2Q 2019 Houston Office Market Brief

Page 1

Market Brief...

Houston

OFFICE

2Q19 Property Pictured Above: 11451 Katy Freeway | Houston, Texas 77079



HOUSTON OFFICE MARKET BRIEF 2Q 2019

TABLE OF CONTENTS 1. HOUSTON OFFICE TEAM AND SUBMARKETS

1 2 3

2. HOUSTON OFFICE MARKET A. Facts and Figures

2. SUBMARKET INTELLIGENCE

A. CBD B. Katy Freeway West C. West Loop D. The Woodlands E. Westchase F. Greenspoint/IAH G. Greenway Plaza H. FM 1960 Corridor I. Medical Center J. Katy Freeway East K. Sugar Land L. Clear Lake M. Midtown N. San Felipe/Fountain View O. West Belt P. Southwest Beltway 8 Q. East Houston/Pasadena R. North Loop West S. Bellaire T. Northwest/ Highway 290 Corridor U. Far West V. Southwest Freeway X. Kingwood Y. Suburban Outliers

1


HOUSTON HLC SUBMARKET COVERAGE

OTHER SUBMARKETS 1 CBD | 49,382,703 SF 2 WEST LOOP | 24,152,298 SF 3 WESTCHASE | 18,114,638 SF 4 GREENWAY PLAZA | 11,557,012 SF 5 MEDICAL CENTER | 10,531,345 SF 6 MIDTOWN | 6,452,997 SF 7 SAN FELIPE/FOUNTAINVIEW | 6,170,384 SF 8 NORTH LOOP WEST | 4,369,650 SF 9 BELLAIRE | 4,248,080 SF 10 SOUTHWEST FREEWAY | 3,706,909 SF TOMBALL

THE WOODLANDS 19,557,648 SF

KINGWOOD 2,309,489 SF

SPRING

FM 1960 CORRIDOR 10,993,394 SF

HUMBLE

GEORGE BUSH INTERCONTINENTAL AIRPORT

CYPRESS

GREENSPOINT/IAH 12,217,870 SF WEST BELT 5,904,881 SF

EAST HOUSTON/ PASADENA 5,385,763 SF

KATY FREEWAY EAST 9,026,562 SF

KATY FREEWAY WEST 27,475,964 SF

KATY

NORTHWEST/ HIGHWAY 290 CORRIDOR 4,186,546 SF

LAKE HOUSTON

8

HOUSTON FAR WEST 4,051,120 SF

2

6

7 3

GALLERIA

10 SOUTHWEST BELTWAY 8 5,875,643 SF

BAY TOWN

1 SHIP CHANNEL

4 9 5

MEDICAL CENTER

PASADENA LA PORTE HOBBY AIRPORT

SUGAR LAND

ELLINGTON AIRPORT

RICHMOND

TRINITY BA

MISSOURI CITY

SUGAR LAND 7,487,229 SF

PEARLAND

CLEAR LAKE 6,937,300 SF

LEAGUE CITY

2


HLC HOUSTON OFFICE MARKET EXPERTS

Tod Harrison joined Holt Lunsford Commercial in 2016, as Director of Management Services for the Houston market, and in 2018 was appointed Managing Principal of the Houston Office Division. Tod is a Houston office specialist representing both private and institutional investors. In addition, he identifies strategic acquisition and disposition opportunities for his clients. Tod began his career in 1988 at Trammell Crow Company, and has extensive experience in office leasing, business development, strategic planning, acquisitions, dispositions, financial reporting, staff development, and building operations. Prior to joining HLC, he served as Associate Director of Property Management at Weingarten Realty, and Vice President at Transwestern. TOD HARRISON Managing Principal tharrison@hlhouston.com 713.602.3766

Tod is a Certified Property Manager (CPMÂŽ), and an active member of Institute of Real Estate Management (IREM). He is also a licensed Real Estate Salesperson in Texas. Tod holds a BA in Political Science from the University of West Florida, and an MBA from Keller Graduate School of Management.

Brad Segreto joined Holt Lunsford Commercial in 2017 and serves as a Market Associate. His primary responsibilities include project leasing, tenant representation, and business development initiatives for HLC’s office and industrial portfolio in the Greater Houston market. Prior to HLC, Brad worked as a sales representative for an industrial engineering firm where he assisted clients with their predictive and reliability maintenance needs in the oil and gas sector and beyond. During his time at Holt Lunsford Commercial, Brad has participated in over 70 transactions totaling more than 2 million square feet of rentable space.

BRAD SEGRETO Market Associate bsegreto@hlhouston.com 713.602.3758

3

Brad received his Bachelor of Science in Organizational Leadership & Supervision from the University of Houston and is a licensed real estate salesperson in Texas. Originally from The Woodlands, Brad is an active member of NAIOP, Young Professionals in Energy, the Houston Golf Association, and Champions Golf Club.

3


HLC HOUSTON OFFICE OVERALL MARKET

CONSTRUCTION - OVERALL HOUSTON

VACANCY - OVERALL HOUSTON

6,000,000

20.0% 18.1% 18.0% 16.7%

5,000,000

16.0% 14.0%

4,000,000

12.0% 10.0%

3,000,000

8.0% 2,000,000

6.0% 4.0% 1.4%

1,000,000

2.0% 0.0%

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

4Q 17

1Q 18

Direct

2Q 18

3Q 18

4Q 18

Sublet

1Q 19

2Q 19

0 3Q 16

4Q 16

1Q 17

Total

2Q 17

3Q 17

4Q 17

1Q 18

Delivered Inventory

3Q 18

4Q 18

1Q 19

2Q 19

Under Construction

OVERVIEW - OVERALL HOUSTON

ABSORPTION - OVERALL HOUSTON 7,000,000

2Q 18

20.0%

3,000,000

19.0%

2,000,000

18.0%

1,000,000

17 .0%

0

16.0%

(1,000,000)

6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 (1,000,000) (2,000,000) 3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Total Net

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

(2,000,000)

15.0% 2Q 16

3Q 16

4Q 16

1Q 17

Absorption

2Q 17

3Q 17

4Q 17

1Q 18

Deliveries

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Vacancy

Leasing Activity

Source: CoStar 2Q 2019 Office Report

4


HLC HOUSTON OFFICE OVERALL MARKET

Market

Existing Inventory

Vacancy Total SF

YTD Net Absorption

YTD Deliveries

Under Const. SF

19.6%

413,587

780,593

1,273,699

$41.70

25.3%

(251,235)

120,000

0

$30.62

0

207,202

$35.80

256,340

180,000

$31.33

0

$26.02

#Bldgs.

Total RBA

Direct SF

Vac. %

CBD

88

49,382,703

8,823,978

9,688,210

Katy Freeway West

164

27,475,964

5,945,677

6,952,597

West Loop

104

24,152,298

4,217,726

4,407,303

18.2%

(142,821)

The Woodlands

162

19,557,648

1,610,108

1,711,969

8.8%

516,656

Westchase

104

18,114,638

3,510,593

4,132,300

22.8%

(4,983)

0

Quoted Rates

Greenspoint/IAH

92

12,217,870

5,580,617

5,608,968

45.9%

(122,689)

0

0

$18.91

Greenway Plaza

60

11,557,012

1,696,089

1,755,189

15.2%

(9,353)

0

0

$31.73

FM 1960 Corridor

141

10,993,394

1,941,138

2,006,105

18.2%

(338,068)

28,080

229,000

$19.87

Medical Center

58

10,531,345

605,713

618,346

5.9%

(100,934)

0

0

$27.73

Katy Freeway East

63

9,026,562

909,997

1,021,883

11.3%

(54,771)

0

102,474

$32.37

Sugar Land

91

7,487,229

825,240

940,059

12.6%

(101,797)

38,599

232,163

$26.22

Clear Lake

94

6,937,300

1,165,262

1,169,217

16.9%

29,457

0

73,614

$22.48

Midtown

57

6,452,997

748,207

756,132

11.7%

(74,441)

0

202,409

$28.56

San Felipe/Fountain View

55

6,170,384

1,242,957

1,288,850

20.9%

(154,968)

0

0

$28.48

West Belt

68

5,904,881

1,036,187

1,155,462

19.6%

116,016

0

0

$24.98

Southwest Beltway 8

60

5,875,643

1,223,905

1,279,992

21.8%

(87,331)

0

0

$17.49

East Houston/Pasadena

93

5,385,763

556,797

573,385

10.6%

(24,706)

0

0

$21.44

North Loop West

43

4,369,650

1,004,302

1,005,905

23.0%

(101,402)

0

89,425

$24.39

Bellaire

33

4,248,080

764,965

792,419

18.7%

(47,902)

0

0

$25.72

Northwest/Highway 290 Corridor

48

4,186,546

917,896

920,804

22.0%

8,094

64,348

0

$16.94

Far West

55

4,051,120

436,740

442,572

10.9%

51,554

0

0

$28.05

Southwest Freeway

32

3,706,909

897,049

901,424

24.3%

(11,177)

0

0

$15.74

Kingwood

42

2,309,489

289,120

289,120

12.5%

15,053

0

41,230

$25.20

Suburban Outliers

140

7,588,746

928,822

945,976

12.5%

(64,790)

20,000

27,000

$24.89

Totals

1,947

267,684,171

46,879,085

50,364,187

18.7%

(542,951)

