Houston Industrial, Q Higher wages, lower living costs fuel industrial demand

Transcription

1 MARKETVIEW Houston Industrial, Q2 218 Higher wages, lower living costs fuel industrial demand 5.1% 1,14,865 SF 1,75,336 SF 3,632,193 SF 1,212,766 SF Figure 1:Historical Completions, Construction Starts, & Vacancy Rate, Houston Industrial *Arrows indicate trend from previous quarter. MSF Completions Starts Vacancy (R) YTD Source: CBRE Research, Q CONSUMERS PUSHING INDUSTRIAL DEMAND GROUND BREAKING DEVELOPMENT (%) Q2 218 CBRE Research 218 CBRE, Inc. 1

2 MARKETVIEW HOUSTON INDUSTRIAL Figure 2: Market Snapshot Submarket Net Rentable Area Net Absorption Vacancy (%) Ground Broken Under Construction Asking Rate, Gross ($/SF/Mo) CBD 52,18,63 44, ,25.52 North 86,24,163 (213,866) ,85 2,38, Northeast 33,338, , , 32,.56 Northwest 148,93,659 32, ,45,653 3,246, Southeast 85,32,877 56, ,5 4,374, South 43,868,516 (179,266) ,593.6 Southwest 64,545, , ,64 639,94.65 HOUSTON TOTAL 514,137,544 1,212, ,632,193 1,75, Source: CBRE Research, Q Figure 3: Recent Signed Leases SF Tenant Property Address City Submarket 1 217,44 Lowe s Gateway Southwest Industrial Park 1211 McLain Rd. Houston Southwest 2 186,36 B&H Bag Company - 8 Koomey Rd. Brookshire Northwest 3 113, Polk St. Warehousing Polk St. Houston CBD 4 17,79 Kitchen Cabinet Distributors Pinto Business Park 6 Fallbrook Dr. Houston North 5 17, Evoqua Water Technologies International Plaza Dr. Houston North Source: CBRE Research, Q Figure 4: Recent Sale Transactions SF Property Address Buyer Seller Submarket 1 996,482 Ikea Distribution Center Borusan Rd. Blackstone, Ivanhoe Cambridge Pure REIT Southeast 2 373,28 Mason Ranch 2244 Mason Rd. Mapletree Commercial Exeter Northwest 3 351,96 Stafford Grove Industrial Park W Airport Blvd. Black Creek DPF Crow Holdings Southwest 4 26,664 Westport Business Park Portwest Dr. HH TC Jester LP Source: CBRE Research, Q Quasar Land Ltd , Interwood Business Center 1& John F Kennedy Blvd. Black Equities Stockbridge North CBD Q2 218 CBRE Research 218 CBRE, Inc. 2

3 MARKETVIEW HOUSTON INDUSTRIAL Figure 5: Historical Market Statistics Submarket YTD CBD NORTH Absorption (Net, SF) 26, , ,58 44,611 98,914-34, , ,933 Asking Rent (Gross Avg. Mthly $/SF) *.51*.52* Delivered Construction 38,232 22, 22,8 Vacancy Rate (%) Absorption (Net, SF) 877,778 1,153,943 1,122,661 1,97,599 2,549,16 15,225 2,356, ,367 Asking Rent (Gross Avg. Mthly $/SF) *.63*.63* Delivered Construction 931,134 1,41,111 3,15,45 5,254,279 2,252,63 1,966,546 1,536,16 63,1 Vacancy Rate (%) NORTHEAST Absorption (Net, SF) 54, , ,67 72,72-4, , , ,886 Asking Rent (Gross Avg. Mthly $/SF) *.53*.56* Delivered Construction 4, 4, 1,56 48,825 2,88 143,5 Vacancy Rate (%) NORTHWEST Absorption (Net, SF) 1,27,297 2,49,112 1,84,764 1,88,729 1,84,232 5,69,58 12,485 1,825,44 Asking Rent (Gross Avg. Mthly $/SF) *.62*.64* Delivered Construction 45,386 1,156,56 3,465,51 3,413,865 3,728,28 5,245,749 1,559,726 1,62,89 Vacancy Rate (%) SOUTHEAST SOUTH Absorption (Net, SF) 833,42 964, ,697 1,766,981 1,819,134 3,11,164 4,845,236 1,597,713 Asking Rent (Gross Avg. Mthly $/SF) *.61*.63* Delivered Construction 234,29 1,54,32 754,86 833,289 1,996,822 3,422,66 4,554,179 1,748,633 Vacancy Rate (%) Absorption (Net, SF) 63, , ,78 797,68 183, , ,813-28,66 Asking Rent (Gross Avg. Mthly $/SF) *.6*.6* Delivered Construction 6,36 178,13 1,37, , ,52 358,79 26, Vacancy Rate (%) SOUTHWEST Absorption (Net, SF) 296,149 57,91 734,65 653, ,396 2,27, , ,26 Asking Rent (Gross Avg. Mthly $/SF) *.65*.65* Delivered Construction 125,81 432,982 1,46,225 1,388, ,176 2,39,192 1,73,5 1,536 Vacancy Rate (%) HOUSTON TOTAL Absorption (Net, SF) 3,844,569 6,446,24 5,779,515 8,114,176 6,295,8 1,746,969 7,14,323 4,833,543 Asking Rent (Gross Avg. Mthly $/SF) *.61*.62* Delivered Construction 1,741,62 4,693,955 8,587,12 11,99,89 9,58,55 13,599,898 9,12,389 3,593,858 Vacancy Rate (%) Source: CBRE Research, Q *Weighted Gross Avg. Q2 218 CBRE Research 218 CBRE, Inc. 3

4 MARKETVIEW HOUSTON INDUSTRIAL CONTACTS CBRE OFFICES Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

5 Vacancy Completions Under Construction Ground Broken Net Absorption While warehouse growth is heavily tied to the expansion of online retailers over the past several years, the expansion of new residential rooftops continues to drive distribution space demand. Major ecommerce deliveries are one component of Houston s industrial development, as another 1 million sq. ft. distribution project delivered in the Northwest this quarter along I-1. Moreover, downstream energy improvement has been heavily tied to southeast Houston industrial demand, exemplified this quarter with the phase I delivery of more than 7, sq. ft. of Ravago America s plastic manufacturing and distribution plant. With the prior development of most viable industrial infill sites, it is expected that major warehouse and manufacturing development will continue to push to Houston s outlying areas, mirroring the westward and southwesterly patterns of residential construction recently sparked by the construction of the Grand Parkway. Net occupier demand throughout the manufacturing sector has been robust over the past few years, with over 4.7 million sq. ft. absorbed since 216. In the first quarter of 218, Houston absorbed over 4, sq. ft. of manufacturing space, driven by demand in the Southeast. Manufacturing vacancy remains compressed market-wide, at 2.8%, and as tight as 1.2% in the Southeast submarket. Houston boasted the second largest increase in population in the U.S. for 217 as the city gained 94,417 new residents, with one-third of the gain resulting from net in-migration. Houston s rapidly increasing demographic base has kept most property markets with the exception of the office sector firing their cylinders. Favorable costs of living and a jobs rebound is expected to fuel industrial demand in the near- and medium-term. Meanwhile, recovering energy prices bolstered upstream energy and in turn, heavy industrial.

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8 Robert C. Kramp Director, Research & Analysis E. Michelle Miller Research Operations Manager John D. McWilliams Research Analyst CBRE Houston 28 Post Oak, Suite 5 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at

9 MARKETVIEW Houston Industrial, Q4 217 Spec opens up as robust demand tightens availability Vacancy 5.4% Completions 57,56 SF Under Construction 8,463,297 SF Ground Broken 3,37,523 SF Net Absorption 1,22,612 SF Figure 1: Availability and Under Construction by Quarter, Houston Industrial *Arrows indicate trend from previous quarter. MSF % Q4 213 Q2 214 Q4 214 Q2 215 Q4 215 Q2 216 Q4 216 Q2 217 Q Source: CBRE Research, Q Under Construction (L) Availability (R) ORGANIC DEMAND DRIVES BROAD MARKET TIGHTENING Net occupier demand in the final quarter totaled over 1 million sq. ft., driven by occupier expansions and new tenant move-ins. Despite the 7, sq. ft. consolidation of Randall s Cypress-area distribution center to DFW, net occupier demand remained strong. Robust net absorption, paired with subdued levels of pre-leased completions, is indicative of further potential tightening in 218. AVAILABILITY SHRINKS BY OVER 6 BPS Total direct vacant space decreased by 8, sq. ft. over the third quarter, while total availability decreased by 3 million sq. ft., as both direct and sublease offerings were consumed. Demand growth in the aftermath of Hurricane Harvey had a measurable effect, although overall strength in several sectors of Houston s economy continue to underwrite the lion s share of industrial expansion. While availability decreased market-wide, the North submarket experienced the greatest effect, tightening by 1.2% in the past 9 days alone. ACTIVE GROUNDBREAKINGS AS SPEC DEVELOPMENT ENTERS PIPELINE Pipeline growth in Q4 217 was similar to Q3 217, as an additional 3.3 MSF of ground was broken, primarily in the Northwest and Southeast submarkets. With the exception of Emser Tile s 6, sq. ft. build-to-suit breaking ground, the majority of new starts were speculative projects with a significant focus on Port and West Houston logistics. LOOKING FORWARD TO 218 Given the uptick in user requirements and pipeline timing, tightening is expected through the first half of 218. Port and petrochemical demand both of which have been major growth components for the region through the energy recovery are expected to remain strong performers. Another record-setting year for Port Houston in TEU volume, and the emergence of the Gulf Coast as a globally low-cost petrochemical manufacturer, leaves Houston s industrial sector well positioned entering 218. Q4 217 CBRE Research 217 CBRE, Inc. 1

10 MARKETVIEW HOUSTON INDUSTRIAL Figure 2: Market Snapshot Submarket Net Rentable Area Net Absorption Vacancy (%) Ground Broken Under Construction Asking Rate, Gross ($/SF/Mo) CBD 52,466,668 (119,597) ,25.52 North 86,264, , ,9 1,6,28.63 Northeast 32,954,962 (239,159) ,5.53 Northwest 146,83,6 (597,42) 5.8 1,284,87 3,263, Southeast 83,326,725 1,29, ,288,816 3,792, South 43,741, , ,593.6 Southwest 64,685,692 (84,441) 6.1 7, HOUSTON TOTAL 51,269,965 1,22, ,37,523 8,463, Source: CBRE Research, Q Figure 3: Recent Signed Leases SF Tenant Property Address City Submarket 1 373,86 Rooms To Go Mason Ranch 2244 N Mason Katy Northwest 2 274,417 Plastipak Bayport North Industrial Park 4121 Malone Dr. Pasadena Southeast 3 231,875 Palmer Logistics Bayport North Industrial Park 4111 Malone Dr. Pasadena Southeast 4 153,655 - Bay Area Business Park 9631 Bay Area Blvd. Pasadena Southeast 5 12,12 - Bay Area Business Park 941 Bay Area Blvd. Pasadena Southeast Source: CBRE Research, Q Figure 4: Recent Sale Transactions SF Property Address Buyer Seller Submarket 1 933,957 Stockbridge Portfolio Portfolio ATCAP Partners Stockbridge Houston 2 772,5 Bayport North DC Underwood Rd. Duke Realty Corp American National Southeast 3 135,571 Fairway Park 2523 Fairway Park Dr. Brennan Investment Group Sealy Corp Northwest 4 11, INOVA 122 Parc Crest MCF Houston Titan Southwest 5 85, 7171 Grand Blvd Grand Blvd. Medistar Corp McAlister Company South Source: CBRE Research, Q Q4 217 CBRE Research 217 CBRE, Inc. 2

11 MARKETVIEW HOUSTON INDUSTRIAL Figure 5: Historical Market Statistics Submarket YE CBD Absorption (Net, SF) -15,538 26, , ,58 44,611 98,914-34, ,817 Asking Rent (Gross Avg. Mthly $/SF) *.51* Delivered Construction 38,232 22, 22,8 Vacancy Rate (%) NORTH Absorption (Net, SF) 779, ,778 1,153,943 1,122,661 1,97,599 2,549,16 15,225 2,356,887 Asking Rent (Gross Avg. Mthly $/SF) *.63* Delivered Construction 23,5 931,134 1,41,111 3,15,45 5,254,279 2,252,63 1,966,546 1,536,16 Vacancy Rate (%) NORTHEAST Absorption (Net, SF) -557,41 54, , ,67 72,72-4, , ,859 Asking Rent (Gross Avg. Mthly $/SF) *.53* Delivered Construction 149,134 4, 4, 1,56 48,825 2,88 Vacancy Rate (%) NORTHWEST Absorption (Net, SF) 1,287,949 1,27,297 2,49,112 1,84,764 1,88,729 1,84,232 5,69,58 12,485 Asking Rent (Gross Avg. Mthly $/SF) *.62* Delivered Construction 186,16 45,386 1,156,56 3,465,51 3,413,865 3,728,28 5,245,749 1,559,726 Vacancy Rate (%) SOUTHEAST Absorption (Net, SF) 685, ,42 964, ,697 1,766,981 1,819,134 3,11,164 4,845,236 Asking Rent (Gross Avg. Mthly $/SF) *.61* Delivered Construction 332, 234,29 1,54,32 754,86 833,289 1,996,822 3,422,66 4,554,179 Vacancy Rate (%) SOUTH Absorption (Net, SF) 164,328 63, , ,78 797,68 183, , ,813 Asking Rent (Gross Avg. Mthly $/SF) *.6* Delivered Construction 26, 6,36 178,13 1,37, , ,52 358,79 Vacancy Rate (%) SOUTHWEST Absorption (Net, SF) 1,297, ,149 57,91 734,65 653, ,396 2,27, ,578 Asking Rent (Gross Avg. Mthly $/SF) *.65* Delivered Construction 1,117, ,81 432,982 1,46,225 1,388, ,176 2,39,192 1,73,5 Vacancy Rate (%) HOUSTON TOTAL Absorption (Net, SF) 3,57,55 3,844,569 6,446,24 5,779,515 8,114,176 6,295,8 1,746,969 7,14,323 Asking Rent (Gross Avg. Mthly $/SF) *.61* Delivered Construction 2,4,92 1,741,62 4,693,955 8,587,12 11,99,89 9,58,55 13,599,898 9,12,389 Vacancy Rate (%) Source: CBRE Research, Q *Weighted Gross Avg. Q4 217 CBRE Research 217 CBRE, Inc. 3

12 MARKETVIEW HOUSTON INDUSTRIAL CONTACTS Robert C. Kramp Director, Research & Analysis E. Michelle Miller Research Operations Manager Brad Smith Sr. Research Analyst CBRE OFFICES CBRE Houston 28 Post Oak, Suite 23 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

13 MARKETVIEW Houston Industrial, Q3 217 Vacancy declines, tightening expected through year-end Vacancy 5.4% Completions 3,35,77 SF Under Construction 5,551,18 SF Ground Broken 3,7,478 SF Net Absorption 2,56,7 SF Figure 1: Houston Industrial, Components of Demand by Quarter *Arrows indicate trend from previous quarter. Net Absorption (MSF) Vacancy (%) (1) 3. Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Source: CBRE Research, Q Flex Manufacturing Warehouse Vacancy DEMAND RISES, VACANT SQ. FT. FALLS Net occupier demand increased quarter-overquarter to 2.5 million sq. ft. The North and Southeast submarkets saw the heaviest activity, each clocking over 1 million sq. ft. of net absorption. The delivery of a large build-to-suit project in the North submarket and port-driven activity in the Southeast were the largest constituents of demand. VACANCY FALLS EVEN AS 3. MILLION SQ. FT. DELIVERS Deliveries for the quarter added over 3. million sq. ft. to the market, of which 83% was delivered preleased. Despite the delivery of over 5, sq. ft. of vacant space, overall vacant square footage declined over the previous quarter, with vacancy rates falling by 1 basis points (bps). GROUND BROKEN DOUBLES Even as over 3 million sq. ft. delivered, under construction volume expanded modestly as almost 3.1 million sq. ft. of new projects broke ground. The Southeast and Northwest captured the majority of this activity, with a notable uptick in spec project starts. POST-STORM MARKET TIGHTENING EXPECTED Hurricane Harvey s record-setting downpour had an extensive impact on Houston s real estate and area mobility. However, residential properties both single-family and multifamily bore the brunt of the property damage caused by the storm s floodwaters. As a property type, Houston s industrial product was minimally impacted, given the location and retention requirements of institutional class product. Isolated instances of flooding in primarily grade-level product did occur, but the vast majority of Houston s nonresidential property types weathered the storm largely unscathed. The effects of the storm are likely to be realized through a rise in construction activity as residential areas are rebuilt. This has resulted in large warehouse and distribution requirements coming to market to immediately serve demand from rebuilding efforts over the next few years. Given the uptick in user requirements, vacancy is expected to tighten through the end of the year and into the first half of 218. As users occupy, it is expected that vacancy will begin to fall even further, as early as Q Q3 217 CBRE Research 217 CBRE, Inc. 1

14 MARKETVIEW HOUSTON INDUSTRIAL Figure 2: Market Snapshot Submarket Net Rentable Area Vacant Vacancy (%) Availability (%) Net Absorption Under Construction Asking Rate, Gross Avg.* ($/SF/Mo) CBD 52,563,652 2,329, ,753 14,25.52 North 86,22,53 7,674, ,226, ,8.63 Northeast 32,956, , , ,5.53 Northwest 147,95,292 7,916, ,83 2,118, Southeast 83,84,62 3,734, ,181,49 2,414, South 43,811,123 1,593, ,378 97,593.6 Southwest 64,713,252 3,793, , , HOUSTON TOTAL 511,182,763 27,764, ,56,7 5,551,18.61 Source: CBRE Research, Q *Weighted Gross Avg. Figure 3: Recent Signed Leases SF Tenant Property Address City Submarket 1 6, Emser Tile Pinto Business Park Fallbrook Dr. Houston North 2 3, - Prologis Park 731 Security Way Houston Northwest 3 198,88 BasinTek Prologis Northpark 713 Northpark Central Dr. Houston North 4 128,924 DHL Central Green Corporate Center 1667 Central Green Blvd. Houston North 5 111, Cutten Rd Cutten Rd. Houston North Source: CBRE Research, Q Figure 4: Recent Sale Transactions SF Property Address Buyer Seller Submarket 1 41, , ,9 Source: 5 CBRE 246,45 Research, Q Bammel Business Park Apex Distribution 575 Brittmoore Rd WPT Industrial REIT Center 852 S Sam Houston 852 S Sam Houston Pkwy W Colony NorthStar Pkwy W Mason Creek Business Center 4 275,23 55 Aleen 55 Aleen Crow Holdings Thackeray Partners Northwest Southwest 2121 Park Row Dr Gramercy Hillwood Northwest Polymers Packaging & Warehousing Aleen Street Associates Northeast 4822 N Sam Houston Pkwy W Exeter Sealy Corp Northwest Q3 217 CBRE Research 217 CBRE, Inc. 2

15 MARKETVIEW HOUSTON INDUSTRIAL Figure 5: Historical Market Statistics Submarket YTD CBD Absorption (Net, SF) -15,538 26, , ,58 44,611 98,914-34, ,22 Asking Rent (Gross Avg. Mthly $/SF) *.52* Delivered Construction 38,232 22, 22,8 Vacancy Rate (%) NORTH Absorption (Net, SF) 779, ,778 1,153,943 1,122,661 1,97,599 2,549,16 15,225 1,637,279 Asking Rent (Gross Avg. Mthly $/SF) *.63* Delivered Construction 23,5 931,134 1,41,111 3,15,45 5,254,279 2,252,63 1,966,546 1,481,111 Vacancy Rate (%) NORTHEAST Absorption (Net, SF) -557,41 54, , ,67 72,72-4, , ,7 Asking Rent (Gross Avg. Mthly $/SF) *.53* Delivered Construction 149,134 4, 4, 1,56 48,825 2,88 Vacancy Rate (%) NORTHWEST Absorption (Net, SF) 1,287,949 1,27,297 2,49,112 1,84,764 1,88,729 1,84,232 5,69,58 699,527 Asking Rent (Gross Avg. Mthly $/SF) *.62* Delivered Construction 186,16 45,386 1,156,56 3,465,51 3,413,865 3,728,28 5,245,749 1,446,841 Vacancy Rate (%) SOUTHEAST Absorption (Net, SF) 685, ,42 964, ,697 1,766,981 1,819,134 3,11,164 3,635,32 Asking Rent (Gross Avg. Mthly $/SF) *.59* Delivered Construction 332, 234,29 1,54,32 754,86 833,289 1,996,822 3,422,66 4,38,789 Vacancy Rate (%) SOUTH Absorption (Net, SF) 164,328 63, , ,78 797,68 183, ,635 58,486 Asking Rent (Gross Avg. Mthly $/SF) *.6* Delivered Construction 26, 6,36 178,13 1,37, , ,52 343,79 Vacancy Rate (%) SOUTHWEST Absorption (Net, SF) 1,297, ,149 57,91 734,65 653, ,396 2,27,111 46,19 Asking Rent (Gross Avg. Mthly $/SF) *.65* Delivered Construction 1,117, ,81 432,982 1,46,225 1,388, ,176 2,39, ,714 Vacancy Rate (%) HOUSTON TOTAL Absorption (Net, SF) 3,57,55 3,844,569 6,446,24 5,779,515 8,114,176 6,295,8 1,746,969 5,991,711 Asking Rent (Gross Avg. Mthly $/SF) *.61* Delivered Construction 2,4,92 1,741,62 4,693,955 8,587,12 11,99,89 9,58,55 13,599,898 8,532,333 Vacancy Rate (%) Source: CBRE Research, Q *Weighted Gross Avg. Q3 217 CBRE Research 217 CBRE, Inc. 3

16 MARKETVIEW HOUSTON INDUSTRIAL CONTACTS Robert C. Kramp Director, Research & Analysis E. Michelle Miller Research Operations Manager Brad Smith Research Analyst CBRE OFFICES CBRE Houston 28 Post Oak, Suite 23 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

