc Buyer: Black and Black Realty of Texas LLC Seller: Label Products Houston, Inc. Seller: Terpstra & Associates Seller: Betz, Raymond R Interests Inc FM 1488, Magnolia Sale Price: $1,100,000 Source: CoStar COMPS 2010 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 25