1,307,960

2,658,216

$29.80

5


HOUSTON CENTRAL BUSINESS DISTRICT SUBMARKET INTELLIGENCE Absorption 204,078

vs. Prev. Qtr

vs. 12 Mths Ago

109,203

90,596

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

19.8%

19.0%

19.9%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

727,555

842,277

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$42.05

$38.71

610,633 Delivered SF 780,593 Quoted Rates $41.64

VITAL STATS

22.0%

1,200,000 1,000,000

20.0%

800,000 600,000

18.0%

400,000 200,000

16.0%

0 (200,000)

14.0%

(400,000) (600,000)

12.0%

(800,000) 2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Absorption

4Q 17

1Q 18

Deliveries

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Vacancy

Source: CoStar 2Q 2019 Office Report

HLC OUTLOOK The CBD is the largest Houston office submarket and contains more than 50M SF of class A & B office space. Downtown has also commanded the highest rental rates in Houston with a current average of $41.64 per SF for class A & B property types. Downtown is home to a large concentration of energy, professional and business services, and government tenants. Recent residential and retail developments, and the existing infrastructure of the underground tunnel system, have helped Houston’s CBD become a true live, work, and play environment. At the close of 2Q, the CBD had a vacancy rate of 19.8% and 25.8% availability, which was lower than 1Q. Absorption was positive 204,708 SF, up from the 109,203 SF absorbed in 1Q 2019. Leasing activity was strong, with more than 600,000 SF of deals completed, but still slightly lower than the 727,555 SF of deals in 1Q. Currently, Hine’s Texas Tower makes up the more than 1M SF of space under construction and is set to open late 2021. Skanska’s recently completed Bank of America Tower, consisting of more than 700,000 SF, delivered in 2Q and is currently 85.5 % leased.

TOP LEASE TRANSACTIONS • King & Spaulding has signed a 70.5K SF lease in Enterprise Plaza.

• White & Chase LLP has signed a 57.3K SF lease in 609 Main Street.

• PNC has signed a 20.2K SF lease in 609 Main Street. • The Harris County DA’s Office has signed a 19.8K SF lease in 500 Jefferson Street.

• McDermott Will & Emery has signed a 12.7K SF lease in Wells Fargo Plaza. • Kind has signed a 10.1K SF lease in Younan Square.

6

DEALS IN THE MARKET • McCrory Building/1004 Prairie Street – a 29,036 SF class B office building

• 421 Fannin Street – a 20,000 SF class B office building • 1014 Prairie Street – a 14,000 SF class B office building • 502 Main & 914 Prairie/502 Main Street – a 10,400 SF class B office building

NEW DEVELOPMENTS • Texas Tower/845 Texas Avenue – a 1,123,699 SF class A office building

LARGE EXISTING VACANCIES • 800 Bell/800 Bell Street – 1,314,350 SF • 1001 Fannin Street – 619,750 SF • JP Morgan Chase Tower/600 Travis Street – 585,054 SF

• Enterprise Plaza/1100 Louisiana Street – 534,054 SF • 1600 Smith Street – 504,309 SF • Wells Fargo Plaza/1000 Louisiana Street – 467,180 SF • Two Allen Center/1200 Smith Street – 449,663 SF • Fulbright Tower/1301 McKinney Street – 426,828 SF • 4 Houston Center/1221 Lamar Street – 420,415 SF • One City Center/1021 Main Street – 414,635 SF • Bank of America Center/700 Louisiana Street – 402,153 SF

• One Shell Plaza/910 Louisiana Street – 400,954 SF


KATY FREEWAY WEST SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

102,921

29,044

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

25.3%

23.7%

26.1%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

(343,737)

161,841 Delivered SF 120,000 Quoted Rates $30.31

325,984

722,922

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$30.21

$28.73

VITAL STATS

30.0%

500,000

300,000 25.0% 100,000

(100,000)

20.0%

(300,000)

(500,000)

15.0% 2Q 16

3Q 16

4Q 16

Absorption

1Q 17

2Q 17

3Q 17

4Q 17

1Q 18

2Q 18

3Q 18

Deliveries

4Q 18

1Q 19

2Q 19

Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS No major Houston office submarket, besides the Katy Freeway West submarket, was hit harder by the oil downturn, other than, perhaps, Greenspoint. This submarket includes the Energy Corridor, which is home to large energy corporations ConocoPhillips, Shell, and British Petroleum. This submarket also benefits from the many supporting tenants that service these large energy corporations. With the downturn of the energy sector, the Katy Freeway West submarket has transformed from landlorddriven to a tenant-driven submarket over the past three years. The submarket is also experiencing a recent and significant flight-toquality. So, these large corporations continue to attract a talented workforce. Restructuring in Houston’s energy industry was necessary for the sector. Although one-third of energy jobs lost during the oil dip have been regained, the decline in oil prices forced corporations to restructure and rethink, resulting in greater efficiency. Technological progress has increased energy companies’ abilities to do more with less, which may result in less demand for traditional oil and gas jobs in the future. At the close of 2Q, the Katy Freeway West submarket had one of the highest vacancy rates in the city at 25.3%. Absorption remained negative with more than 340,000 SF returned in 2Q. Leasing activity remained strong with more than 160,000 SF of deals completed. There is currently zero SF of office product under construction but several proposed developments slated for the future. By the end of 2Q, 120,000 SF of space was delivered.

TOP LEASE TRANSACTIONS • Kiewit Engineering has signed a 167K SF lease in Energy Center One. • McDermott has signed a 14.5K SF lease in Eldridge Place 2. • Expert Pain has signed a 5.1K SF lease in The Westchester. • Air Products has signed a 4.6K SF lease in Ashford 6. • Memorial Hearing has signed a 2.5K SF lease in The Westchester. • W.H. Nigh & Co. has signed a 1.5K SF lease in The Westchester.

HLC Deal

HLC Deal

DEALS IN THE MARKET • Atrium at Park Ten/16340 Park Ten Place Drive – a 139,834 SF class B office building • Ashford Place/1500 South Dairy Ashford Street – a 134,049 SF class B office building • Timberway II/15995 North Barkers Landing Road – a 130,828 SF class B office building • Ten West Plaza/15915 Katy Freeway – a 105,459 SF class B office building • 1250 Woodbranch Park Drive – a 102,956 SF class B office building • 1400 Broadfield Boulevard – a 102,870 SF class B office building • Building 10/16420 Park Ten Place Drive – a 83,078 SF class B office building • 16900 Park Row – a 77,000 SF class B office building • Park Row Plaza/17171 Park Row – a 74,406 SF class B office building • Two Park Ten Plaza/16300 Katy Freeway – a 57,125 SF class B office building • One Park Ten Plaza – a 34,089 SF class B office building

LARGE EXISTING VACANCIES • Four WestLake Park/200 Westlake Park Boulevard – 453,404 SF • Three WestLake Park/550 Westlake Park Boulevard – 417,854 SF • Two WestLake/580 Westlake Park Boulevard – 348,787 SF • Energy Center I/585 North Dairy Ashford Road – 339,794 SF • Energy Center II/11720 Katy Freeway – 308,919 SF • Three Eldridge Place/737 North Eldridge Parkway – 306,411 SF • West Memorial Place 2/15377 Memorial Drive – 283,724 SF • Eldridge Oaks Phase 1/1080 Eldridge Parkway – 263,635 SF • Republic Square 1/13501 Katy Freeway – 243,671 SF • Two Eldridge Place/757 North Eldridge Parkway – 228,532 SF

HLC Deal

7


WEST LOOP SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

(63,603)

31,124

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

18.1%

17.9%

18.9%

(55,226)

Leasing Act. 420,560 Delivered SF Quoted Rate $35.89

vs. Prev. Qtr

vs. 12 Mths Ago

257,624

572,363

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$35.92

$35.26

VITAL STATS

24.0% 20.0%

1,000,000 600,000 800,000

19.0%

350,000

22.0%

600,000

18.0%

100,000

20.0%

400,000

17.0%

(150,000) 16.0%

200,000

18.0%

(400,000) 15.0%

0

16.0%

(650,000)

14.0%

(200,000)

13.0%

(900,000)

14.0%

2Q

1Q16 16

3Q

2Q16 16

4Q

3Q 16 16

1Q

4Q 17 16

Absorption Absorption

2Q

1Q 17 17

3Q 2Q 17

17

4Q 173Q

17

1Q 184Q

17

Deliveries Deliveries

2Q 18 1Q

18

3Q 4Q 1Q 18 2Q 18 3Q 19

18

18

2Q

(400,000)

4Q 19 1Q 18 19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS

HLC’s Houston office submarket, West Loop, is made up of CoStar’s Galleria, Uptown, Post Oak Park, and Riverway submarkets. These submarkets make up approximately 24M SF of office space. Thanks to the high-profile location and assets, asking rents here are among the highest in the city. At an average of $35.89 per SF, rental rates in West Loop were the second-highest in the metro in 2Q, after the CBD. Numerous ongoing highway accesses and structural improvements have created longer than usual traffic jams to an already congested area. The main thoroughfare for the submarket, Post Oak Boulevard, is undergoing a $200M renovation to increase its walkable appeal and add a dedicated bus corridor. The Post Oak Boulevard project is estimated for completion in 2020. Stonelake Capital Partners recently started construction of its class A, 210,000 SF, Park Place Tower office building, which is located in between River Oaks District and Highland Village on Westheimer Road. The asset is currently 13.8% pre-leased. At the close of 2Q, Galleria had a vacancy rate of 18.1% with negative absorption of 55,226 SF. Leasing activity was strong with more than 420,000 SF of deals completed in 2Q. There is currently more than 200,00 SF of office product under construction with zero SF of space delivered in 2Q.

8

TOP LEASE TRANSACTIONS • Inoapps USA has signed a 5.4K SF lease in Chase Bank of Texas. • Aurora Technical has signed a 5.3K SF lease in Sage Park I. • Brown & Musslewhite, LLLP has signed a 3.4K SF lease in Yorktown.