17 MARKETVIEW Houston Industrial, Q2 217 Net absorption positive as spec development decelerates Vacancy 5.5% Under Construction 5,542,956 SF Completions 1,533,78 SF Net Absorption 425,137 SF Wtd. Avg. Asking Rate $.6 PSF Figure 1: Historical Completions and Net Absorption *Arrows indicate trend from previous quarter. MSF year Average Net Absorption YTD 217 Source: CBRE Research, Q Annual Completions Annual Net Absorption NEW DELIVERIES PUSH NET ABSORPTION INTO THE BLACK DESPITE RESTRAINED LEASING Net occupier demand measuring 425,137 sq. ft. was driven in large part by 1 million sq. ft. of delivered preleased space. Activity in the North submarket was relatively flat, while the Northwest saw 376,52 sq. ft. of positive net absorption. Negative net absorption in the CBD and Northeast can be attributed to expected manufacturing and warehouse consolidations. DELIVERIES CAUSED VACANCY TO RISE ACROSS ALL SUBMARKETS EXCEPT THE SOUTH New deliveries of 1.5 million sq. ft. added over 5, sq. ft. of vacant space to the market; however, market wide vacancy rates have remained below 6 percent for 24 consecutive quarters. A tightening spec construction pipeline and higher overall prelease rate indicate the potential for vacancy rate compression in the medium term. DEVELOPMENT PIPELINE GREW MODESTLY, DOMINATED BY LARGE BTS CONSTRUCTION More than 6 percent of the 5.5 million sq. ft. of under construction volume can be attributed to four large projects, with an average building size of 85, sq. ft. These major build-to-suits have dwarfed spec development recently: only one spec project greater than 1, sq. ft. broke ground in the second quarter out of 1.4 million sq. ft. of total starts. SOFTER FUNDAMENTALS EXPECTED THROUGH YE 217 BASED ON FORECASTED LEASING Leasing velocity has fallen in conjunction with lower levels of spec development over the past few quarters rising vacancy through the remaining half of the year is expected across the market given the prolonged effects of middling oil prices, which have restrained both capital and energy user demand in the Houston market. However, strong demographic growth in the Bayou City, coupled with an employment recovery that per expert forecasts may add between 6, and 7, jobs to the economy in 217, should sustain robust demand for retail, e- commerce, and logistic distribution networks into the foreseeable future. Q2 217 CBRE Research 217 CBRE, Inc. 1

18 MARKETVIEW HOUSTON INDUSTRIAL Figure 2: Market Snapshot Submarket Source: CBRE Research, Q Net Rentable Area Vacant Vacancy (%) Availability (%) Net Absorption Under Construction Asking Rate, Gross Avg.* ($/SF/Mo) CBD 52,571,889 3,31, (75,24) 14,25.51 North 85,63,279 7,924, ,82 1,55,35.62 Northeast 33,13,43 82, (242,824).53 Northwest 146,74,764 7,137, ,52 2,218,4.62 Southeast 82,994,238 4,154, ,539 1,898,1.6 South 43,846,623 1,298, ,218 8,383.6 Southwest 64,516,643 3,656, (69,726) 276, HOUSTON TOTAL 58,8,479 28,5, ,137 5,542,956.6 Source: CBRE Research, Q *Weighted Gross Avg. Figure 3: Recent Signed Leases SF Tenant Property Address City Submarket 1 465,851 Kuraray America Bayport Logistics Park 982 Fairmont Pky Pasadena Southeast 2 415,272 MRC Global Port Crossing Commerce Center 181 S 16 th St La Porte Southeast 3 34,53 Bel Furniture West Ten Distribution Center 2845 West Ten Blvd Katy Northwest 4 212,961 Dupuy Group South Loop Business Park South Loop E Houston South 5 16,52 - Ameriport Industrial Park 5 Ameriport Baytown Southeast 6 135, Exel Blalock Distribution Center 431 Blalock Rd Houston Northwest 7 125,251 VWR International Park 8Ninety 521 Highway 9 A Missouri City Southwest 8 96,983 Rexel Inc. Park 8Ninety 521 Highway 9 A Missouri City Southwest 9 96,795 - Central Green Corporate Center 1657 Central Green Blvd Houston North 1 96,28 Textile Recycler Inc Almeda Genoa Rd Houston South Source: CBRE Research, Q Figure 4: Recent Sale Transactions SF Property Address Buyer Seller Submarket 1 1,88,455 TA Realty Industrial Portfolio Portfolio Brookfield IDI Gazeley TA Realty Houston 2 1,9,313 Eastport Bldg. 1-2, 4-7 Blackstone REIT High Street Realty Co Southeast 3 97,16 Verizon Portfolio 1515 Aldine Rd Equinix, Inc Verizon North 4 8, MEI Rigging & Crafting 135 John F Kennedy IOV Clay Development North 5 77,73-61 Cunningham Rd Purvis Industries Kinder Morgan Northwest Q2 217 CBRE Research 217 CBRE, Inc. 2

19 MARKETVIEW HOUSTON INDUSTRIAL Figure 5: Historical Market Statistics Submarket YTD CBD NORTH Absorption (Net, SF) -15,538 26, , ,58 44,611 98,914-34, ,973 Asking Rent (Gross Avg. Mthly $/SF) *.51* Delivered Construction 38,232 22, 22,8 Vacancy Rate (%) Absorption (Net, SF) 779, ,778 1,153,943 1,122,661 1,97,599 2,549,16 15,225 41,994 Asking Rent (Gross Avg. Mthly $/SF) *.62* Delivered Construction 23,5 931,134 1,41,111 3,15,45 5,254,279 2,252,63 1,966, ,811 Vacancy Rate (%) NORTHEAST Absorption (Net, SF) -557,41 54, , ,67 72,72-4, , ,339 Asking Rent (Gross Avg. Mthly $/SF) *.53* Delivered Construction 149,134 4, 4, 1,56 48,825 2,88 Vacancy Rate (%) NORTHWEST Absorption (Net, SF) 1,287,949 1,27,297 2,49,112 1,84,764 1,88,729 1,84,232 5,69,58 42,697 Asking Rent (Gross Avg. Mthly $/SF) *.62* Delivered Construction 186,16 45,386 1,156,56 3,465,51 3,413,865 3,728,28 5,245, ,341 Vacancy Rate (%) SOUTHEAST SOUTH Absorption (Net, SF) 685, ,42 964, ,697 1,766,981 1,819,134 3,11,164 2,454,271 Asking Rent (Gross Avg. Mthly $/SF) *.6* Delivered Construction 332, 234,29 1,54,32 754,86 833,289 1,996,822 3,422,66 3,473,42 Vacancy Rate (%) Absorption (Net, SF) 164,328 63, , ,78 797,68 183, , ,864 Asking Rent (Gross Avg. Mthly $/SF) *.6* Delivered Construction 26, 6,36 178,13 1,37, , ,52 317,27 Vacancy Rate (%) SOUTHWEST Absorption (Net, SF) 1,297, ,149 57,91 734,65 653, ,396 2,27,111 48,497 Asking Rent (Gross Avg. Mthly $/SF) *.65* Delivered Construction 1,117, ,81 432,982 1,46,225 1,388, ,176 2,39, ,714 Vacancy Rate (%) HOUSTON TOTAL Absorption (Net, SF) 3,57,55 3,844,569 6,446,24 5,779,515 8,114,176 6,295,8 1,746,969 3,485,11 Asking Rent (Gross Avg. Mthly $/SF) *.6* Delivered Construction 2,4,92 1,741,62 4,693,955 8,587,12 11,99,89 9,58,55 13,599,898 5,496,626 Vacancy Rate (%) Source: CBRE Research, Q *Weighted Gross Avg. Q2 217 CBRE Research 217 CBRE, Inc. 3

20 MARKETVIEW HOUSTON INDUSTRIAL CONTACTS Robert C. Kramp Director, Research & Analysis E. Michelle Miller Research Operations Manager Brad Smith Research Analyst CBRE OFFICES CBRE Houston 28 Post Oak, Suite 23 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

21 MARKETVIEW Houston Industrial, Q1 217 Demand supports stability as pipeline normalizes Vacancy 5.2% Under Construction 5,222,683 SF Completions 3,963,548 SF Net Absorption 3,59,874 SF Wtd. Avg. Asking Rate $.6 PSF Figure 1: Historical Development *Arrows indicate trend from previous quarter. MSF year Average U/C YTD 217 Source: CBRE Research, Q Under Construction Annual Completions STRONG NET ABSORPTION DRIVEN LARGELY BY DELIVERED OCCUPIED SPACE With the exception of the CBD, where consolidations led to moderate levels of negative net absorption, all other submarkets saw positive net absorption for the quarter; the Southeast contributed over 2.2 million sq. ft. of the 3.1 million sq. ft. market total, of which the majority was pre-leased space in new deliveries. VACANCY INCREASED BY 1 BASIS POINTS QUARTER-OVER-QUARTER, REACHING 5.2% Robust deliveries added 1.5 million sq. ft. of vacant space to the market, while a handful of large consolidations also contributed to a rise in vacant availabilities. DEVELOPMENT PIPELINE CONTINUES TO EBB; UNDER CONSTRUCTION HALF OF LAST YEAR S PEAK Pipeline volume is down by over half from last year s high, with the existing pipeline consisting of several large projects. Of the current pipeline volume, almost half can be accounted for by just three large projects. DELIVERIES WERE ELEVATED AS SEVERAL LARGE PROJECTS CAME ONLINE The Southeast delivered 2.6 million sq. ft. as developers continued to meet rising logistics demand concentrated around the port, as well as sustained downstream petrochemical activity on the east side. MODEST UPTICK IN VACANCY EXPECTED THROUGH MID-YEAR AS CAPACITIES REACH EQUILIBRIUM As the tail-end of the oil downturn works its way through Houston s economy, overall vacancy is expected to increase modestly through the first half. Recovering employment Houston has yet to see year-over-year job losses and stabilized oil prices are expected to bolster the area s economy through the year. While spec development leasing velocity has performed better than expected, it remains below historical activity levels. Aggressiveness from institutional owners supporting higher occupancy levels has translated into more flexible terms and additional concessions in the near-term. Q1 217 CBRE Research 217 CBRE, Inc. 1

22 MARKETVIEW Houston Retail, Q2 217 Tight market hampers available leasing activity Occupancy 94.2% Under Construction 1,25,726 SF Completions 873,18 SF Net Absorption 626,334 SF Wtd. Avg. Asking Rate $25.9 PSF Figure 1: Net Absorption and Occupancy Net Absorption (MSF) (2) *Arrows indicate trend from previous quarter. Occupancy (%) (3) YTD 8 Source: CBRE Research, Q Annual Net Absorption H1 Net Absorption Occupancy NO ROOM ON THE SHOW FLOOR: NET ABSORPTION SLOWS FROM RECORD PACE DUE TO DEARTH OF SPACE Leasing activity is struggling to maintain the pace set in 216 but not because tenant demand is suffering. A deficit of quality space impeded leasing causing Houston retailers to take down only 88, sq. ft. so far in 217, which is still double the 1-year average, but nearly half of the space absorbed in H New developments continue to absorb big box and junior box retailers: in Q2 217 approximately 774, sq. ft. was occupied in new projects. As the development pipeline slows, Houston will see net absorption continue to taper. FEWER LARGE PROJECTS IN DEVELOPMENT PIPELINE As grocery expansions decline, the development pipeline will also slow as small, speculative strip centers and mixed-use developments dominate the projects under construction. As a result, only 1.2 million sq. ft. of construction is currently underway, and only one third are grocery-anchored developments. CONSUMER SPENDING SEES IMPROVEMENT Houston MSA gross retail sales registered significant improvement in 216, according to data released from the Texas Comptroller. Gross sales dropped 7.1% in 215, yet increased by 7.% last year, returning to 214 highs. While retail sales data is on a delay, sales tax revenues reflect recent taxable sales and show improvement as well. The strongest gains in tax revenues are within Houston s suburban counties as population growth is strongest in the outlying areas. Q2 217 CBRE Research 217 CBRE, Inc. 1

23 MARKETVIEW HOUSTON RETAIL Figure 2: Market Snapshot Market Number of Centers Net Rentable Area Vacancy (%) Asking Rate, NNN Avg. Annual ($/SF) Under Construction Delivered Construction Q2 217 Net Absorption Inner Loop ,642, , 42,942 (72) Northeast ,475, , 1,82 Near North 11 6,426, ,13 Far North ,46, ,68 628,888 64,83 Near Northwest 185 1,639, (53,989) Far Northwest ,599, ,999 Near West ,621, , (66,471) Far West ,958, ,333 93,7 7,115 Near Southwest ,694, , (5,2) Far Southwest ,274, , (112,528) South 159 8,453, (47,792) Near Southeast 137 9,141, (13,576) Far Southeast ,995, ,325 18,343 14,617 HOUSTON TOTAL 3, ,383, * 1,25, ,18 626,334 Source: CBRE Research, Q * Market total reflects weighted average asking rate Figure 3: Historical Completions and Occupancy Rate (s) 1,4 Occupancy Rate (%) 95. 1,2 1, Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Delivered Construction Occupancy Rate Source: CBRE Research, Q Q2 217 CBRE Research 217 CBRE, Inc. 2

24 MARKETVIEW HOUSTON RETAIL Figure 4: Historical Market Statistics YTD INNER LOOP Absorption (Net, SF) 63,3 (21,292) 75,133 72,274 97, , ,63 28,61 Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 58,33 169,47 185, 434,465 54,774 72,541 Occupancy Rate (%) NORTHEAST Absorption (Net, SF) (214,733) 66, ,245 81, ,91 162, ,751 27,981 Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 319,16 81,686 31, 174,954 32,651 1, 1,215,83 Occupancy Rate (%) NEAR NORTH Absorption (Net, SF) (54,57) (23,143) (164,326) 6,82 (6,11) (19,964) 31,641 27,417 Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 56,25 Occupancy Rate (%) FAR NORTH Absorption (Net, SF) (6,178) 13, (97,182) 249,193 6,344 (2,56) 88, ,348 Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 458,347 79,13 134, ,38 298, ,16 728,888 Occupancy Rate (%) NEAR NORTHWEST Absorption (Net, SF) 131,426 84,388 17,62 (69,499) 118,692 (24,491) 9,26 (1,612) Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 79,895 4, Occupancy Rate (%) FAR NORTHWEST Absorption (Net, SF) 81, ,12 96, , ,19 268, ,711 52,959 Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 144,379 88,42 25,61 297,78 457,35 228, 496,57 21,6 Occupancy Rate (%) NEAR WEST Absorption (Net, SF) (158,63) 52,845 (2,371) 119,81 114, ,794 72,158 (51,579) Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 47,584 55, 133,274 11, 172,827 Occupancy Rate (%) FAR WEST Absorption (Net, SF) 96, ,437 86,86 395, , ,664 27, ,43 Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 137,289 24,225 2, , , ,94 328,257 Occupancy Rate (%) NEAR SOUTHWEST Absorption (Net, SF) 11,66 9,275 (147,823) 5,497 (42,632) 121, ,67 (57,667) Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 4, 177,514 15, Occupancy Rate (%) FAR SOUTHWEST Absorption (Net, SF) (143,393) 297,614 (155,568) 174, , , ,119 (8,172) Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 177, , , ,34 24, ,636 Occupancy Rate (%) SOUTH Absorption (Net, SF) 16,924 (26,389) (1,83) 186,724 98,437 (31,273) 253,972 (74,783) Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 4, 5, 7, ,64 139,691 24,427 Occupancy Rate (%) NEAR SOUTHEAST Absorption (Net, SF) 27,161 (74,189) 86,11 292,866 71,167 3,537 11,811 (23,97) Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 2,146 9,82 Occupancy Rate (%) FAR SOUTHEAST Absorption (Net, SF) 5, ,553 2, ,833 2,93 687, ,662 89,763 Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 36, 25, 35, 184,4 45, ,475 95,3 18,343 Occupancy Rate (%) HOUSTON TOTAL Absorption (Net, SF) 26, , ,431 2,38,283 2,19,691 2,455,86 4,25,876 88,176 Source: CBRE Research, Q Avg. Asking Rent (Annual,NNN, $/SF) Delivered Construction 822, ,76 872,232 2,67,216 1,936,741 2,984,73 3,92,948 1,34,36 Occupancy Rate (%) Q2 217 CBRE Research 217 CBRE, Inc. 3

25 MARKETVIEW HOUSTON RETAIL CONTACTS Robert C. Kramp Director, Research & Analysis E. Michelle Miller Research Operations Manager Analee Bivins Micheletti Sr. Research Analyst CBRE OFFICES CBRE Houston 28 Post Oak, Suite 23 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

26 MARKETVIEW HOUSTON INDUSTRIAL Figure 2: Market Snapshot Submarket Net Rentable Area Vacant Vacancy (%) Availability (%) Net Absorption Under Construction Asking Rate, Gross Avg.* ($/SF/Mo) CBD 52,449,95 2,948, , North 84,889,59 7,368, ,912 1,173,25.62 Northeast 32,981, , , Northwest 145,625,852 7,195, ,645 1,454,64.63 Southeast 82,379,874 3,549, ,19,732 2,32, South 43,64,337 1,44, , ,29.6 Southwest 64,452,57 3,466, ,223 34, HOUSTON TOTAL 56,383,545 26,567, ,59,874 5,222,683.6 Source: CBRE Research, Q *Weighted Gross Avg. Figure 3: Recent Signed Leases SF Tenant Property Address City Submarket 1 33,281 Gulf Winds Int l Greens Port Industrial Park 1755 Federal Rd Houston Southeast 2 167,753 Exel City Park East 869 Citypark Loop Houston Northeast 3 159,785 McLane Global Interstate Commerce Center 192 Cypress Station Dr Houston North 4 125, Flexitallic Market St Houston Southeast 5 96,793 Hawthorne Customs IPT La Porte Distribution 141 S 16 th St La Porte Southeast 6 77,987 Smurfit Kappa West Road Business Park 877 West Rd Houston Northwest 7 69,87 - HD Supply Warehouse 4545 Langfield Rd Houston Northwest 8 63,762 - Beltway Crossing Center 763 Praire Oak Dr Houston North 9 61,75 Abacus Plumbing World Houston Business Center 41 Kendrick Plaza Dr Houston North 1 59,98 Urban Air South Point Business Park 327 N Sam Houston Pkwy E Houston South Figure 4: Recent Sale Transactions SF Property Address Buyer Seller Submarket 1 2,167,994 Underwood Business Park 359 Old Underwood Rd Hines Clay, Blackrock Southeast 2 1,422,81 Cabot Industrial Portfolio Portfolio DRA Advisors Cabot Properties Houston Market 3 813,154 TIAA Industrial Portfolio Portfolio Prologis TIAA Northwest 4 526,753 Greenfield Portfolio Portfolio Roxborough Group Greenfield Partners Houston Market 5 339,9 Mason Creek Business Center 2121 Park Row Dr Hillwood AEW Capital Management Northwest Source: CBRE Research, Q Q1 217 CBRE Research 217 CBRE, Inc. 2

27 MARKETVIEW HOUSTON INDUSTRIAL Figure 5: Historical Market Statistics Submarket YTD CBD Absorption (Net, SF) -15,538 26, , ,58 44,611 98,914-34, ,769 Asking Rent (Gross Avg. Mthly $/SF) *.47* Delivered Construction 38,232 22, 22,8 Vacancy Rate (%) NORTH Absorption (Net, SF) 779, ,778 1,153,943 1,122,661 1,97,599 2,549,16 15,225 47,912 Asking Rent (Gross Avg. Mthly $/SF) *.62* Delivered Construction 23,5 931,134 1,41,111 3,15,45 5,254,279 2,252,63 1,966, ,415 Vacancy Rate (%) NORTHEAST Absorption (Net, SF) -557,41 54, , ,67 72,72-4, ,543 71,485 Asking Rent (Gross Avg. Mthly $/SF) *.53* Delivered Construction 149,134 4, 4, 1,56 48,825 2,88 Vacancy Rate (%) NORTHWEST Absorption (Net, SF) 1,287,949 1,27,297 2,49,112 1,84,764 1,88,729 1,84,232 5,69,58 44,645 Asking Rent (Gross Avg. Mthly $/SF) *.63* Delivered Construction 186,16 45,386 1,156,56 3,465,51 3,413,865 3,728,28 5,245,749 15,11 Vacancy Rate (%) SOUTHEAST Absorption (Net, SF) 685, ,42 964, ,697 1,766,981 1,819,134 3,11,164 2,19,732 Asking Rent (Gross Avg. Mthly $/SF) *.62* Delivered Construction 332, 234,29 1,54,32 754,86 833,289 1,996,822 3,422,66 2,583,93 Vacancy Rate (%) SOUTH Absorption (Net, SF) 164,328 63, , ,78 797,68 183, , ,646 Asking Rent (Gross Avg. Mthly $/SF) *.6* Delivered Construction 26, 6,36 178,13 1,37, , ,52 94,8 Vacancy Rate (%) SOUTHWEST Absorption (Net, SF) 1,297, ,149 57,91 734,65 653, ,396 2,27, ,223 Asking Rent (Gross Avg. Mthly $/SF) *.65* Delivered Construction 1,117, ,81 432,982 1,46,225 1,388, ,176 2,39,192 76,214 Vacancy Rate (%) HOUSTON TOTAL Absorption (Net, SF) 3,57,55 3,844,569 6,446,24 5,779,515 8,114,176 6,295,8 1,746,969 3,59,874 Asking Rent (Gross Avg. Mthly $/SF) *.6* Delivered Construction 2,4,92 1,741,62 4,693,955 8,587,12 11,99,89 9,58,55 13,599,898 3,963,548 Vacancy Rate (%) Source: CBRE Research, Q *Weighted Gross Avg. Q1 217 CBRE Research 217 CBRE, Inc. 3

28 MARKETVIEW HOUSTON INDUSTRIAL CONTACTS Robert C. Kramp Director, Research & Analysis E. Michelle Miller Research Operations Manager Brad Smith Research Analyst CBRE OFFICES CBRE Houston 28 Post Oak, Suite 23 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

29 Houston Industrial, Q4 216 Storm subsides: industrial jobs on the road to recovery Vacancy Rate 5.1% Net Absorption 2,122,689 SF Construction 6,561,631 SF Completions 1,561,59 SF Avg. Asking Rate $.6* PSF Arrows indicate change from previous quarter. *Weighted Gross Figure 1: North American Rig Count and Houston Y-o-Y Employment, Historical NA Rig Count Y-o-Y Employment Change (s) 2, , 5 1,5-5 1, Q1 214 Q3 214 Q1 215 Q3 215 Q1 216 Q3 216 Source: CBRE Research, Q Mining Manufacturing NA Rig Count TRENDS The past two years have been aptly described by area economists as Hurricane Oil, with the eye of the storm centered over the energy producers and well services providers of Houston s premier energy sector. After oil s precipitous plunge from almost $11 per barrel in mid-214 to under $3 per barrel at the beginning of 216, it was apparent that Houston would acutely feel the shock of this boombust commodity cycle. However, looking back, it appears reasonable to conclude that the worst of the downturn is now behind Houston, and the road to a steady recovery has begun. Job losses appear to have bottomed out and economic activity indices have recently turned positive. As far a contraction in one of its key employment sectors have gone, Houston has weathered this most recent one with marked resiliency, and it is now possible that the region may end 216 in the black for new jobs growth. Though Houston s energy sector was distressed by the crash in oil prices and dwindling rig activity to the tune of an estimated 7, lost energy payrolls, the remainder of the economy has retained modest levels of growth that mostly compensated for the net number of lost jobs. While it is true that the majority of the energy jobs lost were high-paying and relatively incomparable to those gained in retail, healthcare and education in terms of average wage, it is clear that favorable population growth and overall consumer strength will continue to buoy the Bayou City in the near term and recovering oil prices certainly will not hurt. Q4 216 CBRE Research 216 CBRE, Inc. 1

30 HOUSTON INDUSTRIAL Figure 2: Industrial Market Snapshot Submarket Rentable Building Area Vacant Vacancy (%) Availability (%) Net Absorption Under Construction Asking Rate, Gross Avg. ($/SF/Mnth) CBD 52,837,233 2,78, , North 84,82,223 7,435, , ,85.62 Northeast 32,861, , , Northwest 145,881,45 7,145, ,42 1,444,85.63 Southeast 8,42,955 3,125, ,254 3,548,42.62 South 43,55,697 1,532, ,78 34,8.6 Southwest 64,64,466 3,326, ,24 853, HOUSTON TOTAL 54,372,857 25,96, ,122,689 6,561,631.6* Source: CBRE Research, Q *Weighted Gross Avg. LEASING ACTIVITY Net absorption in the overall market was sanguine, with over 2.1 million sq. ft. of positive net absorption. Much of this activity took place in the Southeast and Northwest, two of the three largest submarkets. Northwest absorption was driven mainly by new occupancy in Prologis Park in Jersey Village, where 499,2 sq. ft. was occupied by three large tenants. Southeast absorption was driven in a large part by preleased deliveries 619,66 sq. ft. of the 819,254 sq. ft. of net absorption was attributed to the delivery of these commitments. Additionally, over 325, sq. ft. was occupied in Underwood Business Park by two large tenants in the Southeast submarket. Net absorption was also positive in the Southwest, Northeast and CBD submarkets, at 436,24 sq. ft., 82,998 sq. ft., and 28,977 sq. ft., respectively. Positive net absorption in the CBD was posted after two consecutive quarters in the red, as oil service related manufacturers continued to consolidate and appear to have achieved a more stable footprint. The Northeast and Southwest submarkets saw few significant move-outs, and consistent move-ins in both warehouse and manufacturing space. Negative net absorption of 185,258 sq. ft. and 186,78 sq. ft. in North and South submarkets, respectively, was due mainly to weak move-in activity in both submarkets, as opposed to above average rates of negative absorption. Positive net absorption in the market in conjunction with a conservative development pipeline led to a 14 basis point (bps) decrease in vacancy, now down to 5.1%. The CBD, Northeast, and Northwest submarkets all experienced a decline in vacancy rate, while the North, South, and Southwest experienced slight upticks. Overall market availability rates remained stable at 8.7%, quarter-over-quarter. ASKING RATES Due to a necessary change in the method of asking rate calculation, rates for Q4 216 have been recalculated using weights that more accurately reflect all product types and available space in the market. Asking rates in the overall Houston market appear to have fallen this quarter, but that is exclusively due to the adjustment in weights that was applied. Triple net asking rates for the overall Houston market increased by $.2 per sq. ft. per month, when taking into account the new methodology. This was driven heavily by rising asking rates in the Southeast due to the delivery of substantial quantities of new product, and by further tightening in the Northwest, Southwest, and Northeast submarkets. Q4 216 CBRE Research 216 CBRE, Inc. 2

31 HOUSTON INDUSTRIAL Figure 3: Top Lease Transactions SF Tenant Property Address City Submarket 1 23,426 Anixter Inc. Jersey Village Corporate Cente 74 Security Way Jersey Village Northwest 2 93, North Loop E Houston Northeast 3 75,54 Adams Warehouse McCarty Business Park McCarty St Houston Northeast 4 7,565 HRL Corporation - 15 Oliver St. Houston CBD 5 66,5 Ideal Steel Brittmoore Tanner Business Park 59 Brittmoore Houston Northwest 6 65,52 DC Logistics Bay Area Business Park 1691 N Texas Ave. Webster Southeast 7 63,6 - Central Green Business Park 1668 Central Green Blvd Houston North 8 56,44 MIQ Logistic Volta Dr Humble North 9 52,145 Gateway Supply, Inc N Houston Ave Humble Northeast 1 51,758 - ProLogis NorthPark 713 NorthPark Central Dr Houston North Source: CBRE Research, Q DEVELOPMENT Q4 216 deliveries totaled 1.6 million sq. ft., with 25 of 27 total delivered projects representing warehouse and distribution space. The Southeast submarket delivered the most new buildings, with over 923,15 sq. ft. of completions, the majority of which were new warehouse product delivered in the Bay Area Business Park. The preleased rate in newly delivered construction was 61% for the quarter. Current industrial space under construction across the Houston market totaled 6.6 million sq. ft. within 61 projects. Over 3.5 million sq. ft. of this construction is within the Southeast submarket, where both downstream petrochemical and logistics activity continues to fuel space demand. Ground broken this quarter totaled only 455,35 sq. ft. a five-year quarterly low. Figure 4: Asking Rates, Gross Avg. Monthly $/SF *216 Warehouse/Distribution Manufacturing Source: CBRE Research, Q Flex/Service Rental Rates Overall *Rate calculation methodology adjusted to better reflect average asking rates. Figure 5: Construction and Absorption, Houston Market MSF Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Under Construction Delivered Construction Net Absorption Source: CBRE Research, Q Q3 216 Q4 216 Q4 216 CBRE Research 216 CBRE, Inc. 3

32 HOUSTON INDUSTRIAL CONTACTS Robert C. Kramp Director, Research & Analysis E. Michelle Miller Research Operations Manager Brad Smith Research Analyst CBRE OFFICES CBRE Houston 28 Post Oak, Suite 23 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

33 Houston Industrial, Q3 216 Delivery of Daikin plant heats up NW submarket in Q3 216 Vacancy Rate 5.3% Net Absorption 4,83,83 SF Construction 7,468,76 SF Completions 6,445,94 SF Avg. Asking Rate $.7 PSF *Arrows indicate change from previous quarter. Figure 1: Northwest Fundamentals, Historical RBA (Millions SF) Net Abs and U/C (Millions SF) Q3 212 Q3 213 Q3 214 Q3 215 Q3 216 Source: CBRE Research, Q RBA Under Construction Net Absorption TRENDS Despite the Houston industrial market continuing to feel the effects of the precipitous oil price drop of 215, fundamentals and development activity remain sound at an overall vacancy of 5.3%, and the market continues to experience positive net absorption. Availabilities and reduced activity in the oilfield services and manufacturing sectors remain a drag on the local economy, but both stabilizing oil prices and forecasts of rising prices in the medium-term give hope that the rout may soon be over and pave the way for renewed industry expansion. While break-even price points for several North American shale plays have been met, confidence for longerterm stable prices must be rebuilt and additional time must be accounted for in the case of supply line spin up in the oil field services sector. The delivery of the Daikin manufacturing facility at 29 and the Grand Parkway was a major boost to absorption in the Northwest submarket, and is a similarly large boost to employment in the area, as the facility will support an estimated 5, new jobs at full capacity. Daikin s roughly 4 million sq. ft. manufacturing and distribution facility is the largest tilt wall structure in the world, and represents the footprint of about 7 football fields. This facility is the product of an estimated half-billion dollars of investment by Japan-based Daikin and consolidates the operations of four existing plants in its Goodman air conditioning division two of which were already in Houston. Q3 216 CBRE Research 216 CBRE, Inc. 1

34 HOUSTON INDUSTRIAL Figure 2: Industrial Market Snapshot Submarket Source: CBRE Research, Q *Weighted Gross Avg. Rentable Building Area Vacant Vacancy (%) Availability (%) Net Absorption Under Construction Asking Rate, Gross Avg. ($/SF/Mnth) CBD 52,918,251 2,917, (238,993).59 North 84,681,358 7,216, ,5 199,15.72 Northeast 32,858, , (173,116).63 Northwest 145,843,12 7,996, ,111,987 1,288,69.72 Southeast 79,699,311 3,87, ,952,754 4,422, South 43,46,81 1,262, (28,666) 382,8.66 Southwest 63,753,74 3,378, ,337 1,175, HOUSTON TOTAL 53,161,27 26,64, ,83,83 7,468,76.7* LEASING ACTIVITY Net absorption in the overall market was strong, at 4.8 million sq. ft., of which a significant portion can be attributed to associated Daikin/Goodman moveins and move-outs. The North, Northwest, and Southeast all experienced positive net absorption activity in the Southeast was in a large part driven by nearly 1 million sq. ft. of move-ins by Katoen Natie in Mont Belvieu at their new distribution center. As well, leasing activity at the Southeast s Underwood Business Park rounded out nearly 2 million sq. ft. of absorption this quarter in the submarket. Activity in the Southwest and South submarkets was fairly flat, at 32,337 sq. ft. and negative 28,666 sq. ft. of net absorption, respectively. The CBD experienced negative 238,993 sq. ft. of absorption, with large blocks concentrated in Houston s East-End in the oil field tools and automobile manufacturing sectors. Negative 173,116 sq. ft. of net absorption in the Northeast submarket can be accounted for by a large non-oil manufacturing move-out and several smaller warehouse move-outs despite the negative absorption, vacancy in the Northeast submarket remains tight, at 2.3%. Newly signed leases in the quarter were concentrated in the Southeast submarket, particularly centered around the Cedar Port Distribution Park where about 1 million sq. ft. of distribution space was leased. The Ameriport Industrial Park, also in the Southeast submarket, saw over 6, sq. ft. of signed leases as well. ASKING RATES Triple net asking rates in the overall Houston market fell by $.1 to $.49 per sq. ft. per month due to sustained weakened energy industry demand. This downward trend in rates was driven primarily by $.2 asking rate reductions in the North submarket s flex and manufacturing space, and to a lesser extent by a $.1 reduction in Northwest asking rates, with mixed effects from the Daikin driven space availabilities. Significant retail related manufacturing and distribution activity in the North submarket has helped to dampen the effects of reduced energy sector space demand. Citywide triple net asking rates averaged $.35 for warehouse, $.66 for flex, and $.44 for manufacturing space per sq. ft. per month, and average operating expenses (OPEX) remained stable at $.21 per sq. ft. per month. Weighted citywide gross asking rates across all product types fell from $.71 to $.7 per sq. ft. per month. Q3 216 CBRE Research 216 CBRE, Inc. 2

35 HOUSTON INDUSTRIAL Figure 3: Top Lease Transactions SF Tenant Property Address City Submarket 1 51,2 Ikea Cedar Port Distribution Park 483 Borusan Rd. Baytown Southeast 2 495,462 Ikea Cedar Port Distribution Park 483 Borusan Rd. Baytown Southeast 3 333,2 Palmer Logistics Ameriport Industrial Park 455 Ameriport Pky. Baytown Southeast 4 297,76 Ozburn-Hessey Logistics Ameriport Industrial Park 5 Ameriport Pky. Baytown Southeast 5 145,376 - Eastport Business Park E I-1 Fwy. Houston Southeast 6 14, VEE Express Portwall Distribution Center 2 Portwall St. Houston Northeast 7 125,79 XPO Logistics Bayport North Industrial Park 43 Malone Dr. Houston Southeast 8 19,756 Dealer Tire Claymoore Business Park II 355 Brittmoore Rd. Houston Northwest 9 1, Northern Safety Underwood Distribution Center II 359 Pike Ct. La Porte Southeast 1 83,3 Air Liquide Port Highway 225 Pasadena Southeast Source: CBRE Research, Q DEVELOPMENT Figure 4: Asking Rates, Gross Avg. Annual With the delivery of the Daikin manufacturing $/SF facility, construction activity in the Houston market.9 has returned to levels closer reflecting the historical.8 average. In the third quarter, 1.2 million sq. ft. of.7 construction broke ground, while 6.4 million sq. ft. was delivered 4 million sq. ft. of these deliveries.6 can be attributed to the Daikin facility in the.5 Northwest..4 The largest amount construction activity was seen in.3 the Southeast submarket, as two large distribution.2 centers broke ground, representing the bulk of the 837,836 sq. ft. of new construction in the submarket Q1 216 Q2 216 Q3 216 Under construction projects remain dominated by Warehouse/Distribution Flex/Service the Southeast submarket as well, where 4.4 million Manufacturing Rental Rates Overall sq. ft. of the Houston market s 7.5 million sq. ft. Source: CBRE Research, Q remain in development. Figure 5: Construction and Absorption, Houston Market MSF Q3 211 Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Under Construction Delivered Construction Net Absorption Source: CBRE Research, Q Q3 216 CBRE Research 216 CBRE, Inc. 3

36 HOUSTON INDUSTRIAL CONTACTS Robert C. Kramp Director, Research & Analysis E. Michelle Miller Research Operations Manager Brad Smith Research Analyst CBRE OFFICES CBRE Houston 28 Post Oak, Suite 23 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

37 Houston Industrial, Q2 216 This report contains historical data and totals 63 pages. Market gains: inventory surpasses half a billion sq. ft. Vacancy Rate 5.% Net Absorption 1,784,85 SF Construction 11,241,313 SF Completions 2,899,89 SF Avg. Asking Rate $.71 PSF Figure 1: Total Inventory and Deliveries by Year RBA (Millions SF) *Arrows indicate change from previous quarter. Deliveries (Millions SF) YTD Source: CBRE Research, Q Inventory RBA Deliveries ROBUST FUNDAMENTALS The Houston market has seen the after effects of the previous year s slide in oil prices in isolated sectors, but continues to post healthy overall fundamentals. Despite the bottoming out of prices and the return of $5/bbl oil, the effects of the previous price shock have slowly filtered down from predominantly impacting energy sector office product to other space types. The industrial market has certainly not been immune to these effects, and has seen an acute impact in the sector of oil field service manufacturing. While softness is evident in isolated pockets, the majority of Houston s industrial submarkets have been adjusting to more economic levels of manufacturing demand. However, warehouse and distribution space use and demand remain strong and growing across most submarkets as Houston continues to build on its position as an emerging leader in worldwide logistics. TRENDS Localized clusters have felt the drilling decline with varying degrees of impact. This pain has been balanced, however, by consistent demand generated by Houston s ports, petrochemical industries, and third party logistics operators (3PLs). Additionally, market conditions have been bolstered by a responsible development cycle and a healthy pipeline in the near-term. A bright spot in manufacturing demand has been medical techrelated manufacturing, originating from growth Q2 216 CBRE Research 216 CBRE, Inc. 1

38 HOUSTON INDUSTRIAL Figure 2: Industrial Market Snapshot Submarket Source: CBRE Research, Q *Weighted Gross Avg. Rentable Building Area Vacant Vacancy (%) Availability (%) Net Absorption Under Construction Asking Rate, Gross Avg. ($/SF/Mnth) CBD 53,712,944 2,737, (361,62).59 North 84,442,523 6,659, , , Northeast 32,851, , ,5.63 Northwest 141,859,118 7,46, ,664 4,949, Southeast 79,329,531 3,84, ,19 3,48, South 43,567,178 1,218, , ,8.66 Southwest 64,31,943 2,916, ,541 1,64, HOUSTON TOTAL 5,64,353 24,93, ,784,85 11,241,313.71* via the progressively expanding Texas Medical Center, which has helped to balance a falloff in demand from the hard hit oil-related manufacturing sectors. Overall, the market has leveled out with lower activity levels relative to 214 and 215, an expected result of the commodity price correction. Shorter lease terms, as well as shorter extensions on the order of one year instead of three to five, have made it evident that cash is king as tenants attempt to maintain flexibility in an evolving market. Asking rates remained flat in the areas of warehouse and flex, but demand has generally fallen citywide for manufacturing space with the exception of the Southeast, where downstream plastic and petrochemical demand has risen. Demand in the east has driven a tighter market as the port and petrochemicals continue to drive heavy demand for non-wetlands sites and access to the ship channel. Additionally, requirements for natural gas liquids storage are driving demand for land with pipeline access, as more of these tanks reach maximum capacity in the thriving downstream petrochemical market. As Houston moves into the summer months, we expect to see a typical seasonal slowdown in transactions and leasing velocity, which will rise with business cycle activity in the fall months. Sellers in the market have had to manage expectations to some degree, but are still regularly finding buyers. On the other side of the deal, buyers face an adjustment to their outlook because prices have not retraced significantly from the highs, despite more normalized oil prices. While freight volume is expected to grow in the long term due to improved infrastructure and the opening of the Panama Canal this summer, short term trends have indicated lower overall freight values due to lower commodity prices and slower global trade. However, the consumer market remains strong due to steady population growth and an overall healthy national economy, which are significant drivers in warehouse and distribution demand trends. Perception of the Houston economic climate remains an issue, and has influenced rates accordingly, driving some aggressiveness on the part of landlords as well as accelerating the divergence in incentives offered between first and second generation space terms. That said, citywide market conditions remain attractive for most industrial users on the whole. Q2 216 CBRE Research 216 CBRE, Inc. 2

39 HOUSTON INDUSTRIAL Figure 3: Top Lease Transactions SF Tenant Property Address City Submarket 1 159,913 Lowes Prologis Greens Parkway 1256 Greens Pky. Houston North 2 154,114 A1 Warehousing Lockwood Distribution Center 16 Lockwood Dr. Houston Southeast 3 15, Slay Industries Underwood Business Park 359 Old Underwood Rd. Houston Southeast 4 115,284 XPO Logistics Bayport North Industrial Park 43 Malone Dr. Houston Southeast 5 89,6 Undisclosed Apex Distribution Center II 1634 Tanner Rd. Houston Northwest 6 83,11 Smart Warehousing Wallisville Industrial Park 879 Wallisville Rd. Houston Northeast 7 75, Packwell Underwood Business Park 359 Old Underwood Rd. Houston Southeast 8 74,941 Kroger Foods Northwest Distribution Center 717 W. 43 rd St. Houston Northwest 9 67,5 Packwell Underwood Business Park 151 Porter Rd. Houston Southeast 1 6, Southeast Media World Houston Distribution Center Vickery Dr. Houston North Source: CBRE Research, Q LEASE RATES Lease rate trends indicate a market with steady overall demand and pockets of mixed activity. The CBD, Northwest, and South submarkets saw gross asking rates for warehouse/distribution and flex space hold steady. The North and Southwest submarkets each received a $.2 downward adjustment in asking rates for warehouse space, to $.61 and $.63 per sq. ft. per month, respectively. This trend can be attributed to weaker demand in the North, but balanced by a healthy air and ocean import and export sector. Southwest submarket demand continues to respond to the ongoing global oil price correction. Figure 4: Asking Rates, Gross Avg. Annual The warehouse and distribution space in Northeast and Southeast submarkets both received increases in gross asking rates this quarter, up from $.45 and $.47 per sq. ft. per month to $.51 and $.5 per sq. ft. per month, respectively. These asking rate increases can be attributed to a tightening market on the east side, driven by plastics and petrochemical activity. Overall, gross asking rates for manufacturing space have decreased about $.1 a citywide decrease from $.66 to $.65 per sq. ft. per month, indicative of overall lower demand levels for manufacturing product across most submarkets. OPEX has remained unchanged at $.21 per sq. ft. per month. $/SF Q1 216 Q2 216 Source: CBRE Research, Q Warehouse/Distribution Flex/Service Manufacturing Rental Rates Overall Q2 216 CBRE Research 216 CBRE, Inc. 3

40 HOUSTON INDUSTRIAL Figure 5: Construction and Absorption MSF Q2 211 Q3 211 Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Under Construction Delivered Construction Net Absorption Source: CBRE Research, Q LEASING ACTIVITY Houston s vacancy rates were stable, and received a 1 basis point (bps) increase over the previous quarter from 4.9% to 5.%, due mostly to new product deliveries from an active construction pipeline. Vacancy rates remain near historically low levels with strong net absorption of 1.8 million sq. ft., comparable to last quarter. All submarkets, with the exception of the CBD, posted positive absorption for the quarter. Net absorption was led by the Southwest submarket, driven by two large blocks of delivered preleased space and a 142, sq. ft. lease at the Sugar Land Business Park. The Northwest and Southeast submarkets saw similarly strong absorption, each posting about half a million sq. ft. of positive absorption. Negative absorption in the CBD was primarily observed in older, yet functional warehouse product, as tenant movements trended towards upgrading or consolidating newer space. Notable activity this quarter includes: Plastic Express occupying 394, sq. ft. at 313 Highway 225 in the Southeast, and the fully preleased delivery of a 33, sq. ft. warehouse at 233 S. Cravens Rd. in the Southwest. CONSTRUCTION Although current under construction is fairly high at 11.2 million sq. ft., 3.9 million sq. ft. of this space can be ascribed to the Daikin manufacturing and distribution plant under construction at the Grand Parkway and Highway 29, with an expected delivery next quarter. Of the 11.2 million sq. ft. under construction, over 8.4 million sq. ft. of this space is considered preleased. Construction starts this quarter totaled 954, sq. ft., representing 17 projects. The new development was fairly even spread across the submarkets, with the exception of the CBD and Northeast submarkets which saw no new ground broken. Over 11.2 million sq. ft., representing 66 projects, were under construction this quarter. The building count delivered this quarter totaled 25, representing 2.9 million sq. ft. of space. Of this new construction, over 1.8 million sq. ft. was delivered preleased a 4% increase in delivered prelease space over the previous quarter. Notable deliveries include 5,4 sq. ft. of distribution space at the Pinto Business Park in the North, as well as 394, sq. ft. of warehouse space at Port 225 in the Southeast. Q2 216 CBRE Research 216 CBRE, Inc. 4

41 MARKETVIEW INSERT Houston Industrial, Q2 216 Figure 1: Market Snapshot Submarket YTD 216 CBD Absorption (Net, SF) (626,931) (15,538) 26, , ,58 44,611 98,914 (31,481) Asking Rent (Gross Avg. Mthly $/SF) Delivered Construction 38,232 22, 22,8 Vacancy Rate (%) NORTH Absorption (Net, SF) 733, , ,778 1,153,943 1,122,661 1,97,599 2,549,16 115,983 Asking Rent (Gross Avg. Mthly $/SF) Delivered Construction 2,64,497 23,5 931,134 1,41,111 3,15,45 5,254,279 2,252,63 1,53,471 Vacancy Rate (%) NORTHEAST Absorption (Net, SF) 73,253 (557,41) 54, , ,67 72,72 (4,371) 419,661 Asking Rent (Gross Avg. Mthly $/SF) Delivered Construction 149,134 4, 4, 1,56 398,65 Vacancy Rate (%) NORTHWEST Absorption (Net, SF) (634,93) 1,287,949 1,27,297 2,49,112 1,84,764 1,88,729 1,84,232 1,63,669 Asking Rent (Gross Avg. Mthly $/SF) Delivered Construction 1,131, ,16 45,386 1,156,56 3,465,51 3,413,865 3,728,28 1,95,14 Vacancy Rate (%) SOUTHEAST Absorption (Net, SF) 648, , ,42 964, ,697 1,766,981 1,819, ,156 Asking Rent (Gross Avg. Mthly $/SF) Delivered Construction 665, , 234,29 1,54,32 754,86 833,289 1,996,822 1,373,817 Vacancy Rate (%) SOUTH Absorption (Net, SF) (87,821) 164,328 63, , ,78 797,68 183,597 49,739 Asking Rent (Gross Avg. Mthly $/SF) Delivered Construction 448,46 26, 6,36 178,13 1,37, ,516 46,52 Vacancy Rate (%) SOUTHWEST Absorption (Net, SF) 75,344 1,297, ,149 57,91 734,65 653, ,396 1,558,75 Asking Rent (Gross Avg. Mthly $/SF) Delivered Construction 85,41 1,117, ,81 432,982 1,46,225 1,388, ,176 1,632,92 Vacancy Rate (%) HOUSTON TOTAL Absorption (Net, SF) 18,218 3,57,55 3,844,569 6,446,24 5,779,515 8,114,176 6,295,8 3,793,477 Asking Rent (Gross Avg. Mthly $/SF) * Delivered Construction 5,655,252 2,4,92 1,741,62 4,693,955 8,587,12 11,99,89 9,58,55 5,599,564 Vacancy Rate (%) Source: CBRE Research, Q *Weighted Gross Avg. Q2 216 CBRE Research 216 CBRE, Inc. 1

42 MARKETVIEW INSERT HOUSTON INDUSTRIAL Figure 2: Houston Employment Trends by Sector Education and Health Services Leisure and Hospitality Government Trade, Transportation, & Utilities Construction Financial Activities Total Employment Other Services Information Prof. & Business Services Mining and Logging Manufacturing (2) (15) (1) (5) Year-over-Year Employment Change Source: Bureau of Labor Statistics, May 216. Figure 3: Asking Rates, Gross Avg. Monthly by Space Use and Submarket $/SF Warehouse/Distribution Flex/Service Manufacturing CBD North Northeast Northwest Southeast South Southwest Market Average Source: CBRE Research, Q Figure 4: Absorption by Space Use and Submarket Market Area Warehouse/Distribution Flex/Service Manufacturing CBD (362,884) 1,282 North 1,459 12,227 15,8 Northeast 42,55 168,5 Northwest 62,564 51,61 (183,51) Southeast 539, ,2 South 134,923 (3,36) (15,322) Southwest 716,847 27,75 15,944 HOUSTON TOTAL 1,675,69 89,844 19,892 Source: CBRE Research, Q Q2 216 CBRE Research 216 CBRE, Inc.