DEALS IN THE MARKET • 1900 Saint James Place – a 140,593 SF class B office building

NEW DEVELOPMENTS • Park Place | River Oaks/4200 Westheimer Road – 207,202 SF

LARGE EXISTING VACANCIES • Marathon Oil Tower/5555 San Felipe Street – 839,083 SF

• Williams Tower/2800 Post Oak Boulevard – 411,647 SF • Sage Plaza/5151 San Felipe Street – 288,099 SF • BHP Billiton Petroleum/1500 Post Oak Boulevard – 273,127 SF

• Five Post Oak Park/4400 Post Oak Parkway – 246,935 SF • Post Oak Central II/1980 Post Oak Boulevard – 199,279 SF • Wells Fargo Bank Tower/1300 Post Oak Boulevard – 199,166 SF • One Riverway/One Riverway – 195,581 SF • Three Post Oak Central/1990 Post Oak Boulevard – 180,010 SF • Galleria Financial Center/5065-5075 Westheimer Road – 173,421 SF

8


THE WOODLANDS SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

386,638

(40,924)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

8.3%

8.2%

9.6%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

189,675

145,627

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$31.26

$30.71

178,964

357,033 Delivered SF 207,500 Quoted Rates $31.31

VITAL STATS

12.0% 16.0%

300,000 740,000

250,000

11.5%

200,000

11.0%

540,000 150,000

14.0%

10.5%

100,000 50,000

10.0%

340,000

0

9.5%

12.0%

(50,000)

9.0%

140,000

(100,000)

8.5%

10.0% 8.0%

(150,000) 2Q 1Q 16 16

3Q 2Q 16 16

4Q 3Q 16 16

1Q 4Q 17 16

2Q 1Q 17 17

Absorption Absorption

3Q 2Q 17 17

4Q 3Q 17 17

1Q 4Q 18 17

Deliveries Deliveries

2Q 1Q 18 18

3Q 2Q 18 18

4Q 3Q 18 18

1Q 4Q 19 18

2Q 1Q 1919

(200,000) (60,000)

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS The Woodlands continues to be one of the most active Houston office submarkets. It has grown so much that it now competes with other premiere submarkets, such as the CBD, West Loop, the Energy Corridor, and Greenway Plaza, in terms of higher rental rates, strong absorption, and significant construction activity. The submarket’s growth has the recently opened Grand Parkway to thank for many of the new developments in Springwoods Village, located just south of The Woodlands. Large tenants, such as ExxonMobil, Southwestern Energy, HP Inc., and ABS, have made significant investments in this pocket. The Woodlands remains one of the best-performing Houston office submarkets with one of the city’s lowest vacancy rates at 8.3%. Absorption was positive with 178,694 SF removed from the inventory. Leasing activity was strong with more than 355,000 SF of deals completed in 2Q. There is currently more than 225,000 SF of office product under construction with more than 200,00 SF of space delivered in 2Q.

TOP LEASE TRANSACTIONS • Alight Solutions has signed a 180K SF lease in 8770 New Trials Drive.

• Katch Kan USA LLC has signed a 5.5K SF lease in 9391 Grogan’s Mill Road.

DEALS IN THE MARKET • The Gateway Building/26865 I-45 – a 24,350 SF class B office building

• 143 Vision Park Boulevard – a 20,000 SF class B office building

NEW DEVELOPMENTS • Alight Solutions/8770 New Trails Drive – a 180,000 SF class A office building • City Place/1401 Lake Plaza Drive – a 48,840 SF class A office building

LARGE EXISTING VACANCIES • CityPlace 1/1700 City Plaza Drive – 122,600 SF • 24 Waterway/24 Waterway Avenue – 111,526 SF • Wildwood Corporate Centre II/480 Wildwood Forest Drive – 97,557 SF

• 2001 Timberloch Place – 83,008 SF • The Woodlands Medical Plaza 4/9180 Pinecroft Drive– 71,106 SF

• Wildwood Corporate Centre I/460 Wildwood Forest Drive – 70,240 SF

• Lake Front North/2107 Research Forest Drive – 67,121 SF

• Sierra Pines I/1585 Sawdust Road – 62,705 SF • Waterway Plaza Two/10001 Woodloch Forest Drive – 58,656 SF • Town Center I/1450 Lake Robbins Drive – 56,088 SF

• AEGIS Energy Risk, LLC has signed a 4.6K SF lease in Black Forest Technology Park.

9

9


WESTCHASE SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

(53,739)

(113,225)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

22.7%

23.1%

22.1%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

232,263

364,041

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$27.05

$27.11

63,013

536,234 Delivered SF Quoted Rates $27.19

VITAL STATS

20.0% 24.0%

800,000 1,250,000

18.0%

600,000

16.0% 400,000 14.0%

750,000

22.0%

200,000

12.0% 10.0%

0

8.0%

(200,000)

250,000

20.0%

6.0%

(400,000) 4.0% (600,000)

2.0% 18.0% 0.0%

2Q 1Q 16 16

3Q 2Q 16 16

4Q 3Q 16 16

1Q 4Q 17 16

2Q 1Q 17

17

3Q 2Q 17

17

Absorption Absorption

4Q 3Q 17

17

1Q 4Q 18

17

Deliveries Deliveries

2Q1Q 18

18

3Q2Q 18

18

4Q3Q 18

18

1Q 4Q 2Q 1Q 19 19

18

(250,000) (800,000)

19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS Located at the junction of the Sam Houston Tollway and the Westpark Tollway, Westchase is located 15 miles west of Downtown and five miles southeast of the Energy Corridor. This submarket has historically been popular with oil and gas companies and engineering firms, and it has provided alternative space from the adjacent Energy Corridor. With its concentration of energy related tenants, office space demand in Westchase is affected by changes in the energy sector similar to the Energy Corridor. With its unrivaled ingress and egress, Westchase surpasses almost all other submarkets, making it an attractive alternative to CBD, West Loop, and the Energy Corridor. At the close of 2Q, Westchase had a vacancy rate of 22.7% with positive absorption of 63,013 SF. Leasing activity was strong with more than 500,000 SF of deals completed in 2Q.

TOP LEASE TRANSACTIONS • Honeywell has signed a 114.2K lease in CityWestPlace Building One.

• Empyrean Benefit Solutions, Inc. has signed a 106.4K SF lease in Pinnacle Westchase. • Bill.Com has signed a 25K SF lease in CityWestPlace Building Four. • Advance Energy Partners LLC has signed a 9.1K SF lease in Royal Oaks Centre. • Subsurface Consultants & Associates, LLC has signed a 7.1K SF lease in 10700 Richmond. • Jem Insurance Group LLC has signed a 6.7K SF lease in Richmond Centre.

10

DEALS IN THE MARKET • Westchase Place/11200 Richmond Avenue – a 235,000 SF class A office building

• The Colonnade/11111 Richmond Avenue – a 96,212 SF class B office building

• 3030 South Gessner Road – a 61,599 SF class B office building

• 2950 South Gessner Road – a 60,532 SF class B office building

• 10555 Richmond Avenue – a 49,865 SF class B office building

• 6650 West Sam Houston Parkway South – a 45,000 SF class A office building

• 2610 West Sam Houston Parkway South – a 26,523 SF class B office building

• 10590 Westoffice Drive – a 26,451 SF class B office building

LARGE EXISTING VACANCIES • 10200 Bellaire Boulevard – 568,458 SF • Pinnacle Westchase/3010 Briarpark Drive – 312,095 SF • Towers at Westchase II/10350 Richmond Avenue – 211,299 SF

• CityWestPlace Building 1/2101 CityWest Boulevard – 183,419 SF • 3250 Briarpark Drive – 164,972 SF • 2500 CityWest/2500 CityWest Boulevard – 159,170 SF • Millennium Tower/10375 Richmond Avenue – 156,060 SF • Honeywell Building/1250 West Sam Houston Parkway – 145,034 SF • Towers at Westchase I/10370 Richmond Avenue – 139,102 SF • West8 Tower/10205 Westheimer Road – 135,764 SF • Granite Briarpark Green/3151 Briarpark Drive – 124,140 SF

10


GREENSPOINT/IAH SUBMARKET INTELLIGENCE Absorption (85,280) Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

(45,561)

(373,170)

vs. Prev. Qtr

vs. 12 Mths Ago

45.9%

45.2%

45.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

90,685

214,293

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

148,821 Delivered SF Quoted Rate $18.96

$18.81

$19.81

VITAL STATS

25.0% 48.0%

100,000300,000

24.5% 24.0% 46.0%

0

23.5%

200,000

100,000 (100,000)

44.0% 23.0%

22.5%

0 (200,000)

42.0% 22.0%

(100,000)

21.5%

(300,000)

40.0% 21.0%

(200,000)

20.5% 38.0% 20.0%

2Q

1Q 16 16

3Q

2Q 16 16

4Q 3Q 16

16

1Q 4Q 17

16

Absorption Absorption

2Q 171Q

17

3Q 172Q

17

4Q 173Q

17

1Q 18 4Q

17

2Q 18 1Q

Deliveries Deliveries

18

3Q 18

4Q

1Q

2Q

2Q 18 3Q 19 4Q 19 18 18 18

(400,000) (300,000)

1Q 19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS After four calendar years of large-scale departures, the Greenspoint/IAH Houston office submarket has suffered more than any other submarket in the metroplex. There is little to suggest this trend will reverse any time soon. This Northern Houston submarket’s vacancy rate was largely affected by the downturn within the energy sector. Rents have fallen significantly and investors have been working diligently to rebrand the often overlooked Greenspoint area.