43 MARKETVIEW INSERT HOUSTON INDUSTRIAL Figure 5: Construction Activity by Submarket Submarket Buildings Under Construction Under Construction Ground Broken Ground Broken Completed Construction Completed Construction CBD North , , ,828 Northeast 3 398,65 Northwest 12 4,949, , ,247 Southeast 19 3,48, , ,28,252 South 3 382, ,8 1 26,52 Southwest 15 1,64, , ,592 HOUSTON TOTAL 66 11,241, , ,899,89 Source: CBRE Research, Q Figure 6: Market Availability SF (s) YTD 216 Total Market RBA* Vacancy Rate Availability Rate Source: CBRE Research, Q *Represents Industrial buildings 1, sq. ft. and up. (%) Figure 7: Historical Sublease Availability SF (s) 3,5 3, 2,5 2, 1,5 1, 5 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Vacant SF Available SF Source: CBRE Research, Q Q2 216 CBRE Research 216 CBRE, Inc. 3

44 M A R K E T V I E W I N S E R T HOUSTON INDUSTRIAL CONTACTS Robert C. Kramp Director, Research & Analysis robert.kramp@cbre.com E. Michelle Miller Research Operations Manager michelle.miller@cbre.com Brad Smith Research Analyst bradley.smith@cbre.com CBRE OFFICES CBRE Houston 28 Post Oak, Suite 23 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

45 Houston Industrial, Q1 216 Double take: sublease space up sharply Y-o-Y, in Q1 216 Vacancy Rate 4.9% Net Absorption 2,8,672 SF Construction 1,172,71 SF Completions 2,694,125 SF Wtd. Avg. Asking Rate $.72 PSF *Arrows indicate change from previous quarter. Figure 1: Available Sublease Space by Submarket s 1,4 1,2 1, Northwest North Southwest Southeast South CBD Northeast Q1 215 Available Sublet SF Q1 216 Available Sublet SF Source: CBRE Research, Q FUNDAMENTALS STRONG BUT SUBLEASE AVAILABILITIES SPILL INTO INDUSTRIAL MARKET Houston s industrial market continues to weather the effects of low oil prices with positive growth. Demand is strong, particularly in the Southeast submarket, and the flexibility offered in leasing terms and space use has been instrumental in preserving the market s strength. Tenants and landlords in Houston s industrial market have responded to the changing economic environment via two trends: increases in shorterterm leases and an increased availability of sublease space. Commodity market volatility particularly for manufacturers in the exposed energy sector has made terms 3-5 years more commonplace as tenants seek to mitigate risk in preparation of the anticipated stabilization of the crude oil market. Sublease space availability was a defining trend this quarter. Compared to a year ago, total industrial sublease availability surged over 1.6 million sq. ft. to 3.5 million sq. ft. the largest amount on record and well above the five year average of 2.4 million sq. ft. Although at an all time high, current available sublease still represents only a small portion of all available space despite growing by 562,986 sq. ft. this quarter the largest increase observed since Q2 29. Despite experiencing the strongest quarterly absorption on record, sublease in the Northwest doubled over the last year, the vast majority of which Q1 216 CBRE Research 216 CBRE, Inc. 1

46 HOUSTON INDUSTRIAL Figure 2: Industrial Market Snapshot Rentable Building Q1 216 Under Asking Rate, Area Vacancy Availability Net Absorption Construction Gross Avg. Submarket Vacant SF (%) Available SF (%) ($/SF/Mnth) CBD 53,499,9 2,687, ,684, , North 83,693,831 6,447, ,549, , , Northeast 32,479, , ,213, , Northwest 141,446,947 7,126, ,742, ,16,5 5,23,35.73 Southeast 78,14,774 3,31, ,726,52 6. (23,34) 2,435, South 43,535,972 1,39, ,71, (66,52) 21,.67 Southwest 63,86,794 3,9, ,337, ,29 1,589,32.77 HOUSTON TOTAL 496,656,625 24,322, ,965, ,8,672 1,172,71.72* Source: CBRE Research, Q *Weighted Gross Avg. was warehouse and distribution properties. The North submarket saw significant growth in sublease space, as well, with listings led by CVS, Hammonds Technical Services, and The Newdell Company. Four of the five largest sublease availabilities averaging over 1, sq. ft. each were listed by manufacturing tenants. However, by and large, warehousing and distribution constituted the largest sector of available subleases, comprising over 75% of all available sublease space. It is expected that available sublease may continue to increase through 216 provided that oil and gas manufacturers continue to face anemic demand for exploration and production equipment. Significant increases in manufacturing sublease space is concentrated in the Southwest, Southeast, and Southern submarkets. VACANCY FLATTENS AS TENANTS TAKE A WAIT AND SEE APPROACH Prognostications of mixed growth for Houston and the industrial market in 216 persist, as does the expectation of recovering oil prices. Despite the continued volatility in the commodity markets and the ensuing financial hardships of a portion of energy sector producers, Houston fundamentals and its industrial sector remain stable. Houston s overall vacancy held steady at 4.9% as leasing velocity slowed in select submarkets. The Northwest s vacancy rate decreased from 5.4% to 5.%, while the Southeast saw an uptick in vacancy, increasing from 3.4% to 4.2%. Regardless, overall vacancy remains healthy and below the historical average of 6.9%. Tenants are carrying on with calculated leasing decisions, yet demand is strongest in third party logistics and warehousing demand. The Northwest and Southwest absorbed 1.2 million sq. ft. and 798,29 sq. ft. each, respectively, as retail distribution demand dominated absorption activity, as evidenced by the large blocks of absorption in warehouse/distribution properties in Q1 216: Foxconn occupied 4,25 sq. ft. at Fallbrook Distribution Center in the Northwest, and National Oilwell Varco occupied 383,57 sq. ft. at a new warehousing facility in the Northwest. The Southeast, South, and North submarkets saw modest to moderate negative absorption as the southern submarkets responded to oil industry driven decreases in manufacturing demand. Q1 216 CBRE Research 216 CBRE, Inc. 2

47 HOUSTON INDUSTRIAL Figure 3: Top Lease Transactions SF Tenant Property Address City Submarket 1 441, Advanced Auto Beltway Crossing NorthWest 1181 N. Gessner Houston Northwest 2 394,489 Plastic Express Port Highway 225 Pasadena Southeast 3 268,482 Simmons Mattresss Fallbrook Pines Business Park 995 Fallbrook Houston Northwest 4 237, Cedar Creek Corp 1 N. Loop E. 1 N. Loop E. Houston Northeast 5 162,79 PGS USA Underwood Business Park 359 Pike Ct. La Porte Southeast 6 125,79 Exel Bayport North Industrial Park 43 Malone Pasadena Southeast 7 125, Winroc-SPI Underwood Business Park 359 Pike Ct. La Porte Southeast 8 114,467 CTDI West by Northwest 6215 West by Northwest Houston Northwest 9 88, Standard Register West Little York Distribution Center 1735 West Little York Houston Northwest 1 75, Source Refrigeration World Houston Business Center 158 International Plaza Houston North Source: CBRE Research, Q ON ONE HAND, LEASE RATES FALLING FOR SMALL FREESTANDING AND MULTI-TENANT BUILDINGS On the other hand, overall concessions have been generally flat or down in Q1 216; however, a trend in favor of higher tenant improvement allowances has been observed. Rates have remained relatively unchanged in Q1 216 where the current citywide industrial average asking gross rate per sq. ft. is $.7 per month. The average quoted gross monthly rent rates are $.55 per sq. ft. for warehouse/distribution space; $.88 for flex/service space; and $.66 per sq. ft. for manufacturing space. CONSTRUCTION STARTS UP FROM Q4 215 WITH 24 DELIVERIES A 1 million sq. ft. increase in construction starts was observed quarter-over-quarter, as 13 new projects broke ground representing just over 2.1 million sq. ft. of space. The bulk of this development is concentrated in the Northwest and Southwest submarkets. Twenty four buildings delivered in Q1 216, representing 2.7 million sq. ft. of which 47% was preleased space. The market delivered 1 million sq. ft. more this quarter than Q4 215, including a 1% increase in preleased delivery space. Figure 4: Asking Rates, Gross Avg. Annual $/SF Q1 216 Warehouse/Distribution Flex/Service Manufacturing Rental Rates Overall Source: CBRE Research, Q Variance in reported rates for Q1 216 may reflect an adjustment in calculation methodology and not necessarily changes in the market. Q1 216 CBRE Research 216 CBRE, Inc. 3

48 HOUSTON INDUSTRIAL Figure 5: Construction and Absorption MSF Q1 211 Q2 211 Q3 211 Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Under Construction Delivered Construction Net Absorption Source: CBRE Research, Q The initial construction of a massive 8, sq. ft. FedEx logistics warehouse facility in northwest Houston, in addition to the new construction of two as demand for drilling hardware has fallen off as capex among energy firms has sharply decreased due to liquidity concerns. industrial parks in the southwest, represent the lion s share of the development in these areas. While employment growth has substantially slowed in the past year, negative growth rates The majority of deliveries were in the Northwest and Southeast submarkets including Aldi s 65,-sq.- ft. distribution center in Rosenberg delivered in Q1 216, along with a 34, sq. ft. building at West Ten Distribution Center. remain an unlikely scenario. Job losses that have occurred have been relatively isolated to the exploration and production sectors, primarily oil field services and oil field equipment manufacturing. However, the losses in E&P are balanced by job gains throughout retail and ECONOMIC INDICATORS REFLECT MIXED MARKET CONDITIONS FOR MANUFACTURING AND CONSUMER SPENDING healthcare sectors. Ongoing investment in the Ship Channel and the Port of Houston will continue to provide the city with a major competitive advantage, particularly once oil prices Although oil price volatility has heavily impacted rebound to stable levels. demand for office space, overall industrial demand has yet to be derailed despite the rise in sublet For the 14th consecutive month, Houston s availability. The continuing expansion of the Purchasing Managers Index (PMI) again registered downstream petrochemical industry remains a below the neutral point of 5, steadily declining in significant driver of area growth. Additionally, February to This trend has continued to strong performance by the retail market and the signal economic contraction in the face of low resulting growth in consumer s disposable income commodity prices and a reduction of economic via low gasoline prices has further bolstered activity in E&P and oil field services. Job growth demand, keeping distribution users active in the has remained positive: January year-over-year market. change indicates a modest.6% growth in employment, as job losses in Houston s energy Manufacturing particularly outfits servicing the related sectors are offset by gains in retail and exploration and production sector have been healthcare sectors. significantly weakened by sustained low oil prices, Q1 216 CBRE Research 216 CBRE, Inc. 4

49 HOUSTON INDUSTRIAL CONTACTS Robert C. Kramp Director, Research & Analysis E. Michelle Miller Research Operations Manager Brad Smith Research Analyst Kindell Villarreal Researcher CBRE OFFICES CBRE Houston 28 Post Oak, Suite 23 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

50 Houston Industrial, Q4 215 East side strength tugs at flattening industrial demand Vacancy Rate 4.9% Net Absorption Construction Completions 1,373,13 SF 8,6,949 SF 1,72,849 SF Avg. Asking Rate $.69 PSF *Arrows indicate change from previous quarter. Figure 1: Industrial Demand Net Absorption (MSF) Vacancy Rate (%) Source: CBRE Research, Q Annual Net Absorption RECORD BREAKING YEAR SPURS HEFTY INVESTMENT BY PORT AUTHORITY It was a strong year for the Port of Houston despite low oil prices, closing the year with a record number of imports. The Port Authority accepted over 2 million twenty-foot-equivalent units (TEUs in 215. The previous record set in 214 was 1.96 million TEUs. This year the port accepted the first of the large vessels anticipated to arrive upon the completion of the Panama Canal expansion. This combined with future oil tankers set to ship crude overseas following the cessation of the 4-year oil export ban has the port optimistic about 216. The Port Authority announced plans for $7 million of improvements over the next ten years within the Barbour s Cut terminals which will accommodate larger vessels moving through Panama s larger locks. Q4 215 CBRE Research Vacancy Rate Granted Houston is in the middle of serious slowdown, but local economists anticipate a mixed-bag of job growth to in 216 and the same for the industrial market. Volatile oil prices which hit the office market hard have yet to derail industrial demand. First, the east side has yet to see the end of its construction boom driven by petrochemical expansions. And second, Houston s healthy retail consumer is keeping the distribution users active in the market. But the manufacturing industry, weakened by low oil, particularly factories producing oil and gas equipment/parts, is not in the clear and will likely be facing a tough CBRE, Inc. 1

51 HOUSTON INDUSTRIAL Figure 2: Industrial Market Snapshot Submarket Rentable Building Area Vacant SF Vacancy (%) Available SF Availability (%) Q4 215 Net Absorption 215 Total Asking Rate, Net Absorption Gross Avg. Under Construction ($/SF/Mnth) CBD 53,423,172 2,49, ,588, (133,814) 98, North 83,335,716 6,352, ,979, ,182 2,549,16 728, Northeast 32,426,77 473, ,814, (12,39) (4,371) -.61 Northwest 14,297,896 7,515, ,166, (8,86) 1,84,232 4,267,63.79 Southeast 78,465,52 2,7, ,531, ,891 1,819,134 1,94, South 43,553,156 1,266, ,792, , ,597 21,.65 Southwest 63,153,77 3,234, ,315, (16,186) 564,396 1,49, ,188, HOUSTON TOTAL 494,655,469 24,33,624 1,373,13 6,295,8 8,6, Source: CBRE Research, Q MANUFACTURING STALLS DRAGGING DOWN INDUSTRIAL EMPLOYMENT FORECASTS Manufacturing across the state is struggling according to the Texas Manufacturing Outlook Survey conducted by the Federal Reserve Bank of Dallas. Softening demand from the midstream energy sector has fabricated metal production and machinery manufactures concerned for the year ahead. Manufacturers indicate future business conditions will worsen before they begin to see relief. After a difficult year in the Houston job market with significant job losses in the energy sector, future employment forecasts point towards a slow 216 for job growth. 216 will be particularly difficult for energy (white collar/upstream), manufacturing, and wholesale which could lose as many as 2, jobs according to the Greater Houston Partnership. However gains in health care, construction, government and leisure and hospitality will balance out the losses. INDUSTRIAL DEMAND PERSISTS; PETROCHEMICAL AND 3PLS DOMINATE Industrial metrics are stable but some uncertainty is looming amidst tepid economic forecasts. Industrial activity on the east side is strong but elsewhere tenants are making slow, cautious Q4 215 CBRE Research decisions resulting in lower than average leasing volume, about 43% fewer deals got done compared to 214. Currently, the majority of tenant demand is coming from petrochemical, building materials, and third party logistics users in the market. As the world continues to shrink global trade has grown 5.5% annually; this increase in cross-border trade is driving industrial demand in global logistic hubs. And Texas has two of the seven global logistic hubs in the U.S. Dallas/Fort Worth and Houston. With 47.8 million sq. ft. of logistics product, global energy presence and one of the fastest-growing ports in the U.S., Houston is a key player in the global logistics hub-and-spoke system. And growing e-commerce activity will continue to drive warehouse leasing as ecommerce sales result in three times as much warehouse/distribution space as brick-and-mortar space, according to Prologis. Record e-commerce holiday sales in 215 signal this sector will continue to see healthy demand. LEASING ACTIVITY SLOWS BUT YEAR-END NUMBERS STILL STRONG The Houston vacancy rate increased slightly to 4.9%, compared to 4.7% in Q3 215 due to vacant space in deliveries in the North, Northwest and 215 CBRE, Inc. 2

52 HOUSTON INDUSTRIAL Figure 3: Top Lease Transactions SF Tenant Property Address City Submarket 1 345,1 Gulf Winds International* Central Industrial Park 411 Brisbane St. Houston South 2 141,55 Adams Distribution 353 W. 12th St 353 W. 12th St. Houston CBD 3 112,8 Surefire Industries USA 14 Brittmoore Rd. 14 Brittmoore Rd. Houston Northwest 4 94,27 Honeywell International*** Greens Crossing DC 1121 Greens Crossing Blvd. Houston North 5 91,8 GE* Greens Port Industrial Park 1755 Federal Rd. Houston Southeast 6 72,37 Mason Road Sheet Metal ** Northwest Industrial Park 645 Clara Rd. Houston Northwest 7 65, FDT Park Ten Business Park Park Row Houston Northwest 8 61,5 Janco Foods* Silber Road Warehouse 1216 Silber Houston Northwest 9 64,987 A-T Controls 1284 Sugar Ridge Blvd 1284 Sugar Ridge Blvd. Stafford Southwest 1 58,41 Millenium Packaging Apex Distribution Center 1634 Tanner Rd. Houston Northwest *Renewal **Expansion *** Renewal/Expansion Source: CBRE Research, Q Southeast submarkets. Yet, vacancy still is 2 basis points (bps) lower than the historical average of 6.9%. The North and Southeast submarkets are some of the most active in the city. The North submarket posted the strongest absorption numbers this quarter as CVS fully occupied 328,2 sq. ft. in the Imperial Distribution Center. Leasing activity was soft again in Q4 215; however, some of the sluggish activity can be attributed to seasonality. Nevertheless, despite the perception of a slowdown year-end absorption totals remained very strong closing the year at 6.3 million sq. ft. on par with 212 absorption levels. Notable transactions this quarter include: Mavaik occupied 13,93 sq. ft. at Highway 3; Visual Comfort occupied 83,2 sq. ft. at 142 Okanella. LEASE RATES Overall rents were unchanged in Q4 215 although rent growth might be plateauing; current average monthly asking gross rates per sq. ft. citywide are $.69 per month. While most property types are still achieving healthy rents, crane-served warehouses could begin to see contracting rents. Yet, second generation space is quite strong offering very little, if any, concessions; different from new construction which typically offers tenant improvement allowances and some free rent. The average quoted gross monthly rent rates are $.48 per sq. ft. for warehouse/ distribution space; $.86 per sq. ft. for flex/service space; and $.73 per sq. ft. Figure 4: Asking Rates, Gross Avg. Annual $/SF Warehouse/Distribution Source: CBRE Research, Q Q4 215 CBRE Research Flex/Service Manufacturing Q4 215 Rental Rates Overall 215 CBRE, Inc. 3

53 HOUSTON INDUSTRIAL Figure 5: Construction and Absorption MSF Q4 27 Q1 28 Q2 28 Q3 28 Q4 28 Q1 29 Q2 29 Q3 29 Q4 29 Q1 21 Q2 21 Q3 21 Q4 21 Q1 211 Q2 211 Q3 211 Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 (1) Under Construction Delivered Construction Net Absorption Source: CBRE Research, Q CONSTRUCTION While employment growth will slow, employment losses are unlikely. Job losses could occur in Softening construction starts this quarter were exploration and production, oil field services, and expected and welcome after one of the strongest development cycles in the Houston market. While the oil field equipment manufacturing. However, Southeast submarket is still very active and could see modest job gains are expected throughout the retail sector. The healthcare sector has played a further new product, starts ground to a halt in the significant role in the growth of the Houston MSA, second half of 215. No new starts were recorded outside the Southeast, driven by downstream energy especially with the continued growth of the Texas demand, and the Northwest, Houston's logistics hub. Medical Center that employee an estimated 16, people. Additionally, the ongoing Bay Area Business Park Phase II was the largest project to break ground this quarter and will add four investment in the improvement of the Houston Ship Channel is critical to ensure this region buildings totaling 829,85 sq. ft. (currently 1% continues to capture its share of economic available) to the Southeast submarket. Twenty eight prosperity delivered because of maritime buildings delivered in Q4 215 with the largest commerce. concentration of development in the North (12 projects totaling 58,536 sq. ft.) and in the Southeast with 34,463 sq. ft. delivered. ECONOMIC INDICATORS For the last 11 months, the Houston Purchasing Managers Index (PMI) continued to register below the neutral point of 5, steadily declining in November to 44.9, showing the Houston economy According to the Bureau of Labor Statistics, the is still contracting in the face of low crude oil and Houston MSA job growth numbers showed 4,8 jobs natural gas commodity prices. gained in November. Job gains were due in part to seasonal hiring in restaurants and retail stores. Deepest declines of the industry sectors year-over-year have been in manufacturing (-6.%), mining and logging (-4.9%), and financial activities (-2.6%). A major blow to manufacturing is due to the continuous drop in oil prices. Q4 215 CBRE Research 215 CBRE, Inc. 4

54 HOUSTON INDUSTRIAL CONTACTS Robert C. Kramp Director, Research & Analysis E. Michelle Miller Research Operations Manager Analee Micheletti Research Analyst Kindell Villarreal Researcher CBRE OFFICES CBRE Houston 28 Post Oak, Suite 23 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

55 Houston Industrial, Q3 215 Taking a breather; Industrial market hints at moderating Vacancy Rate 4.7% Net Absorption 1,796,337 SF Construction 9,346,187 SF Completions 1,267,695 SF Avg. Asking Rate $.69 PSF Figure 1: Industrial Demand Net Absorption (MSF) *Arrows indicate change from previous quarter. Vacancy Rate (%) YTD Source: CBRE Research, Q Annual Net Absorption Vacancy Rate THE PORT OF HOUSTON DEBUTS FIRST DEEPER, WIDER CHANNEL As the Panama Canal expansion nears completion, the Port of Houston has completed the first of two deeper container terminals at Barbours Cut. The second at Bayport, will be completed next year in anticipation of the larger vessels set to come through Panama s larger locks. Vacancy in the Southeast submarket is at a historic low of 2.9% with expectations of an additional 17 bps decrease over the next two years. Container ship traffic continues to grow at the Port of Houston seeing volumes increase by 17% since 214. Over the last five years, the Port of Houston contributed $178.5 billion of economic impact to the state with exports exceeding $289 billion in 214 and on track to a record setting year in 215. The effects of low oil prices are looming as Houston struggles to recoup job losses in the energy sector at the same time the office market is weighed down by sublease glut. However, strong petrochemical activity on Houston s east side is benefiting from low feed stock prices has kept the industrial market insulated from a drastic impact. Industrial leasing activity has remained compressed throughout 215, down by half from the height of the cycle last year. As well, the feverish pace of development has finally tapered off; construction starts dropped by 79% from Q While the outlook indicates some contraction, overall metrics are comfortably stable. Q3 215 CBRE Research 215 CBRE, Inc. 1

56 HOUSTON INDUSTRIAL Figure 2: Industrial Market Snapshot Submarket Rentable Building Area Vacant SF Vacancy (%) Available SF Availability (%) Under Construction Asking Rate, Gross Avg. ($/SF/Mnth) CBD 53,58,39 2,344, ,393, , ,728 22,8.55 Source: CBRE Research, Q Q3 215 Net Absorption 215 Total Net Absorption North 82,55,752 6,93, ,696, ,847 1,597, , Northeast 32,34, , ,269, (28,599) 7, Northwest 139,994,667 7,276, ,953, ,17 1,92,318 5,154,49.79 Southeast 77,593,845 2,214, ,382, ,311 1,296,243 1,712, South 43,257,534 1,312, ,14, , , Southwest 62,764,356 2,81, ,158, ,188 58,582 1,539,46.79 HOUSTON TOTAL 492,1,341 23,332, ,869, ,796,337 4,921,878 9,346, CONSTRUCTION BOOM BEGINS TO COOL OFF BUT DEMAND IS STABLE Record breaking development activity is finally slowing after two years of extraordinary growth. Only six new projects broke ground, the fewest since 211. Currently, 9.3 million sq. ft. are under construction, almost half of which is the Daikin headquarters the largest tilt-wall construction project in the world totaling 4 million sq. ft. Discounting this huge project, construction activity has pulled back throughout 215, decreasing to levels comparable with the moderate pre-recession activity. Pre-leasing in new developments is healthy, currently at 63%, indicating there is still demand for new industrial product. The downstream sector of the energy industry, including petrochemical, resins and plastics, as well as distribution and logistics is the main source of industrial demand. Vacancy in the Southeast submarket, where the Port of Houston is located, dropped 7 basis points (bps) to 2.9% in Q And the long term perspective is equally as bright as the Port of Houston expansion is completed, ushering in larger ships than ever. Houston added 541,14 new residents from 21 to 214, the most of any major metro in the U.S. This recent population boom has resulted in a strong retail market and thus warehouse expansions in consumer driven companies specifically automotive parts and tires, and furniture and home furnishings. Stable demand continues to push vacancy down across Houston, particularly in the Northeast where vacancy decreased to a historical low of 1.4% and CBD dropped by 5 bps in Q However, the Houston Purchasing Managers Index (PMI) declined further to 47.3 in August but manufacturing and wholesale trade seeing improvement but still remain below neutral, indicating contraction in the next three months. Coupled with a slow quarter of leasing, and tepid employment in the industrial sectors, the industrial market could see further softening in manufacturing property metrics. A softening Houston economy will ultimately curtail the post-recession industrial boom which has shown up in slowing development pipeline and moderating leasing activity. Yet, the diversification of the industry make-up and demand drivers will be the sector s parachute throughout the next three years. Q3 215 CBRE Research 215 CBRE, Inc. 2

57 HOUSTON INDUSTRIAL Figure 3: Top Lease Transactions SF Tenant Property Address City Submarket 1 261,99 GE Port Northwest 1625 Port Northwest Houston Northwest 2 23,748 Cameron First Northwest Commerce Center 48 W Greens Rd Houston North 3 14, Mariak Ellington Trade Center Highway 3 Webster Southeast 4 12,58 Abrasive Products Port Highway 225 Pasadena Southeast 5 89,498 Dawn Food 575 Brittmoore Rd 575 Brittmoore Rd Houston Northwest 6 81, Gator Fabrication 11 East Avenue M 11 East Avenue M Conroe North 7 8, Source Logistics Airtex Industrial Center 3 Airtex Houston North 8 55,625 Seanic Ocean Systems Energy Park 2531 Clay Rd Katy Northwest 9 54,285 ATC Industrial Reeds Landing Business Park 22 Greens Rd Houston North 1 52, General Cable Prologis Northpark 713 NorthPark Central Dr Houston North Source: CBRE Research, Q LEASING ACTIVITY Despite the anticipated slowing in leasing activity, absorption was up in Q Large deals were not as prevalent this quarter revealing a strong base of tenants in the 3, to 5, sq. ft. range. This is characteristic of the current demand. Absorption is strongest in the warehouse/distribution properties as manufacturing continues to cool across the country. The recent influx of over 5, new residents in the last 5 years will result in further growth in the warehouse/distribution sector. Notable transactions this quarter include: Packwell occupied 137,5 sq. ft. at 977 New Century Dr. in southeast Houston and Dawn Foods occupied 89,49 sq. ft. at 575 Brittmoore in northwest Houston. While industrial sublease space has increased to Figure 4: Asking Rates, Gross Avg. Annual $/SF million sq. ft. in the last year, mainly in the CBD, Northwest and Southwest, available space is only 3, sq. ft. higher than the 5 year average. For perspective, industrial sublease crept up to 2.8 million sq. ft. in Q3 213 when demand was at a feverish pace. LEASE RATES Overall rents were unchanged in Q3 215 after increasing steadily over the past year; current average monthly asking gross rates per sq. ft. citywide are $.69 per month. Concessions, however, increased this quarter including free rent especially in new properties and above standard tenant improvement allowances. The average quoted gross monthly rent rates are $.48 per sq. ft. for warehouse/ distribution space; $.86 per sq. ft. for flex/service space; and $.73 per sq. ft Q3 215 Warehouse/Distribution Flex/Service Manufacturing Rental Rates Overall Source: CBRE Research, Q Q3 215 CBRE Research 215 CBRE, Inc. 3

58 HOUSTON INDUSTRIAL Figure 5: Construction and Absorption MSF (1) Q1 28 Q2 28 Q3 28 Q4 28 Q1 29 Q2 29 Q3 29 Q4 29 Q1 21 Q2 21 Q3 21 Q4 21 Q1 211 Q2 211 Q3 211 Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Under Construction Deliveries Net Absorption Source: CBRE Research, Q CONSTRUCTION expenditure cuts, especially reducing their exploration budgets. Yet according to the Dallas Construction is beginning to slow after a record Fed, the pains are localized with upstream energy breaking construction cycle. Developers have taken a as downstream extraction and pipeline cautious stance given sluggish employment growth transportation continues to offset declines in the and thus decreasing demand. Twenty three support activities sector. warehouse buildings delivered in Q3 215 with the largest concentration of development in the North (13 Employment in the goods producing sector in projects totaling 59,17 sq. ft.) and in the Northwest Houston has been one of the weakest thus far in with seven projects at 639,588 sq. ft. delivered. These 215 while the service sector has seen very markets have dominated the construction pipeline this healthy job growth. The leisure and hospitality cycle, but the Southeast submarket is gaining sector added 21,9 jobs in the last nine months. momentum amidst current downstream growth. The goods producing sector, which includes mining, manufacturing and construction, lost While starts slowed this quarter there are still a hefty 17,4 jobs since December 214, the largest amount of buildings under construction. Large losses in manufacturing which shed 12,2 jobs. distribution projects dominate the construction Economists are anticipating the job gains to pipeline like the Aldi Distribution Center (65, sq. balance out any additional job losses if September ft.) in Rosenberg. Six new buildings broke ground this employment numbers indicate even minimal quarter including: The Port 225 project which includes growth, says the Greater Houston Partnership. three buildings totaling over 75, sq. ft. and the 5, sq. ft. Tomball Business Park. Elevated For the last eight months the Houston Purchasing construction costs, particularly high concrete prices Managers Index (PMI) has stayed below 5, and skilled labor shortages, continue to be a declining to 47.3 in August. Yet, outlook is challenge for developers. improving from April when the PMI dipped to Manufacturing and wholesale trade sectors ECONOMIC INDICATORS The oil slump put the brakes on Houston s economic growth pattern. The industry continues to announce reported improvement but still remain below neutral, indicating contraction in the next three months. more white-collar job cuts and further capital Q3 215 CBRE Research 215 CBRE, Inc. 4

59 HOUSTON INDUSTRIAL CONTACTS Robert C. Kramp Director, Research & Analysis E. Michelle Miller Research Operations Manager Analee Micheletti Research Analyst Kindell Villarreal Researcher CBRE OFFICES CBRE Houston 28 Post Oak, Suite 23 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

60 Houston Industrial, Q2 215 North by Northwest: Markets See 2/3 rds of Top 1 Q2 Leases 4.8% 1,149,42 SF 1,325,153 SF 4,582,192 SF.69 $/SF *Arrows indicate change from previous quarter. HOUSTON RANKS AMONG TOP 5 FASTEST-GROWING MANUFACTURING JOB MARKETS Manufacturing is a job-creating machine in Houston, according to the U.S. Bureau of Labor Statistics. The Houston metro snatched the fifth spot on the list of the top manufacturing job markets with 5,2 jobs. Daikin Industries, a manufacturer of heating, cooling and refrigerant products, announced in January that it s expanding in Houston with a new campus, adding 2,8 jobs to its local workforce. The campus, to be built in northwest Harris County, will be home to approximately 4, employees. HOUSTON POSITIONS AMONG TOP CUTTING EDGE METROS FOR ADVANCED INDUSTRIES Houston is the second most cutting edge metro for advanced industries and home to the Texas Medical Center, ranked as the world s highest concentration of medical professionals and experts and the eighth largest business district leading $3.4 billion annually in research. PASSENGER TRAFFIC GAINS AT GEORGE BUSH INTERCONTINENTAL AIRPORT (IAH) April 215 traffic was up 4% over last year with 126, new travelers. IAH is adding domestic service from Spirit Airlines and just began flights between Houston and Taiwan on EVAir with its hard-to-miss Hello Kitty - themed Boeing 777-3ER. IAH also saw Interjet inaugurate its nonstop air service between Mexico City and Houston in May. Q2 215 CBRE Research 215 CBRE, Inc. 1

61 HOUSTON INDUSTRIAL Figure 1: Industrial Market Snapshot Market Rentable Area Q2 215 Net Absorption Vacant 215 Net Absorption Under Construction CBD 53,117, (33,86) 152,4 22,8.55 North 8,94, ,551 1,211,77 1,86, ,347, ,72 36,537 7,.61 6,534, ,25, ,78 551,148 6,294, ,49,632 2,761, ,72, ,97 68, , South 43,185,482 1,512, ,129, ,19 (1,587).65 Southwest 62,541,58 2,926, ,573, , ,394 1,129, ,63,332 23,228, ,859, ,149,42 3,125,541 1,325, Vacancy Rate (%) Marketed Available 2,596, ,997,69 8,459,789 6,51, Northeast 32,122, ,81 Northwest 138,146,42 Southeast Submarket Totals Avail. Rate (%) Asking Rate, Gross Avg. ($/SF/Mnth) Source: CBRE Research, Q EMPLOYMENT DATA Figure 2: Unemployment Rate % May-2 Nov-2 May-21 Nov-21 May-22 Nov-22 May-23 Nov-23 May-24 Nov-24 May-25 Nov-25 May-26 Nov-26 May-27 Nov-27 May-28 Nov-28 May-29 Nov-29 May-21 Nov-21 May-211 Nov-211 May-212 Nov-212 May-213 Nov-213 May-214 Nov-214 May US Source: Texas Houston MSA Moody s Analytics, March 215. Q2 215 CBRE Research 215 CBRE, Inc. 2

62 HOUSTON INDUSTRIAL JOB GROWTH ECONOMY Figure 3: Job Growth and Unemployment Jobs (s) (2) (4) (6) (8) (1) Unemployment Rate (%) May Jobs Unemployment Rate 215 Source: Bureau of Labor Statistics, June Q2 215 CBRE Research 215 CBRE, Inc. 3

63 HOUSTON INDUSTRIAL SALES AND LEASING ACTIVITY Figure 4: Top Lease Transactions SF Tenant Address City Submarket 4, Foxconn Fallbrook Distribution Center II Houston Northwest 328,2 CVS Imperial Distribution Center Houston North 319,52 Polytex** Northwest Industrial Park Houston Northwest 252,72 Delta Petroleum Ameriport Industrial Park Baytown Southeast 251,6 Trans-Hold Inc.* Navigation Business Park Houston Northeast 194,364 Cameron First Northwest Commerce Center Houston North 18, PlastiPak* 3 S. Sheldon Road Channelview Southeast 191,913 Superbag Northwest Industrial Park Houston Northwest 172,5 St. George Warehousing** Bayport North Distribution Center Pasadena Southeast 166,6 Palmer Logistics Ameriport Industrial Park Baytown Southeast * Renewal ** Expansion Source: CBRE Research, Q2 215 Q2 215 CBRE Research 215 CBRE, Inc. 4

64 HOUSTON INDUSTRIAL Figure 5: Asking Rate, Gross Average Monthly Q2 215 Warehouse/Distribution Flex/Service Manufacturing Rental Rates Overall *Represents industrial buildings 1, sq. ft. and up Source: CBRE Research, Q RENTAL RATES Q2 215 CBRE Research 215 CBRE, Inc. 5

65 HOUSTON INDUSTRIAL Figure 6: Market Availability % Market RBA (MSF) Q2 215 Total Market RBA* Vacancy Rate Availability Rate Source: CBRE Research, Q NET ABSORPTION AND VACANCY Figure 7: Net Absorption and Vacancy Net Absorption (MSF) Vacancy Rate (%) (1) (2) Q2 215 Q1 Q2 Q3 Q4 Total Annual Net Absorption Vacancy Rate Source: CBRE Research, Q Q2 215 CBRE Research 215 CBRE, Inc. 6

66 Q4 27 Q1 28 Q2 28 Q3 28 Q4 28 Q1 29 Q2 29 Q3 29 Q4 29 Q1 21 Q2 21 Q3 21 Q4 21 Q1 211 Q2 211 Q3 211 Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 HOUSTON INDUSTRIAL Figure 8: Construction and Absorption MSF (1) Source: CBRE Research, Q CONSTRUCTION Under Construction Delivered Construction Net Absorption Q2 215 CBRE Research 215 CBRE, Inc. 7

67 HOUSTON INDUSTRIAL CONTACTS CBRE OFFICES Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

68 Houston Industrial, Q1 215 Lower Oil Prices Impact to Industrial Partially Offset by Petrochemical Manufacturing Vacancy Rate 4.9% Net Absorption Construction Completions 1,976,139 SF 8,888,53 SF 1,55,769 SF Avg. Asking Rate.69 $/SF *Arrows indicate change from previous quarter. Texas took the top spot in Site Selection magazine's annual list of the best states for corporate expansions, and Houston ranked No. 2 among metro areas. The Houston metropolitan statistical area logged 265 new or expanded facilities, second only to the Chicago metro area with 385. Houston has ranked either No. 1 or No. 2 since 211. Houston has landed the No. 1 spot on Forbes' latest annual list of America's Fastest-Growing Cities. Forbes attributes exports as the driving force, beside oil, behind the boom, noting between 29 and 213 the value of Houston s exports grew 74.5%, making the metro area the nation s top exporter. CenterPoint Energy announced they don t expect the company will suffer even though the region s economy may be slowing. They cited 8 million sq. ft. feet of industrial space in the region slated for completion this year, which will help CenterPoint earn money from industrial and petrochemical clients that are benefiting from low commodity prices. Southwest Airlines will enter a new beginning in Houston when it s first international flight into William P. Hobby Airport lands in March 215 from Queen Beatrix International Airport in Oranjestad, Aruba a first step in establishing regional international air service at Hobby Airport. Q1 215 CBRE Research Houston's growing energy sector has been a key support to the industrial construction boom through leasing activity for the manufacture and distribution of oil field equipment (upstream), infrastructure (midstream) and chemicals (downstream). As crude oil prices drop, developers are cautious and watching how falling oil prices will affect their building projects going forward, although the influence on industrial projects will vary by the energy segment being served. Southeast Houston is poised to benefit from downstream energy which typically thrives in the current oil environment. Petrochemical producers in North America use natural gas liquids as a costeffective way to make intermediate products that become plastics and synthetic rubber. Outside North America, these plastics are made with oilbased feedstock. The result is an enormous competitive advantage for ethylene producers, encouraging companies to enter or expand their presence in a highly lucrative market. As a result, there is a considerable amount of capacity expansion among chemical manufacturers underway along the Gulf Coast, including $18 billion in just the Houston metro area. 215 CBRE, Inc. 1

69 HOUSTON INDUSTRIAL These expansions are concentrated in the southeast, supporting industrial market conditions in that submarket. As of Q1 215, southeast Houston had 1.8 million sq. ft. of industrial space under construction with 46% preleased, along with and nitrogen production capacity and extending its Gulf Coast pipeline systems approximately 46 miles from Texas City to the Freeport area. The pipeline extensions are scheduled to be in operation 216 and the supply to the complex is an average vacancy rate of 4.8%, the lowest since the second quarter of 23. Additionally, four large ethylene crackers are under construction in the Houston area bringing 26, construction jobs and adding over 5,1 permanent jobs to the market. expected to start late 217. The Houston outlook is clearly less positive than a year ago, and certain submarkets and property sectors can expect to see at least temporary shortfalls in demand. What remains to be seen is the length and severity of the upstream energy downturn, which will determine whether corrections are prolonged or short-lived in Houston s real estate fundamentals. Ultimately, the fall in oil prices results in winners as well as losers, both of which are influenced heavily by geographical variations. Yara International and chemical giant BASF SE confirmed they will build a major $6 million "world-scale" ammonia plant at BASF's existing property. The plant will use hydrogen as raw material, which will reduce capital expenditures, maintenance and carbon dioxide emissions significantly. The ammonia plant will be owned 68% by Yara and 32% by BASF. The plant will have a capacity of about 75, metric tons per year. Yara will also build an ammonia tank at the BASF terminal, bringing Yara's total investment to $49 million. BASF will upgrade its current terminal and pipeline assets. The project follows the trend of foreign chemical companies rushing to invest in Gulf Coast chemical plant expansions to take advantage of cheap shale gas, which is used as a feedstock for many chemicals, including ammonia. Yara has expertise in the global ammonia network and BASF is a major consumer of ammonia for its downstream manufacturing activities. Ammonia can be used in the manufacturing of fertilizers, home furnishings and explosives. In Houston, BASF currently employs more than 1,2 people at multiple plants. It also is investing millions of dollars in building a new emulsion polymers plant at its existing chemical complex in Freeport. Despite upstream energy job losses, other sectors should continue to expand, allowing for modest overall job growth in Houston. The Greater Houston Partnership predicts an estimated loss of 9,2 energy jobs in 215 with a total employment gain of 62,9 jobs. For perspective, this would equate to roughly 2% job growth versus 4% in 214, representing a slowdown from nationleading employment growth to average employment growth. Both the Institute for Regional Forecasting at the University of Houston and the Federal Reserve Bank of Dallas have similar outlooks for slower growth, indicating that a localized economic downturn does not appear to be a problem. A 2-year supply agreement for nitrogen and hydrogen has been signed with Praxair Inc., who is investing more than $4 million to add hydrogen Q1 215 CBRE Research 215 CBRE, Inc. 2

70 HOUSTON INDUSTRIAL Figure 2: Industrial Market Snapshot Market Rentable Area Avail. Rate (%) Q1 215 Net Absorption Vacant CBD 52,898,68 2,348, ,82, ,9 185,9.55 North 79,25,26 6,558, ,357, , ,526 2,344, Northeast 31,886,853 79, ,388, (3,165) (3,165) 129,2.61 Northwest 135,237,23 5,573, ,975, ,44 46,44 3,411, Southeast 75,588,29 3,635, ,941, , ,962 1,823,77.71 South 42,583,754 1,417, ,11, (44,696) (44,696) 48, Southwest 62,379,358 3,56, ,9, , ,172 1,13, ,778,552 23,748, ,595, ,976,139 1,976,139 8,888,53.69 Submarket Totals Marketed Available Vacancy Rate (%) 215 Net Under Asking Rate, Absorption Construction Gross Avg. ($/SF/Yr) Source: CBRE Research, Q JOB GROWTH Based on the benchmark revisions to employment in 214, the construction, wholesale, retail, and administrative support sectors performed better than previously reported; energy, manufacturing, health care, engineering, air transportation and The Greater Houston Partnership reported that overall, the Houston area market created 14,7 jobs over the 12 months ending December 214. The Texas Workforce Commission places total nonfarm payroll employment at 2,946,5 in January 215. If the region experiences moderate growth in coming months, Houston could approach 3. million jobs by the end of the year. clothing stores did not perform as well. The following sectors accounted for many the jobs created construction (16,7), professional and business services (15,6), and restaurants Figure 3: Unemployment Rate % US Source: Texas Dec-214 Jun-214 Dec-213 Jun-213 Dec-212 Jun-212 Dec-211 Jun-211 Dec-21 Jun-21 Dec-29 Jun-29 Dec-28 Jun-28 Dec-27 Jun-27 Jun-26 Dec-26 Dec-25 Jun-25 Jun-24 Dec-24 Dec-23 Jun-23 Dec-22 Jun-22 Dec-21 Jun-21 Dec-2 3 Houston MSA Moody s Analytics, March 215. Q1 215 CBRE Research 215 CBRE, Inc. 3

71 HOUSTON INDUSTRIAL restaurants (13,1), health care (1,4), wholesale (8,2) and retail (6,1). Construction benefited from the $8.7 billion in permits the City of Houston issued in 214 and the tens of billions in chemical plant construction occurring in the Construction permitting in the City of Houston totaled $8.7 billion for the 12 months ending January 215, a 38.8% increase from the $6.2 billion issued during the same period last year. For the 12 months ending January, residential permit region. Growth in population, income and consumer confidence drove wholesale, retail, health care and restaurant employment. The expansion of the energy sector supported job gains in professional services. values rose 26.4% from $2.4 billion to $3. billion. Nonresidential permits grew 46.4% from $3.9 billion to $5.6 billion. Construction cranes will continue to dot Houston s sky-line through 215. According to Dodge Data and Analytics, a record $3.5 billion in construction contracts was awarded in the Houston metro in 214. Figure 4: Net Absorption and Vacancy Rate Net Absorption (MSF) 9 Vacancy Rate (%) (1) (2) Q1 25 Q Q3 28 Q Total Annual Net Absorption Q1 215 Vacancy Rate Source: CBRE Research, Q Over 1.5 million sq. ft. of new product was delivered during Q1 215, following 214 year-to-date deliveries that were close to 12 million sq. ft., a total not reached since 28. In addition, 8.9 million sq. ft. of industrial space is currently under construction. Houston s average industrial vacancy rate dropped 1 basis points from 5.% as of Q4 214 to 4.9%, Q Q1 215 CBRE Research Houston s economy may face challenges due to low oil prices, however, the effects are varied across the property sectors and dependent upon the magnitude of change in employment. The impact to industrial will likely be limited to slower rent growth entering this period with strong occupancy and soaring construction activity. 215 CBRE, Inc. 4