DEALS IN THE MARKET • 363 North Belt/363 North Sam Houston Parkway East – a 386,277 SF class A building

• EM Houston/13401 North I-45 – a 143,410 SF class A building

• Imperial 20/16800 Imperial Valley Drive – a 110,255 SF class B building

• Greens Crossing I/810 Gears Road – a 78,895 SF class B building

• Greens Crossing II/820 Gears Road – a 78,895 SF class B building

At the close of 2Q, Greenspoint IAH continues to hold the city’s highest vacancy rate of 45.9%. Negative absorption continues with 85,280 SF of space given back. However, leasing activity has improved slightly with more than 145,000 SF of deals completed in 2Q.

TOP LEASE TRANSACTIONS • Kerridge Commercial Systems has signed a 11K SF lease in 333 Northbelt. • GoCo has signed a 8.5K SF lease in CityNorth Two. • Tucker Energy Services has signed a 8.4K SF lease in 411 North Sam Houston Parkway East. • Cunningham Lindsey U.S. Inc. has signed a 8.2K SF lease in 411 North Sam Houston Parkway East. • Haltermann Solutions has signed a 8.2K SF lease in 15600 West Hardy Road.

11

LARGE EXISTING VACANCIES • CityNorth Five/17001 Northchase Drive – 458,331 SF • CityNorth Six/12450 Greenspoint Drive – 343,495 SF • CityNorth One/233 Benmar Drive – 253,562 SF • 363 North Belt/363 North Sam Houston Parkway East – 225,443 SF

• 222 Benmar/222 Benmar Drive – 199,904 SF • Glenborough Tower/100 Glenborough Drive – 186,813 SF • CityNorth Four/16945 Northchase Drive – 179,822 SF • 396 West Greens Road – 164,411 SF • 107000 North Freeway/10700 North Freeway – 158,870 SF • North Houston Tech Tower/12707 North Freeway – 157,276 SF

11


GREENWAY PLAZA SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

21,969

(182,586)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

24.0%

15.3%

14.9%

16.6%

16.0% 23.0%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

22.0%

114,137

243,189

vs. Prev. Qtr

vs. 12 Mths Ago

(30,858)

163,455 Delivered SF Quoted Rates $31.69

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$32.14

$31.32

VITAL STATS

18.0% 26.0%

400,000

300,000 250,000

25.0%

300,000

200,000 150,000 200,000 100,000 100,000 50,000

21.0%

0

14.0% 20.0%

0

19.0%

(50,000) (100,000)

(100,000)

18.0% 12.0% 17.0%

(150,000) 2Q 1Q 16

16

3Q 2Q 16

16

4Q 3Q 16

16

1Q4Q 17

16

Absorption Absorption

2Q1Q 17

17

3Q2Q 17

17

4Q3Q 17

17

1Q 4Q 18

17

2Q 1Q 3Q 2Q 4Q 3Q 1Q 4Q 2Q 1Q 18 18 18 19 19

Deliveries Deliveries

18

18

18

18

(200,000) (200,000)

19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS The focal point of Greenway Plaza is the submarket’s namesake and master-planned, mixed-use complex. However, new competition delivered recently, including 3737 Buffalo Speedway, Kirby Grove, and Kirby Collection. Nestled between the West Loop, Medical Center, and CBD submarkets, Greenway Plaza is a conveniently located submarket and continues to be one of the most desirable submarkets in the metroplex. Large exits by Occidental Petroleum and Transocean from Greenway Plaza, totaling more than 1M SF, represent a challenge for Greenway Plaza in the not so distant future. However, Greenway Plaza’s recent upgrades have attracted new tech tenants, but with tenants becoming more and more efficient, it will be difficult to fill the voids left by Occidental and Transocean.

DEALS IN THE MARKET • Salvatore Grasso Professional Building/3323 Richmond Avenue – a 12,600 SF class B office building

LARGE EXISTING VACANCIES • Five Greenway Plaza/5 Greenway Plaza – 746,070 SF • Phoenix Tower/3200 Southwest Freeway – 285,313 SF • Three Greenway Plaza/3 Greenway Plaza – 266,516 SF • Nine Greenway Plaza/9 Greenway Plaza – 149,211 SF • 3737 Buffalo Speedway Avenue – 114,286 SF • Weslayan Tower/24 Greenway Plaza – 108,540 SF • Eight Greenway Plaza/8 Greenway Plaza – 67,039 SF • Eleven Greenway Plaza/11 Greenway Plaza – 64,748 SF

At the close of 2Q, Greenway Plaza had a below-average vacancy rate of 15.3% with negative absorption of 30,858 SF. Leasing activity consisted of 163,455 SF of deals completed in 2Q.

TOP LEASE TRANSACTIONS • PDG Architects has signed a 10.7K SF lease in 3100 Weslayan Street.

12

12


FM 1960INTELLIGENCE CORRIDOR SUBMARKET Absorption (333,434) Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

9,512

(41,664)

vs. Prev. Qtr

vs. 12 Mths Ago

18.3%

15.1%

14.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

160,424

149,979

vs. Prev. Qtr

vs. 12 Mths Ago

28,080

-

vs. Prev. Qtr

vs. 12 Mths Ago

199,759 Delivered SF Quoted Rate $19.73

$20.06

$20.38

VITAL STATS

20.0% 20.0%

100,000 200,000 50,000

16.0%

0

150,000

18.0% (50,000)

100,000

(100,000)

12.0% 16.0%

(150,000) 50,000 (200,000)

8.0%

0

(250,000) 14.0% (300,000)

4.0%

(50,000)

(350,000) 12.0% 0.0%

2Q 1Q 1616

3Q 2Q 16 16

4Q 3Q 16 16

1Q 4Q 17 16

Absorption Absorption

2Q 1Q 17 17

3Q 2Q 17 17

4Q 3Q 17

17

1Q 4Q 18

17

2Q 1Q 18

18

3Q 2Q 18

Deliveries Deliveries

18

4Q 3Q 18

18

1Q4Q 19

18

2Q1Q 19

(400,000) (100,000)

19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS HLC’s Houston office submarket, Farm-to-Market Road 1960 Corridor, consists of CoStar’s FM 1960/Highway 249, Champions, and I-45 North submarkets. The submarket follows Farm-to-Market Road 1960 from Clay Road in West Houston up to North East Houston, stopping just west of George Bush International Airport. This submarket is home to more than 10M SF of class A & B office buildings. At the close of 2Q, Farm-to-Market Road 1960 Corridor had a vacancy rate of 18.3% with negative absorption of 333,434 SF. This is likely due to a true flight to quality in the suburban office markets. Leasing activity was strong with nearly 200,000 SF of deals completed in 2Q 2019. There is currently more than 225,000 SF of office product under construction with zero SF of space delivered in 2Q. Average rental rates of $19.73 are lower than the city and suburban averages.

TOP LEASE TRANSACTIONS • Commercial Tax Network has signed a 3.5K SF lease in Centra Atrium Building. • Pipeline Threading has signed a 2.5K SF lease in Chasewood Crossing II. • Allergy & ENT Associates has signed a 2.5K SF lease in Lakewood Center.

13

DEALS IN THE MARKET • 11403 Compaq Center West Drive – a 260,791 SF class B building

• Denmark House/12777 Jones Road – a 119,388 SF class B building

• 18750 Interstate 45 – a 101,768 SF class A building • Wells Fargo Cypress/12337 Jones Road – a 85,755 SF class B building

• The Willowbrook Building/7915 FM-1960 West – a 67,500 SF class B building

NEW DEVELOPMENTS • Chasewood Crossing Three/19350 State Highway 249– 156,000 SF

• Highway 290 & FM 1960 Drive – 73,000 SF LARGE EXISTING VACANCIES • University Park – Building 9 & 10/11450 Compaq Center West Drive – 208,841 SF

• Noble Energy Center II/1002 Noble Energy Way – 204,480 SF • Creekridge II/140 Cypress Station Drive – 143,331 SF • Two Kuykendahl Place/15531 Kuykendahl Road – 45,000 SF • Chasewood Crossing II/19450 State Highway 249 – 44,467 SF • Chasewood Crossing I/19500 State Highway 249 – 44,089 SF • Texas School of Business/711 Airtex Drive – 42,890 SF • 8300 Cypress Creek/8300 Cypress Creek Parkway – 37,588 SF • Lantern Bend Medical Plaza/411 Lantern Bend Drive – 30,241 SF • Torrey Chase Two/14505 Torrey Chase Boulevard – 27,413 SF

13


MEDICAL CENTER SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

(18,394)

(76,544)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

5.7%

5.1%

4.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

24,171

64,258

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$27.24

$28.14

(71,037)

116,720 Delivered SF Quoted Rates $27.79

VITAL STATS

14.0% 6.0%

200,000 120,000 100,000

150,000 80,000 5.5% 12.0%

60,000

100,000

40,000 20,000

5.0% 10.0%

0

50,000

(20,000)

0

(40,000)

4.5% 8.0%

(60,000) (50,000) (80,000) 4.0% 6.0%

(100,000) (100,000) 2Q 1Q 16 16

3Q 2Q 16 16

4Q 3Q 1616

1Q 4Q 1716

2Q 1Q 1717

3Q2Q 17 17

4Q3Q 17 17

Absorption Absorption

1Q4Q 18 17

2Q 1Q 18 18

3Q 2Q 4Q 3Q 1Q 4Q 2Q 1Q 18 18 18 18 19 18 19 19

Deliveries Deliveries

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS The Medical Center submarket is located three miles southwest of the CBD. This is a specialty market, focused heavily on the healthcare sector, with more than two-thirds of the office product in this submarket considered medical office. Major medical institutions, such as the M.D. Anderson Cancer Center and Memorial Hermann Hospital, are among the top medical office tenants. The submarket is an important employment center for Houston. The Texas Medical Center (TMC), a network of more than 50 hospitals, research institutions, and clinics, is the largest medical center in the world, employing more than 100,000 people and admitting more than 6M patients a year.