72 HOUSTON INDUSTRIAL Figure 5: Net Absorption and Vacancy Rate Net Absorption (MSF) Vacancy Rate (%) Net Absorption Q1 215 Vacancy Rate Source: CBRE Research, Q INDUSTRIAL DEMAND During the first quarter of 215, 2 million sq. ft. of the Houston areas industrial inventory was absorbed. Over 1.5 million sq. ft. of new product was delivered during the quarter, following 214 year-to-date deliveries of close to 12 million sq. ft., with only year-end 28 completions higher. In addition, 8.9 million sq. ft. of industrial space is currently under construction. close to 1,3 total Houston-area workers. Emerson serves Houston-area oil and gas, petrochemical and refineries sectors both onshore and offshore. Emerson Network Power is doubling its space to 35, sq. ft. and moving to an upgraded $4 million facility at 598 W. Sam Houston Pkwy. N. The facility was completed in February as an all-inone hub of manufacturing, testing, training and office space. Emerson Network Power has signed an 84-month lease of the facility. The facility has about 1, sq. ft. of office space and more than Stewart Tubular Products has added a second building located at 5951 N Houston Rosslyn Rd., allowing the company to double its manufacturing capacity. The building adds 15, sq. ft. of production and warehouse space and 24, sq. ft. of office space. It sits on 15 acres with an additional 15 acres available for future needs. Stewart Tubular Products employs 23 people, all in Houston. Its high-precision products, which are used in applications such as connecting drilling pipe on wells in the deep sea as well as on land, are made in Houston. About 7% of its products are shipped overseas. The company also has a 75,-sq. ft. facility at 181 Afton St. It will keep 24, sq. ft. of manufacturing and testing space. Emerson Network Power employs about 1 people in Houston, but it is part of the larger Missouri-based Emerson Electric Co., which has its Afton St. location, which contains 45, sq. ft. of manufacturing space, 2, sq. ft. of warehouse space and 1, sq. ft. of office space on seven acres. Q1 215 CBRE Research 215 CBRE, Inc. 5

73 HOUSTON INDUSTRIAL Figure 6: Market Availability % Market RBA (MSF) Total Market RBA* Vacancy Rate Q1 215 Availability Rate * Represents industrial buildings 1, sq. ft. and up Source: CBRE Research, Q RENTAL RATES Rental rates increased by 3% as of Q The current average monthly asking gross per sq. ft. citywide is $.69, up from $.67 as of Q Houston s citywide average quoted gross monthly industrial rental rate (operating expenses, i.e. property taxes, property insurance and property Rates have steadily increased during the prior 12 months ending Q1 215 with a 9.5% increase since Q Going forward, increases are not likely to be as strong, yet CBRE Econometric Advisors expects 4.3% annual average rent growth through 217 as oil price impacts are limited by submarket exposure to the upstream segment and downstream continues its robust expansion. maintenance, have already been estimated into the overall lease rate) for all product types. The average quoted gross monthly rental rates are as follows: $.48 per sq. ft. for warehouse/ distribution space; $.86 per sq. ft. for flex/service space; and $.73 per sq. ft. for manufacturing space. Figure 7: Asking Rate, Gross Avg. Monthly $/SF Warehouse/Distribution. Source: CBRE Research, Q Q1 215 CBRE Research Flex/Service Manufacturing Q1 215 Rental Rates Overall 215 CBRE, Inc. 6

74 HOUSTON INDUSTRIAL Figure 8: Construction and Absorption Under Construction Delivered Construction Q1 215 Q4 214 Q3 214 Q2 214 Q1 214 Q4 213 Q3 213 Q2 213 Q1 213 Q4 212 Q3 212 Q2 212 Q1 212 Q4 211 Q3 211 Q2 211 Q1 211 Q4 21 Q3 21 Q2 21 Q1 21 Q4 29 Q3 29 Q2 29 Q1 29 Q4 28 Q3 28 Q2 28 Q1 28 Q4 27 MSF (1) Net Absorption Source: CBRE Research, Q CONSTRUCTION Construction remains active with 85 buildings underway, totaling 8.9 million sq. ft. in the greater Houston industrial market. The submarkets with the largest concentration of development are the Northwest with 28 projects totaling 3.4 million sq. ft., or 38% of the total, the North with 36 projects totaling 2.3 million sq. ft., or 26%, and the Southeast with eight projects totaling 1.8 million sq. ft., or 21%. District industrial development is scheduled to break ground this summer. The 5,-sq. ft. industrial Class A park planned for 32 acres off Texas State Highway 288 is named Lower Kirby District, and includes potential plans for an office building as well as a rear-load building, and buildto-suit projects as well. The initial phase of the project will be an 181,-sq. ft. building fronting Kirby Drive and Airport Boulevard that is 6% preleased. Phase one is expected to break ground in Q3 215 and deliver next summer. Construction completions remain steady with 23 buildings delivered, totaling 1.5 million sq. ft. during Q1 215 compared to Q4 214 with 25 buildings delivered, totaling 1.7 million sq. ft. The submarkets with the largest concentration of completed developments are in the Northwest with 1 projects totaling 931,387 sq. ft., or 62% of the At the end of 214, Trammell Crow Co. and joint venture partner Clarion Partners broke ground on Fallbrook Pines Business Park in northwest Houston. The first phase, scheduled for completion in the first quarter of 215, will include four concrete, tilt-wall office/warehouse buildings totaling 79,45 sq. ft., making Fallbrook Pines total, and the North with six projects totaling 269,853 sq. ft., or 18%. Business Park the largest industrial project under construction in the Houston region. The 127-acre business park is located near the intersection of Beltway 8 and Hwy. 249 on Fallbrook Drive. Phase I will include two side-load buildings, one crossdock building and one front-load building. When fully built out, the park could have up to 1.9 million sq. ft. of space. Houston industrial new construction will add needed supply into a very tight market, especially in the large markets of the Northwest, North and Southeast. There is going to be a new industrial park in south Houston. The first phase of the Lower Kirby Q1 215 CBRE Research 215 CBRE, Inc. 7

75 HOUSTON INDUSTRIAL Amidst recent concerns regarding the energy industry, new industrial leases in Houston continue to take place whether local distribution or the more specialized, crane-served type facilities, related to oilfield services and heavy relocated to a new 17,-sq. ft. facility on a 19-acre site located near Loop 61 North in Houston. The transactions took over two years to complete, including the sale of three parcels of land, the purchase of two parcels of land and a manufacturing companies. build-to-suit of an office and warehouse facility. The Detering Co., a building materials supply company, previously occupied 5.4 acres of land and 7, sq. ft. at its former headquarters located at 328 Washington Ave. Niagara Bottling will occupy 27,23 sq. ft. at 852-B South Sam Houston Parkway West, which is scheduled to deliver March 215 along with a second 68,37-sq. ft. building. Niagara Bottling is the frontrunner tenant in the 31,1-sq. ft. warehouse facility being constructed within the Bayou Bend Business Park in southwest Houston. Professional Packaging Systems has leased 171, sq. ft. at 1113 Gillingham in Sugar Land Interchange Distribution Center and Dunavant Transportation has leased 185,64-sq. ft. at 941 Bay Area Blvd. in the Bay Area Business Park in southeast Houston. P&I Supply, tied to the energy industry supporting the construction of LNG plants along the Gulf Coast, has leased a 47,43 sq. ft. at S. Gessner in Beltway Crossing Business Park in Missouri City. The Detering Co., after more than 1 years of operating a business on Washington Ave., has Columbus McKinnon, designer, marketer and manufacturer of material handling systems and services has signed a three-year lease for 45,185 sq. ft. in the 91,-sq. ft. facility at 845 Greens Parkway in the Greens Crossing Business Park in north Houston. Also in north Houston, Alfa Laval has signed a long-term lease for 15,8 sq. ft. in a building under construction in the Pinto Business Park located at I-45 and the North Belt. The new manufacturing facility will consolidate the company s three local operations into one facility that will include 25, sq. ft. of office space. The building will house more than 15 employees. The project is scheduled for completion Q The company makes heat transfer, separation and fluid handling equipment, systems and technology. Figure 9: Top Lease Transactions SF Tenant Address City Submarket 211,68 United Stationers Supply Cole Creek Business Park Houston Northwest 27,23 Niagara Bottling Bayou Bend Business Park Houston Southwest 21,6 Banta Corp. * West by Northwest Business Park Houston Northwest 185,64 Dunavant ** Bay Area Business Park Pasadena Southeast 171,6 ProPack Sugar Land Interchange DC Sugar Land Southwest 144,378 Forum Energy ** 16 Corporate Drive Stafford Southwest 143,69 Texas Tissue Converting Hardy Distribution Center Houston North 132,6 Franklin Valve Prologis Park Northpark Houston North 12, Eugene B Smith & Co. Bay Area Business Park Houston Southeast 17, CEVA * Pinto Business Park Houston North * Renewal ** Expansion Source: CBRE Research, Q1 215 Q1 215 CBRE Research 215 CBRE, Inc. 8

76 HOUSTON INDUSTRIAL CONTACTS Lynn Cirillo Research Operations Manager Leta Wauson Senior Research Analyst CBRE OFFICES CBRE Houston 28 Post Oak, Suite 23 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

77 Houston Industrial, Q4 214 The Bayou City s Grand Parkway: everything is bigger in Texas Vacancy Rate Net Absorption Construction Completions Avg. Asking Rate 5.% 2,216,488 SF 8,392,47 SF 1,736,426 SF.67 $/SF *Arrows indicate change from previous quarter. The Houston area industrial market saw recordbreaking absorption of 8.1 million sq. ft. as of yearend 214. The market proved more than able to consume those gains with Q4 214 marking the fifteenth consecutive quarter of positive absorption at 2.2 million sq. ft. Another record-breaker was set for the industrial market in Houston with over 1.7 million sq. ft. of new product being delivered during the fourth quarter, driving 214 year-to-date deliveries to 12 million sq. ft. This amount of industrial product has not been delivered in Houston since 28 at 12.3 million sq. ft. The Eagle Ford shale produced its billionth barrel, according to research firm Wood Mackenzie. Analysts say this happened sometime in November and that more than 7% of that production has occurred in the last two years. The marker comes as falling crude oil prices are provoking a new phase of financial control for some producers. Norwegian Cruise Line has returned to Houston. Its Norwegian Jewel arrived at the Bayport Cruise Terminal beginning the 214 Fall Cruise Season for the Port of Houston Authority. One sailing season equals $5 million in economic impact locally. George Bush Intercontinental Airport (IAH) saw record levels of international air travel last year and expects the 214 total to be even higher, according to the Houston Airport System. Asia represents the fastestgrowing region for international travel at IAH, with Japanese airline All Nippon Airways planning to launch nonstop service between Tokyo and Houston in 215. Q4 214 CBRE Research The Bayou City s Grand Parkway: an everything is bigger in Texas answer to growing population and development. The Grand Parkway, as a concept, was first proposed in 1961 by Harris County and the City of Houston Planning Commission in the belief that if the City of Houston s growth continues, surrounding highway accommodations would need further planning. The Grand Parkway corridor was placed on city maps in 1968 and approved in the state budget in In 1984, the first 31 miles on Houston s west side was designated as State Highway 99, a 184-mile outer loop around the Houston metropolitan area. The first portion completed was a 19.5-mile section from U.S. 59 South near Sugar Land to north of Interstate 1 West near Katy, which opened in 1996, followed by a second section, an 8.8-mile tollway in Chambers County, which opened in 28. A section from Katy to U.S. 29, near Cypress, is currently under construction, with another phase, near Baytown, under design. The section linking U.S. 29 to U.S. 249, and Interstate 45 North to Interstate 59 North is scheduled to be completed by late 215, key to accommodating ExxonMobil's new campus near The Woodlands. 214 CBRE, Inc. 1

78 HOUSTON INDUSTRIAL Houston s highway system is well-served by radial highways that provide excellent access to markets inside and outside the region. Highways are used for transport to, from and within the state more than any other mode of transportation, according to the U.S. Department of Transportation. Houston is located along the route of the proposed I-69 NAFTA superhighway that will link Canada, the U.S. industrial Midwest, Texas and Mexico. In addition, Houston is the crossroads for Interstate Highways 1 and 45. Other major highways serving Houston are Interstate 61, U.S. 59, U.S. 9, U.S. 29, Texas 99, Texas 146, Texas 225, Texas 249, Texas 288, Hardy Toll Road, Westpark Tollway and Beltway 8. Houston s growth as a distribution hub is directly related to its multi-modal transportation infrastructure with highway, rail and a major port. Major real estate developers are meeting this demand by investing in enormous industrial parks equipped to accommodate distribution centers, research facilities, and more, with the aim of creating an easy connection to rail lines and beltways. The high demand for warehouse/distribution properties is evident for Houston-based distribution businesses like Silver Eagle Distributors and Sysco, and manufacturers like Igloo and Goya. All of these companies have new facilities in the area and seem to agree that Houston may be an energy town, but is also becoming a distribution hub as well. In 21, Houston-based Sysco opened a new, state of-the-art hub that occupies a 6-acre site in the 971-acre Pinto Business Park. Its prime location at Beltway 8 and I-45 has the ability to serve thousands of restaurants and food operators through the network of local highways near and far. Q4 214 CBRE Research In October 214, Silver Eagle Distributors, the nation s largest Anheuser-Busch distributor, celebrated the opening of its newest distribution center east of downtown Houston at 355 Pasadena Freeway. The LEED-certified building is approximately 4, sq. ft. and sits on nearly 5acres. It is the distributor s eighth facility in Texas, with its corporate headquarters and warehouse in Houston and six distribution facilities located in Conroe, Cypress, Rosenberg, San Antonio, Carrizo Springs and Del Rio. In early 216, Aldi, the German discount supermarket chain, considered 3 sites in the Houston region before selecting the Rosenberg location, where it is opening a 65,-sq.-ft. distribution center and division headquarters. The city of Rosenberg offered many incentives including tax abatements and reimbursements for infrastructure and development costs. Goya Foods entered Houston s manufacturing community with its new sustainable facility on a 13-acre farm in Brookshire. Goya said in a release: The Texas facility is a strategic location for Goya that provides key access to skilled workforce, affordability, a favorable business climate, railroad transportation, and acts as a launching pad for global export from Houston s port and the Panama Canal. Katy-based Igloo opened a gigantic new warehouse and distribution center with 12 dock doors in 213 to house their increasing inventory. Its location near the intersection of Interstate 1 and Grand Parkway provides express access to the 29 corridor. Igloo said in a release, This new distribution center is pivotal to be able to keep up with our substantial growth and to prepare for the years to come. 214 CBRE, Inc. 2

79 HOUSTON INDUSTRIAL Figure 2: Industrial Market Snapshot Market Rentable Area Vacant Vacancy Rate (%) Marketed Available Avail. Rate (%) Q4 214 Net Absorption 214 Net Absorption CBD 52,582,252 2,517, ,726, ,922 44, North 77,566,92 6,612, ,563, ,112 1,97,599 2,251, Northeast 31,34, , ,218, ,782 72,72 3,56.59 Northwest 133,718,928 5,247, ,387, ,712 1,88,729 3,51, Southeast 75,697,565 3,81, ,859, ,39 1,766,981 1,241, South 42,5,758 1,345, ,78, (11,998) 797,68 243, Southwest 61,59,279 3,415, ,851, , ,856 1,122, ,15,67 23,574, ,388, ,216,488 8,114,176 8,392,47.67 Submarket Totals Under Construction Asking Rate, Gross Avg. ($/SF/Yr) Source: CBRE Research, Q The Greater Houston Partnership released its annual Houston Employment Forecast at the Houston Region Economic Outlook event in December and expects metro Houston to gain 62,9 jobs in 215. Growth will be strongest outside the economic base construction, retail, professional services, health care, food services and public education. Job losses will occur in exploration and production, oil field services, and oil field equipment manufacturing. Construction UNEMPLOYMENT Overall, the Houston area market added 122,9 jobs over the 12 months ending October 214. This represents a 4.4% increase in employment, while unemployment fell to 4.9%. In October, the two fastest-growing industries were construction and mining, which added approximately 2,2 jobs, and educational and health services, which added close to 2,4. Figure 3: Unemployment Rate % US Texas Oct-214 Apr-214 Oct-213 Oct-212 Apr-213 Apr-212 Oct-211 Apr-211 Oct-21 Apr-21 Oct-29 Apr-29 Oct-28 Oct-27 Apr-28 Apr-27 Oct-26 Apr-26 Oct-25 Apr-25 Oct-24 Apr-24 Oct-23 Oct-22 Apr-23 Apr-22 Oct-21 Oct-2 Apr-21 3 Houston MSA Source: U.S. Bureau of Labor Statistics, Federal Reserve Bank of Dallas, Q Q4 214 CBRE Research 214 CBRE, Inc. 3

80 HOUSTON INDUSTRIAL on ethane crackers, chemical plants and liquefied natural gas terminals planned for the region; the opening of William P. Hobby Airport's new international terminal; and U.S. gross domestic product growth in general will also help Houston's economy next year. "For the third time in three decades, Houston is about to enter an era of relatively low oil prices," GHP's report states. "Yet by all measures, Houston is better off now than it was in the '8s, '9s or even the past decade. In the short term, growth may slow, but it always rebounds. Construction permitting in the City of Houston totaled $8.5 billion for the 12 months ending October 214, a 41.8% increase from the $6. billion issued during the same period last year. The October 12-month total reflects a 1.3% decline from September 12-month total of $8.5 billion, the first decrease since February 214. A vacant building, previously occupied by Goya Foods, was purchased along with nearby land, totaling 24 acres, by Crow Holdings Industrial (CHI). CHI has broken ground on a new industrial business park, Apex Distribution Center, at the Figure 4: Net Absorption and Vacancy Rate Net Absorption (MSF) 9 Vacancy Rate (%) (1) (2) Q Q2 26 Q Q Total Annual Net Absorption Vacancy Rate Source: CBRE Research, Q Over 1.7 million sq. ft. of new product was delivered during Q4 214, driving 214 year-to-date deliveries close to 12 million sq. ft., a total not reached since 28. In addition, 8.4 million sq. ft. of industrial space is currently under construction. Houston s average industrial vacancy rate dropped 3 basis points from 5.3% as of Q3 214 to 5.%, year-to-date 214. Q4 214 CBRE Research location on Tanner Road west of Beltway 8. The park is planning approximately 41, sq. ft. of Class A industrial space, including three warehouses: two new and one existing. DGM, a global provider of services related to the transport of dangerous goods, purchased a 21.5acre site near IAH. The land, at Kenswick Drive, was sold by the Houston Intercontinental Trade Center. DGM is planning to build a 15,sq.-ft. industrial packing plant. Phase I of 214 CBRE, Inc. 4

81 HOUSTON INDUSTRIAL the project will involve warehousing and office space with 4 acres of concrete yard, according to the company's website. Ground breaking is planned for February 215 with completion in the summer. Phase II will be made up of an additional 1, sq. ft. of warehouse space. As crude oil prices drop, developers are cautious and watching how falling oil prices will affect their building projects going forward. The largest industrial park on the Gulf Coast, Cedar Crossing, has recently sold. Cedar Crossing is the world s fifth largest industrial park, located across the Houston Ship Channel from the Barbours Cut and Bayport container terminals. well as for office and residential space. As energy According to Cedar Crossing LP, the park comprises 15, prime acres, located 35 minutes from downtown Houston in Chambers County. Cedar Crossing has access to Union Pacific and Burlington Northern Santa Fe railroad networks with 56 miles of operating track within the Park and a 1,5+ rail car storage facility operated by Trans-Global Solutions the majority owner of the buyer, TGS Cedar Port Partners LP. Companies with current operations in the park include Atlanta-based Home Depot s 755,-sq. ft. distribution center; Arkansas-based Wal-Mart Stores largest import center in the U.S. at 4.2 million-sq. ft.; and Houston-based National Oilwell Varco Inc. facilities. Houston's growing energy sector has been a key support to the industrial construction boom, as companies slow their spending, it may influence commercial and residential projects across Houston. Houston's energy sector has boosted job growth in the Bayou City, which generated more than 122,9 total new jobs in the 12 months ending October, according to the Bureau of Labor Statistics. During the 198s oil price collapse, Houston s economy was not as diverse as it is today. The Greater Houston Partnership forecast expects metro Houston to gain 62,9 jobs in 215 with growth strongest outside the economic base construction, retail, professional services, health care, food services and public education. Job losses are projected to occur in exploration and production, oil field services, and oil field equipment manufacturing. Many believe that Houston has built up enough oomph to drive us through the oil drop. Others say as this stage in the oil saga evolves, more industrial projects may pop up on the east side of Houston. Figure 5: Market Availability Market RBA (MSF) % Total Market RBA* 29 Vacancy Rate Q4 214 Availability Rate * Represents industrial buildings 1, sq. ft. and up. Source: CBRE Research, Q Q4 214 CBRE Research 214 CBRE, Inc. 5

82 HOUSTON INDUSTRIAL Figure 6: Net Absorption and Vacancy Rate Net Absorption (MSF) Vacancy Rate (%) Net Absorption Vacancy Rate Source: CBRE Research, Q INDUSTRIAL DEMAND During the fourth quarter of 214, 2.2 million sq. ft. of the Houston areas industrial inventory was absorbed, bringing year-to-date net absorption to a record breaking positive 8.1 million sq. ft. Over 1.7 million sq. ft. of new product was delivered during the quarter, driving 214 year-to-date deliveries to close to 12 million sq. ft., with only year-end 28 completions higher. In addition, 8.4 million sq. ft. of industrial space is currently under construction. Houston s average industrial vacancy rate dropped 3 basis points from 5.3% as of Q3 214 to 5.%, year-to-date 214. Silver Eagle Distributors, the country s biggest Anheuser-Busch distributor opened a 4,-sq. ft. warehouse and distribution center at 355 Pasadena Freeway. The building on State Highway 225 is just west of Beltway 8 and took about 18 months to build. Houston-based Silver Eagle has eight distribution centers and ships out around 48 Q4 214 CBRE Research million cases of products to 16 counties in southern Texas a year. McJunkin Red Man Corp. (MRC Global), signed a deal with Cadeco Industries to fully lease 4545 Eastpark Dr. in the northeast submarket of Houston. MCR Global took 81,295 sq. ft. for their distribution company of pipe, valve and fitting products that service the energy and industrial market. Veritrust Corp. renewed and expanded its industrial lease of 87, sq. ft. at 2 Afton Road in northwest Houston while Pharmedium Services also expanded and extended its lease for 74,1 sq. ft. at 1262 West Airport Blvd. in Sugar Land. Simpson Strong-Tie Co. leased 21, sq. ft., Suntronic renewed 25, sq. ft., and 5ELEM USA leased 2, sq. ft., all in DCT Beltway 8 Business Park along with Schlumberger's renewed 14, sq. ft. in Guhn Road Service Center, in northwest Houston. In the southwest submarket, Truerock leased 13, sq. ft. at Commerce Park Southwest. 214 CBRE, Inc. 6