TOP LEASE TRANSACTIONS • Ramey & Schwaller LLP has signed a 4.1K SF lease in Traditional Bank Plaza.

LARGE EXISTING VACANCIES • Texas Medical Center/7501 Fannin Street – 87,714 SF • Main Link Biotechnology Park/10301 Stella Link Road – 69,010 SF • 2575 West Bellfort Street – 23,134 SF

At the close of 2Q, the Medical Center continues to be the submarket with the lowest vacancy in the city at 5.9%. Absorption was negative with 71,037 SF given back, but leasing activity was up with more than 100,000 SF of deals completed in 2Q. There are currently no construction projects underway but that should change soon with Medistar Corporation announcing their Innovation Tower, a 48-story, 1.6M SF mixed-use development, scheduled to begin construction in 3Q.

14

14


KATY FREEWAY EAST SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

(66,658)

142,213

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

11.2%

11.4%

12.5%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

161,553

289,430

21,625

189,749 Delivered SF Quoted Rates $32.35

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$32.50

$29.72

VITAL STATS

14.0% 23.0%

250,000 1,000,000 200,000 800,000

22.0% 13.0%

21.0%

150,000 600,000

20.0%

100,000 400,000

12.0%

19.0%

50,000 200,000

18.0%

0 0

17.0%

(50,000) (200,000)

11.0%

10.0% 16.0%

2Q 1Q 1616

3Q 2Q 16 16

4Q 3Q 16 16

1Q 4Q 17 16

2Q 1Q 17 17

3Q 2Q 17 17

Absorption Absorption

4Q 3Q 1717

1Q 4Q 1817

2Q 1Q 1818

3Q 2Q 1818

4Q3Q 18 18

Deliveries Deliveries

1Q4Q 19 18

2Q1Q 19 19

(100,000) (400,000)

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS The Katy Freeway East submarket is supported by the very strong demographics of the surrounding Memorial Villages. The submarket is centrally located at the intersection of Interstate 10 and the Sam Houston Tollway, with close proximity to the Energy Corridor and the fast-growing western suburbs. Katy Freeway East is an urban, mixed-use area thanks to two large developments, Midway Companies’ CityCentre and MetroNational’s re-envisioned Memorial City projects. Both developments offer different configurations of abundant amenities and mixed-use campuses with varying degrees of walkability that appeals to the emerging millennial workforce. The abundance of amenities and close proximity to the workforce is why this submarket commands higher than average rents over $30.00 per SF. The success of CityCentre and Memorial City have spurred a number of new developments including several medical office projects and Village Tower Plaza, located near Interstate 10 and Bunker Hill. At the close of 2Q, Katy Freeway East had a belowaverage vacancy rate of 11.2% but only 21,625 SF of positive absorption. Leasing activity was strong with nearly 190,000 SF of deals completed in 2Q. There is currently more than 100,000 SF of office product under construction and several proposed projects in the pipeline.

TOP LEASE TRANSACTIONS • USA Compression Partners has signed a 23.6K SF lease in Nexen Building.

• Neudesic has signed a 3.6K SF lease in CityCentre Three.

• Smith Parker Elliot PLLC has signed a 2.9K SF lease in 10355 Centrepark Drive.

• Hiro Health has signed a 2.6K SF lease in 8584, 8586 & 8588 Katy Freeway.

• Brandt Marino has signed a 1.7K SF lease in The Buckley Building.

DEALS IN THE MARKET • Town & Country Central I/10497 Town & Country Way – a 149,909 SF class A office building

NEW DEVELOPMENTS • Hedwig Place/8731 Katy Freeway – a 102,474 SF class A office building

LARGE EXISTING VACANCIES • One Memorial City Plaza/800 Gessner Road – 94,939 SF

• Memorial Hermann Tower/929 Gessner Road – 91,500 SF

• Three Memorial City Plaza/840 Gessner Road – 84,549 SF

• CityCentre Two/818 Town & Country Boulevard – 78,846 SF

• MetroNational Memorial City/10100 Katy Freeway – 62,984 SF

• 920 Memorial City Way – 47,304 SF • CityCentre One/800 Town & Country Boulevard – 41,412 SF

15

15


SUGAR LAND SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

(14,159)

54,549

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

12.5%

11.3%

12.0%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

99,341

111,461

vs. Prev. Qtr

vs. 12 Mths Ago

(83,589)

88,628 Delivered SF Quoted Rates $26.23

38,599

23,520

vs. Prev. Qtr

vs. 12 Mths Ago

$26.29

$25.42

VITAL STATS

14.0% 12.0%

125,000 250,000

200,000

75,000

11.0%

150,000

12.0%

25,000

10.0%

100,000 (25,000)

50,000

9.0% 10.0%

(75,000)

0 8.0%

(125,000)

(50,000)

7.0% 8.0%

(100,000) (17 5,000) 2Q 1Q 1616

3Q 2Q 1616

4Q 3Q 16 16

1Q 4Q 17 16

Absorption Absorption

2Q 1Q 17 17

3Q 2Q 17 17

4Q 3Q 17 17

1Q 4Q 18 17

Deliveries Deliveries

2Q 1Q 18 18

3Q 2Q 1818

4Q 3Q 1818

1Q 4Q 1918

2Q 1Q 1919

Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS The Sugar Land submarket in Southwest Houston is home to a variety of energy and engineering firms. Corporations, such as Fluor Enterprises, Schlumberger, Fairfield Technologies, and Nalco Champion, call Sugar Land home. Some non-energy tenants, such as Coca-Cola, the United Way, and Kelsey-Seybold Clinic, also have large presence in Sugar Land. The Sugar Land Town Square serves as the center of amenities and walkability amidst the surrounding master-planned communities. At the close of 2Q, Sugar Land had a vacancy rate of 12.5% with negative absorption of 83,589 SF. Leasing activity was slightly lower than the previous quarter with 88,628 SF of deals completed. There is currently more than 232,163 SF of office product under construction with zero SF of space delivered, compared to the 38,599 SF delivered in 1Q.

16

DEALS IN THE MARKET • Sugar Creek Place I/14100 Southwest Freeway – a 151,772 SF class B building

• 13927 South Gessner Road – a 87,720 SF class B building

NEW DEVELOPMENTS • 800 Bonaventure Way – a 87,500 office condos set to deliver 4/2020

LARGE EXISTING VACANCIES • Sugar Creek on the Lake/14141 Southwest Freeway – 151,311 SF • Sugar Creek II/13131 Dairy Ashford Road – 95,083 SF • Building A/1 Flour Daniel Drive – 85,927 SF • Sugar Creek I/13135 Dairy Ashford Road – 46,971 SF • Sugar Creek Place I/14100 Southwest Freeway – 42,733 SF

16


CLEAR LAKE SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

29,161

(25,032)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

17.0%

17.1%

16.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

117,825

71,441

vs. Prev. Qtr

vs. 12 Mths Ago

15,028

124,828 Delivered SF Quoted Rates $22.53

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$22.43

$21.72

VITAL STATS

18.0%

90,000

12.0%

250,000

70,000

200,000

11.0%

50,000

150,000

30,000

16.0%

10.0%

100,000 10,000 (10,000)

50,000

9.0%

(30,000)

14.0%

0 (50,000)

8.0%

(50,000)

(70,000)

7.0% 12.0%

(100,000) (90,000) 2Q 1Q 16 16

3Q 2Q 16 16

4Q 3Q 16 16

1Q 4Q 17 16

2Q 1Q 17 17

3Q 2Q 17 17

Absorption Absorption

4Q 3Q 1717

1Q 4Q 1817

2Q 1Q 1818

Deliveries Deliveries

3Q 2Q 1818

4Q 3Q 1818

1Q 4Q 1918

2Q 1Q 1919

Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS Located southeast of the CBD, Clear Lake is home to the Lyndon B. Johnson Space Center and has an outsized share of government jobs. Although the submarket is also home to a diverse mix of industries, the reliance on NASA typically dictates demand for office space here. The area also boasts strong demographics, given the high volume of NASA scientists, well-paid workers at the Houston Ship Channel, and related downstream industries that choose to live in communities close to the water. At the close of 2Q, the Clear Lake submarket had a vacancy rate of 17.0% with positive absorption of 15,028 SF. Leasing activity was quite strong for a submarket of this size with more than 120,000 SF of deals completed in 2Q. There is currently more than 73,000 SF of office product under construction in the submarket.

TOP LEASE TRANSACTIONS • Cimarron Software Services has signed a 7.4K SF lease in Clear Lake I. • JSC Federal Credit Union has signed a 6.9K SF lease in Clear Lake I. • Berkshire Hathaway has signed a 2.2K SF lease in Space Park Office Building.

DEALS IN THE MARKET • Clear Lake Central/600 Gemini Street – a 363,050 SF class B office building

• Two Corporate Plaza/2625 Bay Area Boulevard – a 161,467 SF class A office building • One Corporate Plaza/2525 Bay Area Boulevard – a 114,838 SF class A office building • Camino Center II/17625 El Camino Real – a 76,144 SF class B office building • Camino Center I/17629 El Camino Real – a 76,140 SF class B office building

NEW DEVELOPMENTS • Tannos Land Holding/505 South Friendswood Drive – a 51,614 SF class A office building

• 1400 West Nasa Parkway – a 22,000 SF class B office building

LARGE EXISTING VACANCIES • Clear Lake Central/600 Gemini Street – 317,198 SF • Boeing/3700 Bay Area Boulevard – 85,176 SF • Hercules II/1290 Hercules Avenue – 64,000 SF • Clear Lake I/1300 Hercules Avenue – 46,212 SF • 2222 Bay Area Boulevard – 32,666 SF • 16055 Space Center Boulevard – 27,983 SF

17

17


MIDTOWN SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

(21,472)

43,145

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

11.7%

10.9%

9.8%

12.0% 12.0%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

10.0%

(47,940)

171,800 Delivered SF Quoted Rate $29.29

85,872

144,833

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$29.56

$30.27

VITAL STATS

14.0% 18.0%

160,000 600,000 140,000

16.0%

500,000 120,000 100,000

14.0%

400,000

80,000

300,000 60,000 40,000

200,000

20,000

8.0%

0

0

(40,000) (60,000) (100,000)

4.0%

(80,000)

2.0% 8.0% 0.0%

100,000

(20,000)

10.0% 6.0%

(200,000)

(100,000) 2Q

1Q 16 16

3Q

2Q 16 16

4Q

3Q 16 16

1Q

4Q 17 16

Absorption Absorption

2Q 1Q 17

17

3Q 2Q 17

17

4Q 3Q 17

17

1Q 184Q

17

Deliveries Deliveries

2Q 181Q

18

3Q 182Q

18

4Q 18 3Q

18

1Q 19 4Q

18

2Q 19 1Q

(120,000) (300,000)

19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS The Midtown submarket is centrally located, due west of CBD, and has recently been dubbed the “Millennial Corridor” which includes the Heights to the north, Montrose/ Museum District and Upper Kirby to the west, and Rice Village to the south. Further west along the Washington Corridor, the Midtown submarket has seen considerable interest from developers of all property types along Allen Parkway and Washington Avenue. Rice University, which owns the former Midtown Sears building, will spend a reported $100M to redevelop the historic art deco building into the Ion Innovation Hub. The project will be run by Station Houston, an innovative accelerator, and will also contain creative retail amenities. Construction is expected to finish in late 2020. At the close of 2Q, Midtown had a vacancy rate of 11.7% and negative absorption of 47,940 SF. Leasing activity was quite strong with more than 170,000 SF of deals completed in 2Q. There is currently more than 200,000 SF of office product under construction.

18

TOP LEASE TRANSACTIONS • Marsh Wortham has signed a 90.1K SF lease in America Tower.

DEALS IN THE MARKET • 2303 Smith/2303 Smith Street – a 23,373 SF class B office building

• Washington Place Lofts/1716-1722 Washington Avenue – a 21,817 SF class B office building

NEW DEVELOPMENTS • River Oaks Medical/3720 Westheimer Road – 130,000 SF

• Rethink Co-Working/1512 Center Street – 37,046 SF • Buffalo Heights/3663 Washington Avenue – 35,363 SF LARGE EXISTING VACANCIES • Wortham Tower/2727 Allen Parkway – 142,700 SF • Central Square/2100 Travis Street – 117,733 SF • America Tower/2929 Allen Parkway – 109,784 SF • HCC Building/3100 Main Street – 108,000 SF • Buffalo Heights/3663 Washington Avenue – 35,363 SF • 2800-2810 San Jacinto Street – 27,484 SF • 100 Waugh Drive/100 Waugh Drive – 20,254 SF

18


SAN FELIPE/FOUNTAIN VIEW SUBMARKET INTELLIGENCE Absorption (66,357) Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

(47,827)

(9,314)

vs. Prev. Qtr

vs. 12 Mths Ago

20.2%

19.1%

19.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

68,130

126,181

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$28.44

$27.77

100,650 Delivered SF Quoted Rate $28.14

VITAL STATS

22.0%

80,000

12.0%

250,000

60,000

200,000

20.0% 11.0%

40,000

20,000 150,000 18.0% 10.0%

0

100,000

(20,000)

50,000 (40,000)

16.0% 9.0%

(60,000)

0

14.0% 8.0%

(80,000)

(50,000)

(100,000) 12.0% 7.0%

2Q 1Q 16 16

3Q 2Q 16 16

4Q 3Q 16 16

1Q 4Q 17 16

2Q 1Q 17

17

3Q 2Q 17

17

Absorption Absorption

4Q 3Q 17

17

1Q 4Q 18

17

Deliveries Deliveries

2Q 1Q 18

18

3Q 2Q 18

18

4Q 3Q 18

18

1Q4Q 19

18

2Q1Q 19

(120,000) (100,000)

19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS Located just west of Galleria/Uptown, HLC’s Houston office submarket, San Felipe/Fountainview, is a smaller submarket with a premier location. Fundamentals here mirror a West Houston submarket and contain about 6M SF, providing tenants with a great alternative to the above-average rates of the West Loop submarket. At the close of 2Q, San Felipe/Fountain View had a vacancy rate of 20.2% with negative absorption of 66,357 SF. Leasing activity was fairly strong with more than 100,000 SF of deals completed in 2Q.

TOP LEASE TRANSACTIONS • Brooksource has signed a 2.9K SF lease in 2000 Bering. DEALS IN THE MARKET • 2425 Fountain View Drive – a 57,525 SF class B office building

• 6223 Richmond Avenue – a 39,450 SF class B office building

• Westglen Property/7915 Westglen Drive – a 22,424 SF class B office building

LARGE EXISTING VACANCIES • San Felipe Plaza/5847 San Felipe Street – 254,353 SF • 5718 Westheimer Road – 170,893 SF • 2603 Augusta Drive – 90,430 SF • 2000 Bering/2000 Bering Drive – 82,586 SF • Westglen Property/7915 Westglen Drive – 22,424 SF • II Westheimer Place/2640 Fountain View Drive – 21,900 SF

19

19


WEST BELT SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

51,244

(62,670)

Vacancy

vs. Prev. Qtr

19.2%

20.7%

82,983

Leasing Act. 113,118 Delivered SF Quoted Rate $25.77

vs. Prev. Qtr 139,971

VITAL STATS

26.0% 18.0%

200,000 600,000

16.0%

150,000 500,000

vs. 12 Mths Ago

14.0% 24.0%

100,000

25.6%

12.0%

50,000

vs. 12 Mths Ago

10.0%

0

164,045

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$25.80

$26.02

400,000 300,000

22.0%

200,000

8.0%

(50,000)

6.0%

(100,000)

100,000 0

20.0%

4.0%

(150,000)

2.0%

(200,000)

18.0% 0.0%

(100,000) (200,000)

(250,000) 2Q 1Q 16

16

3Q 2Q 16

16

4Q 3Q 16

16

1Q 4Q 17

16

Absorption Absorption

2Q 1Q 17

17

3Q 2Q 17

17

4Q 3Q 17

17

1Q 184Q

17

Deliveries Deliveries

2Q 181Q

18

3Q 182Q

18

4Q 18 3Q

18

1Q 19 4Q

18

2Q 19 1Q

Vacancy Vacancy

(300,000)

19

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS The West Belt submarket houses nearly 6M SF of class A & B office product and spans a quarter-mile corridor along the West Sam Houston Parkway between Clay Road and Highway 249. The submarket’s proximity to the Energy Corridor makes it one of the most energy-driven office markets in Houston and is home to some of the newest vintage assets. Some of the largest tenants here include GE Oil & Gas, Forum Energy Technologies, and Cameron International. Due to the heavy concentration of these energy tenants, the West Belt submarket felt the oil downturn more than most other submarkets. However, the outlook for this submarket looks good with its close proximity to the fastest-growing population center and workforce, making it an attractive office market for those who live nearby. At the close of 2Q, West Belt had a much higher average vacancy rate of 36.8% with only small positive absorption of 1,418 SF. Leasing activity was strong with more than 110,00 SF of deals completed in 2Q. There is currently zero SF of office product under construction with zero SF of space delivered in 2Q.

20

TOP LEASE TRANSACTIONS • Ensign has signed a 57K SF lease in Beltway Lakes Phase II. • Aquaterra Water Management has signed a 6.7K SF lease in Sam Houston Crossing One.