83 HOUSTON INDUSTRIAL Q4 214 CBRE Research Source: Name, Q Warehouse/Distribution Manufacturing Flex/Service Rental Rates Overall Source: CBRE Research, Q Figure 8: Construction and Absorption Under Construction Delivered Construction Q4 214 Q2 214 Q4 213 Q2 213 Q4 212 Q2 212 Q4 211 Q2 211 Q4 21 MSF (1) Q2 21 Construction remains active with 85 buildings underway, totaling 8.4 million sq. ft. in the greater Houston industrial market. Major projects include Beltway North Commerce Center, where advances are being made in the development of a 352,68 sq. ft. industrial distribution facility in north Houston. DCT Northwest Crossroads Logistics Centre is a 682, sq. ft., two building development project in the Northwest submarket of Houston. Building 1 is 362,18 sq. ft. and 1% leased. Phase II is under construction with a scheduled delivery date of Q2 215 with 32,43 sq. ft. available..75 Q4 29 CONSTRUCTION $/SF.85 Q2 29 In terms of average monthly industrial NNN rental rate (the gross rate excluding operating expenses, i.e., taxes, insurance and maintenance) for all product types remained at $.45 in Q By property type, the average quoted NNN monthly rental rates are as follows: $.26 per sq. ft. for warehouse/ distribution space; $.58 per sq. ft. for flex/service space; and $.51 per sq. ft. for manufacturing space. Figure 7: Asking Rate, Gross Avg. Monthly Q4 28 Houston s citywide average quoted gross monthly industrial rental rate (operating expenses, i.e. property taxes, property insurance and property maintenance, have already been estimated into the overall lease rate) for all product types stayed at $.67 since Q By property type, the average quoted gross monthly rental rates are as follows: $.48 per sq. ft. for warehouse/ distribution space; $.8 per sq. ft. for flex/service space; and $.73 per sq. ft. for manufacturing space. Q2 28 Rental rates remained flat as of the end of 214 after steadily increasing during the prior 12 months ending Q The current average monthly asking gross per sq. ft. citywide is $.67. This follows the 24% increase from Q3 213 to Q3 214 at $.54. During Q4 214, 25 buildings, totaling 1.7 million sq. ft. were completed in the Houston area. This compares to 53 buildings totaling 3.9 million sq. ft. at the end of the Q During million sq. ft. of industrial product has been delivered. This amount of industrial product has not been delivered in Houston since 28 at 12.3 million sq. ft. Key completions include First Northwest Commerce Center finishing construction on a 35,82 sq. ft. distribution warehouse located 13 miles from IAH and Airtex Distribution Center s 225,36 sq. ft. Class A industrial distribution facility located near I-45 and the Sam Houston Tollway. Q4 27 ASKING RATE Net Absorption Source: CBRE Research, Q CBRE, Inc. 7

84 HOUSTON INDUSTRIAL HOUSTON S LARGEST INDUSTRIAL PARKS AmeriPort - a unique 723-acre, rail-served, industrial development focused on logistics. Bay 1 Business Park - a 452-acre, masterplanned business park providing direct access to Interstate 1 and the Grand Parkway. It is located eight miles north of the Port of Houston, one mile from a major rail terminal, and five miles from public barge facilities. Cedar Crossing Industrial - 15, prime acres with utilities and an industrial and commercial transportation infrastructure. The location and access to major freeways, the Port of Houston, rail lines, air transportation and a pipeline distribution system, make it one of the largest intermodal logistics facilities in the world. CenterPoint Intermodal Center - an 8-acre intermodal logistics park in supporting the development of large-scale distribution/warehouse, trans loading, crossdock, auto mixing, onsite container/equipment management and other rail-related uses. Conroe Park North - a 1,45-acre industrial park with streets, city utilities and signage ready for occupancy by manufacturing facilities, corporate headquarters and warehouses. Generation Park - a 3,635-acre commercial development in the epicenter of Northeast Houston, bordered to the west by 2 miles of Union Pacific main line rail, and 15 minutes to the Port of Houston. Gulf Inland Logistics Park - 1,5 acres with direct access to US Highway 9 and Highway 146, as well as two Class I rail carriers, the BNSF Railway and Union Pacific Railroad. Texas Deepwater Industrial Port - a 1,8-acre intermodal industrial park located along the Houston Ship Channel; access to rail and highway infrastructure, proximity to population centers and Houston s diversified industrial complex provide efficiencies and savings as well as expanded business opportunities. The Houston area offers many large industrial parks and developments to meet the needs of international and domestic manufacturers, distributers, and wholesalers. Figure 9: Top Lease Transactions SF Tenant Address City Submarket 118, National Oilwell Varco Cedar Crossing Business Park Baytown East-Southeast Far 13,95 Atlantic Clothing City Park East Houston Northeast Hwy 9 87, Veritrust * 2 Afton Road Houston Northwest Inner Loop 81,295 McJunkin Red Man Corp Eastpark Houston Northeast Inner Loop 8,625 Composite Advantage Hobby Business Center Houston South Hwy 35 76, Enduro Composites 813 McHard Fresno Southwest Far 74,1 Pharmedium Services ** 1262 West Airport Blvd Sugar Land Sugar Land 7, Salvation Army W by NW Industrial Park Houston Northwest Inner Loop 66, Overseas Trading * 18 South St Houston North Inner Loop 7, Salvation Army W by NW Industrial Park Houston Northwest Inner Loop * Renewal ** Renewal/Expansion Source: CBRE Research, Q4 214 Q4 214 CBRE Research 214 CBRE, Inc. 8

85 HOUSTON INDUSTRIAL CONTACTS Lynn Cirillo Research Operations Manager Leta Wauson Senior Research Analyst CBRE OFFICES CBRE Houston 28 Post Oak, Suite 23 Houston, TX 7756 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

86 Houston Industrial MarketView 3Q 214 Q3 214 CBRE Global Research and Consulting VACANCY RATE 5.3% UNDER CONSTRUCTION 6,69,644 sq. ft. DELIVERED CONSTRUCTION 3,882,133 sq. ft. UNEMPLOYMENT RATE 5.% Y-o-Y JOB GROWTH 16,7 Y-o-Y *Arrows indicate change from previous quarter. THE HOUSTON SHIP CHANNEL, THE PORT OF HOUSTON GENERATES $178 BILLION ANNUALLY AND ONE MILLION JOBS. Figure 1: Quick Stats Q3 214 Q-o-Q Y-o-Y Vacancy 5.3% Net Absorption 2,615,636 SF Under Construction 6,69,644 SF Delivered Construction 3,882,133 SF Gross Monthly Asking Rates $.67 per SF Source: CBRE Research, Q Hot Topics Significant job and population growth in Houston are fueling demand for consumer and construction-related goods and the need for additional industrial space. With the second highest quarterly net absorption on record, at 2.6 million sq. ft., the Houston vacancy rate declined to 5.3%. Strong demand has kept construction active with 7 buildings and 6.1 million sq. ft. of projects underway. Houston-based Freeport LNG Development LP is moving closer to construction in October on its massive liquefied natural gas export project in southeastern Texas. The project is expected to become the first world-scale electric LNG (elng) plant in North America. GE Oil & Gas will provide technology expertise and funds to help accelerate the Freeport LNG export project construction. Air China has connected Houston and Beijing with four weekly nonstop services between Beijing Capital International Airport (PEK) in Beijing, China and George Bush Intercontinental Airport Terminal D in Houston. With the launch of the nonstop service, Houston becomes Air China s fifth gateway in North America, joining Los Angeles, New York, San Francisco and Vancouver. CenterPoint purchased four Baytown industrial buildings totaling 1.2 million sq. ft. CenterPoint Properties picked up the buildings at Cedar Crossing Industrial Park. The buildings are used for processing and packaging plastic resin and are fully occupied by Exel Logistics. CBRE represented CenterPoint and the property s seller. Union Crossing Development, LP, bought an additional 14 acres of land at Union Crossing Industrial Park, at Telge Road and Northwest Lake Drive in northwest Houston. Union Crossing Development previously acquired 26 acres on the site. The project is due for completion in summer 215, but nearly 4 acres are now ready for users. The tract is served by Union Pacific railroad and includes all utilities for light to heavy industrial projects. Source: CBRE Research, Q The Houston Ship Channel celebrates its 1th birthday this year. When the Allen Brothers founded Houston in 1836, they knew a ship channel would be essential for Houston s success. By 1914, their goal became a realization. Today, thanks to the Houston Ship Channel, the Port of Houston generates $178 billion annually, one million jobs and is the largest chemical port in the world. The Port of Houston is a key support to the Houston economy and the region. In July, there was a significant increase in steel moving through the Port of Houston Authority (PHA). More steel moved across the docks in July than any month since 28, reported Executive Director Roger Guenther, PHA. The PHA has achieved a record, with operating revenues in July 214 of more than $24 million. Steel and bulk cargo supports a firm 5% growth in tonnage. More than 22 million tons of cargo moved across PHA docks during the first seven months of 214. The month of July also recorded the highest tonnage in steel since 28, 844, tons. Container volume was relatively flat compared to last year, but has seen a 4% increase in the number of loaded boxes year-to-date. This was offset by a reduced number of empty containers being imported through PHA terminals due to an increase in loaded imports. The PHA reported that future revenue generated will be reinvested in the infrastructure assets needed to increase capacity and provide for increased economic activity and job growth for the region. In addition, the widening of the Panama Canal and the pricing of natural gas will also have a positive effect on the Port of Houston. The PHA reported that Panama officials communicated that the expansion is progressing, despite construction setbacks, and is still scheduled to open in the beginning of 216. The entire $5.3 billion project s intention is to reduce congestion, expand capacity, and accommodate ships with twice the cargo capability of vessels that currently navigate the existing canal. On a seasonally adjusted basis, the Houston metro area created 17,6 jobs in the 12 months ending July 214, a 3.8% annual growth rate. High oil prices are supporting employment growth in exploration, oil field services, and oil field equipment manufacturing. Expansion of chemical plants along the Texas Gulf Coast now drives growth in construction, metal fabrication and energy services. Population growth (strengthened by employment growth) is creating more retail, health care, restaurant, building construction and local education jobs. Expansion of international trade is pushing growth in transportation and, to a lesser extent, wholesale trade. In 213 Houston led the nation in exports for the second consecutive year, according to data recently released by the U.S. International Trade Administration (ITA). The region shipped almost $115 billion in goods overseas, up 4.2% from $11.3 billion in 212, slightly ahead of New York at $17 billion and well ahead of Los Angeles at $76.3 billion. The ITA s export data reflect the metro from which the cargo began its overseas passage, including goods manufactured locally and shipped out of Houston, goods manufactured locally that leave the U.S. from a port outside the Houston metro area, and goods produced elsewhere and consolidated in Houston for export. The ITA reports the primary goods exported from Houston include petroleum and coal products, chemicals, nonelectrical machinery, computers and related oil and gas extraction goods. The primary destinations for Houston s exports are Brazil, Canada, China, Colombia, Japan, Mexico, the Netherlands, Singapore, South Korea and Venezuela. The outlook for Houston is optimistic according to The Houston-Galveston Area Council (H-GAC) 24 Regional Growth Forecast, which shows a steady growth pattern for the region s population, with an average increase of 1.7% per year. The eight-county H-GAC region s population is expected to reach 9.5 million by 24, growing by 3.7 million people over the next 3 years (21-24). 214, CBRE, Inc.

87 INDUSTRIAL THIRD QUARTER MARKET OVERVIEW Q3 214 Houston Industrial MarketView Figure 2: Industrial Market Snapshot Market Market Rentable Area Sq. Ft. Vacant Sq. Ft. Vacancy Rate % Marketed Available Sq. Ft. Availability Rate % Q3 214 Net Absorption Sq. Ft. YTD Net Absorption Sq. Ft. Under Construction Sq. Ft. Gross Average Asking Lease Rate $/Sq. Ft./Mth CBD 53,9,186 2,776, % 4,53, % 94, ,689 $.53 North 76,848,752 6,39, % 8,96, % 518,695 1,279,973 2,32,795 $.71 Northeast 31,34, , % 1,656,56 5.3% 216,64 294,737 3,56 $.59 Northwest 133,368,897 5,478,93 4.1% 8,788, % 567,638 1,412,17 3,533,164 $.78 Southeast 73,994,55 5,214,384 7.% 5,935,18 8.% 725,58 1,119, ,841 $.68 South 42,61,268 1,427, % 2,837, % 326,342 1,171,48 132,284 $.63 Southwest 6,769,17 3,295, % 5,281, % 166, ,67 121, $.78 Totals 471,985,61 25,78,2 5.3% 36,649, % 2,615,636 5,834,743 6,69,644 $.67 Source: CBRE Research, Q UNEMPLOYMENT Overall, the Houston area market added 16,7 jobs over the 12 months ending July 214. This represents a 3.8% increase in employment, while unemployment fell to 5.%. Most of the jobs were created in the building construction, engineering services and oil field services subsectors. Industrial employment in Houston manufacturing increased by 7,95 jobs, with a growth rate of 3.2% over the year, while transportation and utilities advanced by 7,87 jobs, increasing 6.% and wholesale trade rose 3.6%, adding 5,48 jobs over the last 12 months. According to the Greater Houston Partnership (GHP), the Houston market has added over 4, jobs since the lowest point of the recession in January 21 and the market is expected to add almost 1.2 million residents and over 7, jobs by 223. The GHP predicts that the metro area s population will reach 9.9 million by 24. Figure 3: Unemployment Rate 1% 9% 8% 7% 6% 5% 4% 2 3% Jul-2 Oct-2 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 Apr-24 Jul-24 Oct-24 Jan-25 Apr-25 Jul-25 Oct-25 Jan-26 Apr-26 Jul-26 Oct-26 Jan-27 Apr-27 Jul-27 Oct-27 Jan-28 Apr-28 Jul-28 Oct-28 Jan-29 Apr-29 Jul-29 Oct-29 Jan-21 Apr-21 Jul-21 Oct-21 Jan-211 Apr-211 Jul-211 Oct-211 Jan-212 Apr-212 Jul-212 Oct-212 Jan-213 Apr-213 Jul-213 Oct-213 Jan-214 Apr-214 Jul-214 Source: U.S. Bureau of Labor Statistics, Federal Reserve Bank of Dallas, September 214. US Texas Houston MSA 214, CBRE, Inc.

88 INDUSTRIAL THIRD QUARTER MARKET OVERVIEW Figure 4: Net Absorption and Vacancy Rate Net Absorption Sq. Ft. 's 8, 7, 6, 5, 4, 3, 2, 1, (1,) Vacancy Rate 11% 1% 9% 8% 7% 6% Q3 214 Houston Industrial MarketView (2,) % Source: CBRE Research, Q Source: CBRE Research, Q Q1 Q2 Q3 Q4 Total Annual Net Absorption sq. ft. Vacancy Rate The market for industrial real estate in Greater Houston continued its positive momentum through the third quarter of 214, recording positive quarterly absorption of 2.6 million sq. ft., the highest level since Q2 27. The overall market is on a 14-quarter positive absorption streak, during which occupancy has remained at or above 94%. American Tile & Stone leased 122, sq. ft. at ClayPoint Distribution Park. The population growth in Houston and the impact it has had on the housing market has many homebuilder suppliers expanding. American Tile now has nearly three times the amount of space it had previously. The three buildings, totaling about 5, sq. ft., are visible along Clay Road in northwest Houston and are 1% leased. Construction permitting in the City of Houston 12-month total reached nearly $7.6 billion, the fifth consecutive record-setting month. The $7.6 Kenswick AirFreight & Logistics Centre has broken ground on a new 15, sq. ft. office/ warehouse property and it is 1% pre-leased by DB Schenker of Germany. Located near Bush Intercontinental on 13 acres, the building includes 26,5 sq. ft. of office space, 123,5 sq. ft. of warehouse space and can be expanded by approximately 25, sq. ft. It has 13- to 21- foot deep truck courts, 28-foot clear height and over three acres of outside storage. The project is a joint venture between Trammell Crow Co. and Clarion Partners. CBRE represented DB Schenker in the deal. The Gillingham Distribution Center in the Sugar Land Business Park has been purchased by Dalfen America Corp. along with five acres next to the property. The center is approximately 331, sq. ft., built in 25, expanded in 27 and is 85% occupied. Pink Zebra, a candle-making company signed a seven-year lease for 52,5 sq. ft. recently. The additional acreage acquired are planned to support an up to 1, sq. ft. separate industrial building. The entire west Houston area has been opened up with the completion of the Grand Parkway from Interstate 1 to U.S. 29. The Grand Parkway, Houston s next major loop under development beyond Beltway 8, has been driving new investment as the highway creates new opportunities for growth. Developers are buying land at lower prices in the Katy area compared to closer-in town along Interstate 1 where the major oil and gas corporations reside. Chevron Corp., the Calif.-based oil giant, has signed an agreement to buy 13 acres at the southwest corner of the Grand Parkway at Clay Road, a newly opened section of Highway 99/ The Grand Parkway in Katy. The acquisition, which is expected to close in the third quarter, has been said to give the company future research and development facilities options. 3 billion represents a 3.5% increase from $5.8 billion in permits issued over the 12-months ending July , CBRE, Inc.

89 INDUSTRIAL THIRD QUARTER MARKET STATISTICS Q3 214 Houston Industrial MarketView Figure 5: Market Availability Vacancy/Availability Rate 12% 1% 8% 6% 4% 2% % Q3 214 Source: CBRE Research, Q *Represents Industrial buildings 1, sq. ft. and up. Total Market RBA* Vacancy Rate Availability Rate Market RBA Sq. Ft 's Figure 6: Net Absorption and Vacancy Rate Net Absorption 's 8, 7, 6, 5, 4, 3, 2, 1, Vacancy Rate 9% 8% 7% 6% 5% Q3 214 Net Absorption sq. ft. Vacancy Rate Source: CBRE Research, Q % Industrial Demand Due to the continued growth in the oil and gas industry, Houston s industrial market continues to be one of the strongest in the nation. Texas is expected to produce more oil and gas than all but one of the OPEC nations in 214 due to the booming Eagle Ford Shale and Permian Basin, and Houston s industrial real estate market will profit from that growing production. The Houston metropolitan area added 16,7 jobs between July 213 and July 214, an annual increase of 3.8% over the prior year s job growth. DCT Industrial executed a 19, sq. ft. pre-lease with Lennox International for distribution space in the DCT Northwest Crossroads Logistics Centre I in the northwest submarket of Houston, bringing the building to 53% leased. DCT Industrial Trust is the developer behind the 362, sq. ft. first phase. Lennox International will occupy the property in late 214 or early 215. DCT Northwest Crossroads Logistics Centre will have 682, sq. ft. when the second phase is completed. 4 During the third quarter of 214, 2.6 million sq. ft. of the Houston areas industrial inventory was absorbed, bringing year-to-date net absorption to a positive 5.9 million sq. ft. Close to 3.9 million sq. ft. of new product was delivered during the quarter, pushing 214 yearto-date deliveries to 1.3 million sq. ft. In addition, 6.1 million sq. ft. of industrial space is currently under construction. Houston s average industrial vacancy rate dropped 1 basis points from 5.4% to 5.3%, year-to-date. Angelton 288 Industrial Park, a project west of State Highway 288, southeast of Houston, plans to break ground on the first two of about ten buildings that could total as much as 4, sq. ft. Phase I will include 18, sq. ft. and a 24, sq. ft., crane-ready manufacturing and distribution buildings. Completion of the initial phase is planned for the first quarter of 215. Buildings will be added to Angleton 288 Industrial Park, most likely two at a time, as the first ones are leased. Each building is intended to be flexible for expansion to suit a tenant s or buyer s needs. 214, CBRE, Inc.

90 INDUSTRIAL THIRD QUARTER MARKET STATISTICS Asking Rates Rental rates increased steadily during the past 12 months and currently average $.67 monthly asking gross per sq. ft. citywide, a 24% increase from the same quarter last year at $.54. Houston s citywide average quoted gross monthly industrial rental rate (operating expenses, i.e. property taxes, property insurance and property maintenance, have already been estimated into the overall lease rate) for all product types increased from $.66 per sq. ft. in Q2 214 to $.67 in Q By property type, the average quoted gross monthly rental rates are as follows: $.48 per sq. ft. for warehouse/distribution space; $.8 per sq. ft. for flex/service space; and $.73 per sq. ft. for manufacturing space. In terms of average monthly industrial NNN rental rate (the gross rate excluding operating expenses, i.e., taxes, insurance and maintenance) for all product types increased from $.44 per sq. ft. in Q2 214 to $.45 in Q By property type, the average quoted NNN monthly rental rates are as follows: $.26 per sq. ft. for warehouse/distribution space; $.58 per sq. ft. for flex/service space; and $.51 per sq. ft. for manufacturing space. Figure 7: Gross Avg. Monthly Asking Rates, per Sq. Ft. $.8 $.7 $.6 $.5 $.4 $.3 $.2 Source: CBRE Research, Q 's Figure 8: Construction and Net Absorption 1, 8, Q3 214 Warehouse/Distribution Flex/Service Manufacturing Rental Rates Overall Q3 214 Houston Industrial MarketView Construction Construction activity remains active with 7 buildings under construction totaling 6.1 million sq. ft. in the greater Houston industrial market. The submarkets with the largest concentration of development are the Northwest with 35 projects totaling 3.5 million sq. ft., or 58% of the total, and the North with 24 projects totaling 2 million sq. ft., or 34%. Major projects in these areas include Kenswick AirFreight & Logistics Centre that has broken ground on a new 15, sq. ft. office/ warehouse property located near Bush Intercontinental on 13 acres. DCT Northwest Crossroads Logistics Centre is a 682, sq. ft., two building development project in the Northwest submarket of Houston with plans to commence construction on Phase II, a 32, sq. ft. building, in the second half of 214. During Q3 214, 53 buildings, totaling 3.9 million sq. ft. were completed in the Houston area. This compares to 64 buildings totaling 3.9 million sq. ft. at the end of the Q Year-to-date 1.3 million sq. ft. of industrial product has been delivered. Key completions include Trammell Crow Company announced completed construction on a 297,843 sq. ft. distribution warehouse for The Allied Group within Lakeview Business Park in Missouri City, Texas. Liberty Property Trust completed construction of Fallbrook Distribution Center II, a new 4,25 sq. ft. speculative warehouse/ distribution facility located just outside Houston s city limits in the northwest submarket. 6, 4, 2, (2,) Q1 27 Q2 27 Q3 27 Q4 27 Q1 28 Q2 28 Q3 28 Q4 28 Q1 29 Q2 29 Q3 29 Q4 29 Q1 21 Q2 21 Q3 21 Q4 21 Q1 211 Q2 211 Q3 211 Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Source: CBRE Research, Q Under Construction sq. ft. Delivered sq. ft. Net Absorption sq. ft. Source: CBRE Research, Q Source: Getty Images 5 214, CBRE, Inc.

91 INDUSTRIAL THIRD QUARTER MARKET STATISTICS Q3 214 Houston Industrial MarketView 225 RailPort, a 6,4-sq. ft. distribution facility at the Port of Houston in Pasadena, is estimated for completion in the first quarter 215. According to the developer, Avera, the development, at Beltway 8 and Highway 225, is a build-to-suit facility for Frontier Logistics, and represents the largest build-to-suit lease in the history of Houston s port and the biggest building for Avera. Some 25 panels are being raised to form the walls of the structure, which will be big enough to contain 1 football fields with room to spare. institutional tilt-wall facilities like 225RailPort, Century Plaza, Rampart Corporate Center range from 5, sq. ft. to 1,, sq. ft. or more and require features such as an increased amount of trailer parking, automobile parking, and outside storage areas. Company s looking for big industrial buildings need space where they can store equipment, containers, and materials, until they need to move it into the warehouse to break it down. HOUSTON ADDED 16,7 JOBS YEAR-OVER-YEAR IN JULY 214. WITH THIS LEVEL OF EMPLOYMENT AND POPULATION GROWTH COMES INCREASED DEMAND FOR CONSUMER AND CONSTRUCTION-RELATED Along with the level of recent population growth in Houston comes increased demand for consumer products, along with a need for buildings in which to house those goods. As a result, the Houston industrial market is currently experiencing a huge demand for large industrial buildings. Frontier Logistics is one of those businesses and they will use the facility along the rail line near Texas 225 and Beltway 8 to process plastic pellets for shipment worldwide. PRODUCTS, ALONG WITH A NEED FOR BUILDINGS IN WHICH TO HOUSE THOSE GOODS. AS A RESULT, THE HOUSTON INDUSTRIAL MARKET IS CURRENTLY 225 RailPort is a state of the art tilt-wall facility, where the wall panels have been poured on the slab, the steel and concrete will be welded together, and the end result will be a structure that is more weather resistant, low maintenance, and better for long-term ownership. EXPERIENCING A HUGE DEMAND FOR LARGE INDUSTRIAL BUILDINGS. Land sites for these big industrial buildings are becoming more difficult to find. Class A, Source: Port of Houston Authority Figure 9: Top Lease Transactions 6 Sq. Ft. Tenant Address Submarket 45, DNOW Underwood Business Park Southeast Far 312, Wal-Mart Cedar Crossing Business Park Southeast Far 3, Gulfwinds Underwood Business Park Southeast Far 216, Crane Worldwide Bayport North East-Southeast Far 19, Lennox International DCT Northwest Crossroads Hwy 29/Tomball Pkwy 125,278 Office Furniture Connection 1311 Almeda Rd South Hwy ,13 Geodis Wilson US * Point North I North Hardy Toll Road 1,275 Radoil West Road Business Park Hwy 29/Tomball Pkwy 97,566 Bridgestone Lockwood International Northeast Hwy 9 75, J Kraft Richey FM 196 North Hardy Toll Road *Renewal/Expansion Source: CBRE Research, Q , CBRE, Inc.

92 CONTACTS Q3 214 For more information about this Houston Industrial MarketView, please contact: TEXAS RESEARCH Houston Industrial MarketView Lynn Cirillo Research Operations Manager CBRE Americas Research 28 Post Oak, Suite 23 Houston, TX 7756 e: Leta Wauson Senior Research Analyst CBRE Houston Research 28 Post Oak, Suite 23 Houston, TX 7756 t: e: GLOBAL RESEARCH AND CONSULTING This report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Additional U.S. research produced by Global Research and Consulting can be found at DISCLAIMER 7 Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. 214, CBRE, Inc.

93 Houston Industrial MarketView 2Q 214 Q2 214 CBRE Global Research and Consulting VACANCY 5.4% UNDER CONSTRUCTION 7,865,538 Sq. Ft. DELIVERED CONSTRUCTION 3,949,595 Sq. Ft. UNEMPLOYMENT RATE 5.1% Y-o-Y JOB GROWTH 82,3 Y-o-Y *Arrows indicate change from previous quarter. PETROCHEMICAL PLANT EXPANSION PROJECTS WILL BOOST HOUSTON S ECONOMY WHILE ADDING JOBS. Figure 1: Quick Stats Q2 214 Q-o-Q Y-o-Y Vacancy 5.4% 1 Net Absorption 1,696,274 sq. ft. Under Construction 7.9 million sq. ft. Delivered Construction 3.9 million sq. ft. Gross Asking Rates per sq. ft./mth $.66 Source: CBRE Research, Q Hot Topics A major Houston public company, PetroLogistics LP, was acquired by Koch Industries for $2.1 billion. Due to the shale boom, chemical companies have been rushing to take advantage of the low price of natural gas and planning multibillion-dollar projects, many in the Houston area. The world s largest ethane export terminal is com- ing to the Houston Ship Channel. Houston-based Enterprise Products Partners LP will build a refrigerated ethane export facility in Houston to build off of the ongoing domestic shale boom. The facility is expected to begin operations in the third quarter of 216. Chevron Corp. is the latest energy company to ink a deal to buy land off the Grand Parkway and Clay Road in Katy, acquiring 13.2 acres to give the company future R&D facilities flexibility as they expand in the greater Houston area. Copeland Commercial and Hillwood Investment Properties are breaking ground on Interstate Commerce Center, a 718,-sq.-ft. master-planned office and logistics park, located south of FM 196 with access and visibility to I-45. Phase 1 is two buildings totaling 414,-sq.-ft. Both will deliver in Q Phase 2 will be built on 21 acres. Parkside Capital in the West Ten Business Park in Katy has sold 74 acres for a major industrial development that could total 1.2 million sq. ft., equal to the size of seven Wal-Mart Supercenters. The property is located north of Interstate 1 between Commerce Parkway and the planned Cane Island Parkway, which is also home to Igloo Products Corp. Source: CBRE Research, Q Much of the demand driving the Houston industrial market can be attributed to the $35 billion in new projects and expansions that energy and chemical companies plan through 215 in the Port of Houston. The city of Baytown, just east of Houston near the Harris/Chambers County line, is home to two of those expansion projects. Confirmation of the coming construction explosion is visible on Interstate 1, which passes by the Chevron Phillips plant at Cedar Bayou. Chevron Phillips is preparing a 1,4-acre site for the company s largest proposed expansion project in decades. The U.S. Gulf Coast Petrochemicals Project includes a new ethane cracker at Cedar Bayou and two polyethylene units at the company s Old Ocean plant in Sweeny, southwest of Houston. The Cedar Bayou plant is Chevron Phillips largest site in the United States with infrastructure in place, such as pipelines, and is near the largest fractionation hub in the United States. The Cedar Bayou and Old Ocean projects currently are in the engineering stage with permitting completed for both expansions. The projects will involve about 1, temporary engineering and construction jobs and create about 4 new jobs for daily operations and maintenance. Completion is scheduled for 217. ExxonMobil is waiting for permits from the Environmental Protection Agency and the Texas Commission on Environmental Quality to build a world-class steam cracker in Baytown, which will be connected with two premium polyethylene lines at ExxonMobil s plastics plant in nearby Mont Belvieu. The two plants are the company s largest petrochemical complex in the world. The project will require 1, construction jobs and 35 permanent jobs for operations and maintenance, adding to the company s current work force of 6,5 employees and contractors. The new permanent jobs will create another 3,7 jobs in the local communities. Work is scheduled to begin on the new units in 216. The growing supply of highly affordable natural gas from shale formations is playing a key role in the revitalization of the petrochemical industry in the United States. Some say natural gas from shale formations is the most important discovery in the past 5 years. As a result, companies are investing billions of dollars for construction and expansion projects, with some of the greatest activity occurring on the Texas Gulf Coast, the Houston 52-mile Ship Channel and the surrounding communities. This will boost the area s economy while adding thousands of temporary and hundreds of permanent jobs. Once these new projects are completed, the top challenge for the chemical companies will be finding skilled employees to replenish a work force that will be retiring soon. Chevron Phillips is working with local colleges to develop future employees. The company donated $75, to start a scholarship program and update student laboratories. ExxonMobil is funding a $5, work force training program to prepare hundreds of local residents for high-paying jobs in the growing chemical manufacturing industry. The Port of Houston is predominantly a petrochemical port, with about 6% of all ships serving that industry. The U.S. Army Corps of Engineers has given the go-ahead for the Port of Houston Authority to begin an improvement project at two container terminals, Bayport and Barbours Cut, that will deepen the channels from 4 feet to 45 feet, making it match the depth of the Houston Ship Channel. This is to ensure the channels improvements are available as soon as possible to better accommodate larger container ships in preparation of the opening of the expanded Panama Canal in , CBRE, Inc.

94 INDUSTRIAL SECOND QUARTER MARKET OVERVIEW Q2 214 Houston Industrial MarketView Figure 2: Industrial Market Snapshot Market Market Rentable Area Sq. Ft. Vacant Sq. Ft. Vacancy Rate % Marketed Available Sq. Ft. Availability Rate % Q2 214 Net Absorption Sq. Ft. YTD Net Absorption Sq. Ft. Under Construction Sq. Ft. Gross Average Asking Lease Rate $/Sq. Ft./Mo CBD 53,229,17 2,935, % 4,396, % 113, ,166 $.53 North 75,19,673 5,922, % 7,84, % 693,64 837,792 2,71,329 $.71 Northeast 31,59,342 1,65, % 1,979, % 4,295 26,334 1,56 $.58 Northwest 131,627,451 5,138, % 8,641, % 442, ,379 3,244,411 $.77 Southeast 73,78,343 5,44,46 7.3% 6,788, % 165, , ,334 $.67 South 42,62,321 1,884,72 4.5% 3,453, % 49, , ,927 $.63 Southwest 6,122,912 3,94, % 5,84, % 192, , ,977 $.75 Totals 467,441,149 25,444, % 38,184, % 1,696,274 3,282,52 7,865,538 $.66 Source: CBRE Research, Q UNEMPLOYMENT The Houston area unemployment rate dropped to 5.1% in April, compared with the Texas rate of 5.2% and the U.S. rate of 6.3%. While remaining quite healthy, employment growth slowed in April to a 3.3% annual pace, the slowest growth this year. The two broad categories of education and health and professional and business services posted the fastest growth rates, representing an addition of 4,5 and 3,6 jobs, respectively. Trade, transportation and utilities declined the fastest (losing 2,4 jobs). From January to April, the fastest-growing services sector was professional, scientific and technical services, which increased by 5,3 jobs; 3,1 of those jobs were attributed to architectural firms. Hospitals saw the second-fastest job growth, clocking in at 1,3 jobs. Over that time, the administrative, waste management, remediation and related sector showed the largest percentage decline among the services industries (down 3,1 jobs), with the bulk of those losses attributed to administrative positions. Altogether, the services industries combined to add 2,7 jobs from January to April (an annualized pace of 3.6%). Figure 3: Unemployment 1% 9% 8% 7% 6% 5% 4% 2 3% Apr-2 Aug-2 Dec-2 Apr-21 Aug-21 Dec-21 Apr-22 Aug-22 Dec-22 Apr-23 Aug-23 Dec-23 Apr-24 Aug-24 Dec-24 Apr-25 Aug-25 Dec-25 Apr-26 Aug-26 Dec-26 Apr-27 Aug-27 Dec-27 Apr-28 Aug-28 Dec-28 Apr-29 Aug-29 Dec-29 Apr-21 Aug-21 Dec-21 Apr-211 Aug-211 Dec-211 Apr-212 Aug-212 Dec-212 Apr-213 Aug-213 Dec-213 Apr-214 Source: U.S. Bureau of Labor Statistics, Federal Reserve Bank of Dallas, June 214. US Texas Houston MSA 214, CBRE, Inc.

95 INDUSTRIAL SECOND QUARTER MARKET OVERVIEW Figure 4: Net Absorption and Vacancy Rate Net Absorption Sq. Ft. 's 8, 7, 6, 5, 4, 3, 2, 1, (1,) Vacancy 11% 1% 9% 8% 7% 6% Q2 214 Houston Industrial MarketView (2,) % Source: CBRE Research, Q Q1 Q2 Q3 Q4 Net Absorption Sq. Ft. Vacancy Rate Houston s thriving energy economy has fueled an active real estate market over the past few years, and is continuing into the second half of 214. Industrial net absorption is up from 1.6 million sq. ft. in Q1 214 to 1.7 million sq. ft. in Q2 214 and deliveries are up considerably from 2.4 million sq. ft. in Q1 214 to 3.9 million sq. ft. in Q Completions continue to surpass net absorption with the overall vacancy rate steady at 5.4% during 214. Houston s industrial market remains among the strongest in the U.S. primarily due to the expansion in the oil and gas industry. During the second quarter, 1.7 million sq. ft. of Houston s industrial inventory was absorbed. Industrial leasing activity, which includes renewals, reached 6.9 million sq. ft. year-to-date, compared to 6.7 million sq. ft. year-to-date 213. There has been an additional 3.9 million sq. ft. (64 buildings) of new product delivered during Q2 214 and 7.8 million sq. ft. under construction (96 buildings). Construction has started on a speculative distribution center in the northwest part of town. First Industrial Realty Trust is developing First Northwest Commerce Center. The 35,82-sq.-ft. project will be on 24 acres at 48 W. Greens Road. The project is projected to be completed as early as the end of this year. Stream Realty Partners is developing a two-building distribution project in the southwest part of town. Bayou Bend Business Park will be on 22 acres on South Sam Houston West Parkway near SH 9. The project will have a 31,1-sq.-ft. cross-dock building and a 68,37-sq.-ft.side-load facility. Molto Properties has announced plans to design and develop a 166,25-sq.-ft. speculative distribution building on the city s north side. The project will be on 19 acres at 431 Airtex Drive. The building will have direct access to Beltway 8 and Bush International Airport. Construction progresses as interchanges take shape for State Highway 99 Grand Parkway Segments F-1, F-2 and G with plans right on track. Approximately 1,-strong, the Zachry- Odebrecht Parkway Builders construction team is working in several locations along the project footprint, where SH 99 crosses SH 249, and at the three major interchanges U.S. 29, Interstate 45 and U.S. 59. Bridges are beginning to take shape as crews build substructures, including foundations, columns and caps for overpasses. Work also is beginning on the superstructure of bridge decks. As work has started to accelerate, crews have begun working day and night shifts. These segments total approximately 38 miles in length running through Harris and Montgomery Counties. The project consists of more than 12 bridges, frontage roads and associated drainage, as well as utility infrastructure , CBRE, Inc.

96 INDUSTRIAL SECOND QUARTER MARKET STATISTICS Q2 214 Figure 5: Market Availability Vacancy/Availability Market RBA Houston Industrial MarketView 12% 1% 8% 6% 4% 2% % Source: CBRE Research, Q *Represents Industrial buildings 1, sq. ft. and up Total Market RBA* Vacancy Rate Availability Rate 213 Q , 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 's Figure 6: Net Absorption and Vacancy Net Absorption 8, 7, 6, Vacancy 9% 8% 5, 7% 4, 3, 6% 2, 1, 5% 4% 's 213 Q2 214 Source: CBRE Research, Q Net Absorption Sq. Ft. Vacancy Industrial Demand The industrial spotlight for demand is highlighting the Greenspoint District located 15 miles north of downtown Houston, minutes from Bush Intercontinental Airport and the Port of Houston. With over 18-million-sq.-ft. of office, retail and industrial space, Greenspoint is a key player in Houston s economy. Grocers Supply has sold their parcel of land, adjacent to the Olivewood Cemetery in the Sixth Ward, which they have owned for 42 years, to make room for a 15-acre mixed-use development that will accommodate an estimated 4 luxury apartments plus grocery stores, movie theaters, restaurants and large chain retailers. 4 Grocers Supply Co. is planning a huge campus at Pinto Business Park. The Houston-based food distributor will build a 1.7 millionsq.-ft. warehouse and distribution facility on 159 acres at the park, on the southwest corner of Beltway 8 and Interstate 45 North. Phase I is expected to be ready for move-in by the end of 215. The plan is to consolidate many of their existing operations, such as their produce warehouse on Studemont south of Interstate 1, meat facility on Waverly Street and banana warehouse on Produce Row. In time, the company plans to move its headquarters, currently on E. Holcombe, there also. Grocers Supply is one of Houston s largest private employers. The wholesale grocery distributor operates 15 distribution facilities and a convoy of more than 2 tractors and 85 trailers. Data Foundry announced a 1,-sq.-ft. extension to its facility currently under construction at 66 Greens Parkway. Data Foundry, which operates major data centers in Austin and Houston, is beginning construction on a huge new 35,-sq.-ft. facility in North Houston s Greens Crossing district. The state-of-the-art data center will provide a choice for premium data center services to companies within the greater Houston metro area. 214, CBRE, Inc.

97 INDUSTRIAL SECOND QUARTER MARKET STATISTICS Asking Rates Houston s citywide average quoted gross monthly industrial rental rate (operating expenses, i.e. property taxes, property insurance and property maintenance, have already been estimated into the overall lease rate) for all product types increased from $.63 per sq. ft. in Q1 214 to $.66 in Q By property type, the average quoted gross monthly rental rates are as follows: $.46 per sq. ft. for warehouse/ distribution space; $.8 per sq. ft. for flex/service space; and $.73 per sq. ft. for manufacturing space. In terms of average monthly industrial NNN rental rate (the gross rate excluding operating expenses, i.e., taxes, insurance and maintenance) for all product types are in Q2 214 is $.44 per sq. ft. By property type, the average quoted NNN monthly rental rates are as follows: $.24 per sq. ft. for warehouse/ distribution space; $.58 per sq. ft. for flex/service space; and $.51 per sq. ft. for manufacturing space. Figure 7: Gross Avg. Monthly Asking Rates, Per Sq. Ft. $.8 $.7 $.6 $.5 $.4 $.3 $ Q2 214 Warehouse/Distribution Flex/Service Manufacturing Rental Rates Overall Source: CBRE Research, Q Q2 214 Houston Industrial MarketView Due to large-scale construction underway of both build-to-suit and spec development in Houston, lease rates have continued to rise and annual rent bumps are increasing in percentage. Tenant improvement costs have gone up due to increasing labor and material based construction expenses. These additional costs are likely to be spread out over the length of the lease in terms of higher rent. 's Figure 8: Construction and Net Absorption 1, 8, 6, Construction Construction activity is booming with 96 buildings under construction totaling 7.9 million sq. ft. in the greater Houston industrial market. The submarkets with the largest concentration of development are the Northwest with 46 projects totaling 3.2 million sq. ft., or 41% of the total, and the North with 27 projects totaling 2.7 million sq. ft., or 34%. Major projects in these areas include Hines Pinto Business Park with currently 2.4 million sq. ft. of space in the design or permitting phase. This includes build-to-suit projects, speculative projects and projects that are being planned by companies that have purchased land in the park. In terms of acreage, 22 acres of the 65 usable acres of the park have been sold or are under contract. Two spec buildings at the site are being developed, that should be ready for tenants by the end of May. Parkside Capital in the West Ten Business Park in Katy has sold 74 acres for a major industrial development that could total 1.2 million sq. ft., equal to the size of seven Wal-Mart Supercenters. The property is located north of Interstate 1 between Commerce Parkway and the planned Cane Island Parkway, which is also home to Igloo Products Corp. 4, 2, (2,) Q1 27 Q2 27 Q3 27 Q4 27 Q1 28 Q2 28 Q3 28 Q4 28 Q1 29 Q2 29 Q3 29 Q4 29 Q1 21 Q2 21 Q3 21 Q4 21 Q1 211 Q2 211 Q3 211 Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Source: CBRE Research, Q Under Construction Sq. Ft. Delivered Sq. Ft. Net Absorption Sq. Ft. During Q2 214, 64 buildings, totaling 3.9 million sq. ft. were completed in the Houston area. This compares to 26 buildings totaling 2.4 million sq. ft. at the end of the Q In terms of square feet, deliveries were over nine times higher than Q2 213 at only 411,693 sq. ft. Source: Getty Images 5 214, CBRE, Inc.

98 The Houston area s good economy will impact 214 property values. Q2 214 The Harris County Appraisal District (HCAD) has started mailing property value notices to residential property owners and will follow with commercial and industrial value notices. Exxon Mobil, Lyondell Bassell and Chevron Phillips, so values for most chemical facilities are expected to increase slightly this year. Inventory volumes at industrial facilities are expected to be near last year s levels. HOUSTON IS HOME TO HALF OF THE TEXAS COMPANIES NAMED TO THE Houston Industrial MarketView The district is advising property owners that Houston s booming economy is going to have an impact on property values for 214. Property values across most of the property types are increasing, including residential, commercial (apartments, office buildings, retail, medical offices, hospitals, hotels, warehouses) and industrial (manufacturing, refineries and chemical plants). 214 FORTUNE 5 LIST, Many property owners will see value increases this year, while taxing jurisdictions should expect to see increases in their taxable value base upwards of 5% or more this year. The Harris County economy is improving overall, but it is not moving at the same rate throughout the entire county. COMPANIES BASED HCAD stated that office buildings and warehouses have seen an increase in value with office buildings increasing in value by 17.8% and warehouses by 13.7%. CORP. (NO. 2 ON THE LIST Industrial owners were informed that values of refineries and inventories are expected to be similar to 213 values. There have been several announcements of increased chemical plant capacity or new unit construction, led by new construction by CORP. (NO. 3 WITH $22.36 CLAIMING HEADQUARTERS FOR 26 OF THE STATE S 52 COMPANIES ON THE LIST. ADDITIONALLY, SEVERAL FORTUNE 5 OUTSIDE OF HOUSTON BOAST A SIGNIFICANT PRESENCE WITHIN THE CITY, INCLUDING EXXONMOBIL WITH $47.7 BILLION IN REVENUE) AND CHEVRON BILLION), AMONG OTHERS. Source: Port of Houston Authority Figure 9: Top Lease Transactions Sq. Ft. 6 Tenant Address Submarket 243,36 Gulf Winds Bayport Industrial Park East Southeast Far 21, Jacobson Warehouse Interport II Business Park East Southeast Far 15, DB Schenker Kenswick AirFreight & Logistics North Hardy Toll Road 134,23 Bunzl Distributors Northpark 13 North Hardy Toll Road 122,5 Fed-Ex Intrepid Business Park West Outer Loop 98,525 Pomeroy Collection Northwest Industrial Northwest Inner Loop 82, Parallon Business Solutions** Sugarland Business Park Sugar Land 76,14 Rofson Associates Claymoore Business Park Northwest Inner Loop 72,55 BASF* Crosspoint Warehouse Southwest Far 7,215 UTI Central Green North Hardy Toll Road *Renewal, **Expansion Source: CBRE Research, Q , CBRE, Inc.

99 CONTACTS Q2 214 Houston Industrial MarketView For more information about this Houston Industrial MarketView, please contact: TEXAS RESEARCH Lynn Cirillo Research Operations Manager CBRE Americas Research 28 Post Oak, Suite 23 Houston, TX 7756 e: Leta Wauson Senior Research Analyst CBRE Houston Research 28 Post Oak, Suite 23 Houston, TX 7756 t: e: GLOBAL RESEARCH AND CONSULTING This report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Additional U.S. research produced by Global Research and Consulting can be found at 7 DISCLAIMER Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. 214, CBRE, Inc.