DEALS IN THE MARKET • Heron Lakes (Seven Properties) – a 314,776 SF class A and B office park • Tanner Office Building/11302 Tanner Road – a 57,798 SF class B office building • 16060 Dillard Drive – a 24,000 SF class B office building

LARGE EXISTING VACANCIES • Westway II/4424 West Sam Houston Parkway North – 237,246 SF

• Beltway Lakes Phase III/5775 North Sam Houston Parkway West – 183,924 SF • Westway One/11220 Equity Drive – 143,960 SF • Westway Plaza/11330 Clay Road – 131,663 SF • Beltway Lakes Phase II/5875 North Sam Houston Parkway West – 104,920 SF • Building Two/11000 Corporate Centre Drive – 75,954 SF • Tanner Office Building/11302 Tanner Road – 57,798 SF • Concourse at Westway/4700 West Sam Houston Parkway North – 53,559 SF • 4650 Westway Park Boulevard – 53,469 SF • York Centre/10235 West Little York Road – 50,638 SF

20


SOUTHWEST BELTWAY 8 SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

(1,536)

81,237

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

21.9%

20.3%

17.5%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

58,939

100,038

vs. Prev. Qtr

vs. 12 Mths Ago

(88,794)

135,794 Delivered SF Quoted Rates $17.59

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$17.42

$18.28

VITAL STATS

22.0%

100,000

12.0%

250,000

80,000

200,000

60,000

11.0%

40,000

150,000

20.0%

20,000

10.0%

0 100,000 (20,000)

50,000

9.0%

(40,000)

18.0%

(60,000) 0

8.0%

(80,000)

(50,000)

(100,000) 16.0% 7.0%

2Q 1Q 16 16

3Q 2Q 16 16

4Q 3Q 16 16

1Q 4Q 17 16

2Q 1Q 17 17

3Q 2Q 1717

Absorption Absorption

4Q 3Q 1717

1Q 4Q 1817

2Q 1Q 1818

3Q 2Q 1818

Deliveries Deliveries

4Q 3Q 1818

1Q4Q 19 18

2Q1Q 19 19

(120,000) (100,000)

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS The Southwest Beltway 8 Houston office submarket extends southeast to the tip of Missouri City and northwest to the Buffalo Bayou just west of the Energy Corridor. The submarket’s geographic boundaries extend much farther than those of neighboring West Houston submarkets but deliveries here have been significantly fewer than in other submarkets this cycle, partially due to its distance from the Energy Corridor. At the close of 2Q, Southwest Beltway 8 had an above-average vacancy rate of 21.9% with negative absorption of 88,794 SF. Leasing activity was strong for a submarket of this size with more than 135,000 SF of deals completed in 2Q. There is currently zero SF of office product under construction with zero SF of space delivered in 2Q.

TOP LEASE TRANSACTIONS • Revival Management has signed a 6.3K SF lease in West Oaks Mall.

DEALS IN THE MARKET • American First Tower/9999 Bellaire Boulevard – a 211,587 SF class A office building

• 11111 South Wilcrest Drive – a 190,398 SF class B office building • Westwood Green/9494 Southwest Freeway – a 139,529 SF class B office building • 6100 Corporate Drive – a 73,045 SF class B office building • Tolunay-Wong/10710 South Sam Houston Parkway West – a 46,622 SF class B office building

LARGE EXISTING VACANCIES • Southwest Corporate Center/9700-9702 Bissonnet Street – 222,819 SF

• 11111 South Wilcrest Drive – 190,398 SF • Houston Technology Center/5959 Corporate Drive – 102,304 SF • Centre I/9800 Centre Parkway – 80,891 SF • 14602 Presidio Square Boulevard – 39,573 SF • West Belt Office Center I/8101 West Sam Houston Parkway South – 36,248 SF • US Pain & Spine Institute/8111 Southwest Freeway – 35,459 SF • 9945 Bissonnet Street – 27,500 SF

21

21


EAST HOUSTON/PASADENA SUBMARKET INTELLIGENCE VITAL STATS

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

(4,877)

10,541

111,532

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

10.6%

10.1%

10.8%

12.0% 12.0%

84,000

vs. Prev. Qtr

vs. 12 Mths Ago

10.0%

64,000 200,000

39,818

51,620

vs. Prev. Qtr

vs. 12 Mths Ago

-

103,076

Quoted Rates

vs. Prev. Qtr

vs. 12 Mths Ago

21.44

21.19

21.75

Leasing Act. 30,623 Delivered SF -

14.0% 18.0%

600,000

124,000

16.0%

500,000 104,000

14.0%

400,000 300,000

8.0%

100,000

44,000

10.0% 6.0%

0 24,000

4.0%

(100,000) 4,000

2.0%

(200,000)

0.0% 8.0%

(300,000) (16,000) 2Q 1Q 16 16

3Q 2Q 16 16

4Q 3Q 16 16

1Q 4Q 17 16

2Q 1Q 17 17

Absorption Absorption

3Q 2Q 17 17

4Q 3Q 1717

1Q 4Q 1817

2Q 1Q 1818

3Q 2Q 1818

Deliveries Deliveries

4Q 3Q 1818

1Q4Q 1918

2Q1Q 19 19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS HLC’s East Houston/Pasadena submarket’s location has historically been driven more by industrial than office product. Vacancies, though still soft, were still better than the large majority of submarkets across the city. The submarket typically caters to tenants with smaller footprints, therefore, the submarket was less negatively affected than several other office submarkets. Demand has remained positive since 2015 and has been beneficial to landlords. At the close of 2Q, East Houston/Pasadena had a below-average vacancy rate of 10.6% with negative absorption more than 4,800 SF. Leasing activity was average for a submarket of this size with 30,623 SF of deals completed in 2Q.

22

DEALS IN THE MARKET • Texas Citizens Bank Building/4949 Fairmont Parkway – a 51,836 SF class B office building

• Medical Professional Building I/908 East Southmore Boulevard – a 41,778 SF class B office building

• Annex Building/12301 Kurland Drive – a 26,926 SF class B office building

• Gullett & Associates Engineering/7135 Office City Drive – a 23,512 SF class B office building

• GSA at Office City Plaza/7141 Office City Drive – a 21,962 SF class B office building

• 3100 Gulf Freeway – a 21,000 SF class B office building LARGE EXISTING VACANCIES • 5616 Lawndale Street – 49,700 SF • Original US Schlumberger HQ (1938)/2720 Leeland Street – 27,100 SF • 3100 Gulf Freeway – 21,000 SF

22


NORTH LOOP WEST SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

(64,160)

(102,151)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

23.1%

22.2%

21.0%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

25,785

56,018

vs. Prev. Qtr

vs. 12 Mths Ago

(36,557)

93,147 Delivered SF Quoted Rates $24.54

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$24.88

$24.43

VITAL STATS

24.0%

100,000

12.0%

250,000

80,000

200,000

60,000

11.0%

22.0%

40,000

150,000

20,000

10.0%

0 100,000

20.0%

(20,000)

50,000

9.0%

(40,000) (60,000) 0

18.0%

8.0%

(80,000)

(50,000)

(100,000) 16.0% 7.0%

2Q 1Q 16 16

3Q 2Q 16 16

4Q 3Q 16 16

1Q 4Q 17 16

2Q 1Q 17

17

3Q 2Q 17

17

Absorption Absorption

4Q 3Q 17

17

1Q 4Q 18

17

Deliveries Deliveries

2Q 1Q 18

18

3Q 2Q 18

18

4Q 3Q 18

18

1Q4Q 19

18

2Q1Q 19

(120,000) (100,000)

19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS The Houston office submarket, North Loop West, is located northwest of the CBD and within the transforming Heights and Oak Forest/Garden Oaks communities. This office submarket consists of more than 6M SF with most of the largest office properties located along the Western portion of Interstate 610 North Loop, which lends the submarket its name. There is also a concentration of older, single-family homes converted into small office buildings along Heights Boulevard. At the close of 2Q, North Loop West had an above-average vacancy rate of 23.1%. Absorption was negative with 36,557 SF given back and leasing activity consisted of more than 90,000 SF of deals completed. There is currently more than 89,000 SF of office product under construction but no space delivered in 2Q.

23

NEW DEVELOPMENTS • The MKT/600 North Shepherd Drive – a 89,425 SF class A office park

LARGE EXISTING VACANCIES • Brookhollow Central II/2900 North Loop Freeway West – 182,815 SF

• Brookhollow Central III/2950 North Loop Freeway West – 149,291 SF

• 2727 North Loop Freeway West – 123,103 SF • 10050 Northwest Freeway – 42,840 SF • Park One on the Bayou/2500 East TC Jester Boulevard – 37,278 SF

• 2600 North Loop Freeway West – 28,702 SF • 3535 West 12th Street – 24,600 SF

23


SUBMARKETBELLAIRE INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

(68,172)

(89,599)

Vacancy

vs. Prev. Qtr

18.7%

19.1%

22,313

VITAL STATS

20.0% 18.0%

600,000

16.0% 18.0%

100,000 500,000

vs. 12 Mths Ago

14.0%

0

18.6%

12.0%

vs. 12 Mths Ago

10.0%

16.0%

Leasing Act. 29,041 Delivered SF Quoted Rates $25.68

vs. Prev. Qtr 181,117

108,335

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$25.06

$26.03

300,000 (100,000)

14.0%

200,000 (200,000) 100,000

12.0% 8.0%

6.0%

0

(300,000)

10.0%

4.0%

(100,000) (400,000)

8.0%

2.0%

6.0% 0.0%

400,000

(200,000) 2Q

1Q 16 16

3Q

2Q 16 16

4Q

3Q 16 16

1Q

4Q 17 16

Absorption Absorption

2Q 1Q 17

17

3Q 2Q 17

17

4Q 3Q 17

17

1Q 4Q 18

17

Deliveries Deliveries

2Q 1Q 18

18

3Q 2Q 18

18

4Q 3Q 18

18

1Q 4Q 19

18

2Q 1Q 19

(500,000) (300,000)

19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS Adjacent to the Galleria/Uptown and the Texas Medical Center, Bellaire is a smaller, more mature office submarket. Like most of Houston, the majority of Bellaire’s inventory was delivered in the 1970s and 1980s. The area is home to a significant number of medical tenants which makes sense because of its close proximity to the Texas Medical Center. At the close of 2Q, Bellaire had a vacancy rate of 18.7% with positive absorption of 22,313 SF. Leasing activity included more than 29,000 SF of deals completed in 2Q. No office product was delivered nor are there any projects under construction.

TOP LEASE TRANSACTIONS • Bio-Path Holdings, Inc. has signed a 3K SF lease in 4710 Bellaire Boulevard. • Love Law Firm has signed a 2.6K SF lease in 6300 West Loop South.

DEALS IN THE MARKET • 9009 West Loop South – a 472,847 SF Class B Office building

• Southwestern AT&T/6500 West Loop South – a 351,030 SF Class B Office building • 4909 Bissonnet Street – a 20,586 SF Class B Office building

LARGE EXISTING VACANCIES • 4800 Fournace Place – 401,202 SF • Houston Chronicle/4747 Southwest Freeway – 82,200 SF

• Loop Central II/4848 Loop Central Drive – 41,470 SF

24

24


NORTHWEST/ HIGHWAY 290 CORRIDOR SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

29,260

(36,053)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

22.1%

20.9%

21.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

(23,106)

102,955 Delivered SF 32,174 Quoted Rate $16.93

111,888

102,398

vs. Prev. Qtr

vs. 12 Mths Ago

32,174

-

vs. Prev. Qtr

vs. 12 Mths Ago

$17.00

$17.53

VITAL STATS

22.0%

12.0%

250,000 40,000

200,000

21.0%

20,000

11.0% 20.0%

0

10.0%

150,000 100,000

(20,000)

19.0%

50,000 (40,000)

9.0% 18.0%

(60,000) 0

8.0% 17 .0%

16.0% 7.0%

(80,000) (50,000)

2Q

1Q 16 16

3Q

2Q 16 16

4Q

3Q 16 16

1Q

4Q 17 16

2Q 1Q 17

17

3Q 2Q 17

17

Absorption Absorption

4Q 3Q 17

17

1Q 4Q 18

17

Deliveries Deliveries

2Q 1Q 18

18

3Q 2Q 18

18

4Q 3Q 18

18

1Q 4Q 19

18

2Q 1Q 19

(100,000) (100,000)

19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS The Southwest Freeway submarket comprises a small geographic area in Southwest Houston, mainly along Highway 59 South. Its boundaries extend as far north as the Westpark Tollway and as far south as Beechnut. This submarket caters mostly to local tenants. Attracting tenants to the area has been a challenge recently, especially with the aging inventory in this submarket. West Houston submarkets have hurt the Southwest Freeway submarket recently with a citywide flight-to-quality. Rental rates in this submarket are among the lowest in Houston and are a true value proposition for Houston-area businesses in an area located away from major Houston office submarkets, such as West Loop, Westchase, and the Energy Corridor. At the close of 2Q, Southwest Freeway had a vacancy rate of 24.0% with a small positive absorption of 4,395 SF. Leasing activity included more than 80,000 SF of deals completed in 2Q.

25

TOP LEASE TRANSACTIONS • Nurse Practitioner Associates has signed a 2.5K SF lease in United Plaza.

DEALS IN THE MARKET • Regency Square Tower/6200 Savoy Drive – a 219,100 SF class A office building • 6001 Savoy Drive – a 122,010 SF class B office building • Hillcroft Plaza/6065 Hillcroft Avenue – a 61,881 SF class B office building • 5999-6057 Savoy Drive – a 38,337 SF class B office building

LARGE EXISTING VACANCIES • Two Arena Place/7324 Southwest Freeway – 233,699 SF • One Arena Place/7322 Southwest Freeway – 155,238 SF • 7011 Southwest Freeway – 112,590 SF • 6464 Savoy Drive – 76,796 SF • Harwin International Plaza/7171 Harwin Drive – 63,000 SF • 5999-6057 Savoy Drive – 38,337 SF

25


WEST SUBMARKETFARINTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

67,779

79,034

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

14.0%

10.8%

10.5%

13.7%

12.0%

vs. 12 Mths Ago

10.0%

(12,371)

Leasing Act. 9,913 Delivered SF Quoted Rates $28.02

vs. Prev. Qtr 23,478 vs. Prev. Qtr

114,428 vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$28.21

$28.74

VITAL STATS

20.0% 18.0%

17 5,000 600,000

16.0%

500,000

18.0%

125,000

400,000 300,000

16.0%

75,000

200,000

8.0%

100,000

14.0%

25,000

6.0%

0

4.0% 12.0%

(100,000) (25,000)

2.0% 10.0% 0.0%

(200,000) 2Q 1Q 16 16

3Q 2Q 16 16

4Q 3Q 16 16

1Q 4Q 17 16

2Q 1Q 17 17

3Q 2Q 17 17

Absorption Absorption

4Q 3Q 17

17

1Q 4Q 18

17

2Q 1Q 18

18

3Q 2Q 18

18

4Q 3Q 18

Deliveries Deliveries

18

1Q 4Q 19

18

2Q 1Q 19

(75,000) (300,000)

19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS The Southwest Freeway submarket comprises a small geographic area in Southwest Houston, mainly along Highway 59 South. Its boundaries extend as far north as the Westpark Tollway and as far south as Beechnut. This submarket caters mostly to local tenants. Attracting tenants to the area has been a challenge recently, especially with the aging inventory in this submarket. West Houston submarkets have hurt the Southwest Freeway submarket recently with a citywide flight-to-quality. Rental rates in this submarket are among the lowest in Houston and are a true value proposition for Houston-area businesses in an area located away from major Houston office submarkets, such as West Loop, Westchase, and the Energy Corridor. At the close of 2Q, Southwest Freeway had a vacancy rate of 24.0% with a small positive absorption of 4,395 SF. Leasing activity included more than 80,000 SF of deals completed in 2Q.

TOP LEASE TRANSACTIONS • Nurse Practitioner Associates has signed a 2.5K SF lease in United Plaza.

DEALS IN THE MARKET • Regency Square Tower/6200 Savoy Drive – a 219,100 SF class A office building • 6001 Savoy Drive – a 122,010 SF class B office building • Hillcroft Plaza/6065 Hillcroft Avenue – a 61,881 SF class B office building • 5999-6057 Savoy Drive – a 38,337 SF class B office building

LARGE EXISTING VACANCIES • Two Arena Place/7324 Southwest Freeway – 233,699 SF

• One Arena Place/7322 Southwest Freeway – 155,238 SF

• 7011 Southwest Freeway – 112,590 SF • 6464 Savoy Drive – 76,796 SF • Harwin International Plaza/7171 Harwin Drive – 63,000 SF

• 5999-6057 Savoy Drive – 38,337 SF

26

26


SOUTHWEST FREEWAY SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

(5,180)

(10,082)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

24.0%

24.1%

24.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

4,395

81,633 Delivered SF Quoted Rates $16.23

71,475

49,552

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$16.08

$16.45

VITAL STATS

26.0%

60,000

12.0%

250,000

40,000

200,000 20,000

24.0% 11.0%

0

150,000

(20,000) 22.0% 10.0%

(40,000)

100,000

(60,000) (80,000) 50,000

20.0% 9.0%

(100,000)

0 (120,000) 18.0% 8.0%

(140,000)

(50,000)

(160,000) 16.0% 7.0%

2Q 1Q 16 16

3Q 2Q 16 16

4Q 3Q 16 16

1Q 4Q 17 16

2Q 1Q 17

17

Absorption Absorption

3Q 2Q 17

17

4Q 3Q 17

17

1Q 4Q 18

17

2Q 1Q 18

18

3Q 2Q 18

18

4Q 3Q 18

18

Deliveries Deliveries

1Q 4Q 19

18

2Q 1Q 19

(180,000) (100,000)

19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS The Southwest Freeway submarket comprises a small geographic area in Southwest Houston, mainly along Highway 59 South. Its boundaries extend as far north as the Westpark Tollway and as far south as Beechnut. This submarket caters mostly to local tenants. Attracting tenants to the area has been a challenge recently, especially with the aging inventory in this submarket. West Houston submarkets have hurt the Southwest Freeway submarket recently with a citywide flight-to-quality. Rental rates in this submarket are among the lowest in Houston and are a true value proposition for Houston-area businesses in an area located away from major Houston office submarkets, such as West Loop, Westchase, and the Energy Corridor. At the close of 2Q, Southwest Freeway had a vacancy rate of 24.0% with a small positive absorption of 4,395 SF. Leasing activity included more than 80,000 SF of deals completed in 2Q.

TOP LEASE TRANSACTIONS • Nurse Practitioner Associates has signed a 2.5K SF lease in United Plaza.

DEALS IN THE MARKET • Regency Square Tower/6200 Savoy Drive – a 219,100 SF class A office building • 6001 Savoy Drive – a 122,010 SF class B office building • Hillcroft Plaza/6065 Hillcroft Avenue – a 61,881 SF class B office building • 5999-6057 Savoy Drive – a 38,337 SF class B office building

LARGE EXISTING VACANCIES • Two Arena Place/7324 Southwest Freeway – 233,699 SF • One Arena Place/7322 Southwest Freeway – 155,238 SF • 7011 Southwest Freeway – 112,590 SF • 6464 Savoy Drive – 76,796 SF • Harwin International Plaza/7171 Harwin Drive – 63,000 SF

• 5999-6057 Savoy Drive – 38,337 SF

27

27


KINGWOOD SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

26,270

(56,071)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

12.1%

12.0%

11.0%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

(1,092)

39,508 Delivered SF Quoted Rates $25.26

17,742 vs. Prev. Qtr

8,436

VITAL STATS

16.0%

12.0%

250,000 140,000

200,000

14.0%

11.0%

90,000

150,000

12.0%

40,000

10.0%

100,000

10.0% (10,000)

50,000

9.0% 8.0%

(60,000)

vs. 12 Mths Ago

-

-

vs. Prev. Qtr

vs. 12 Mths Ago

$25.82

$25.27

0

8.0% 6.0%

4.0% 7.0%

(110,000)

(50,000)

2Q 1Q 16 16

3Q 2Q 16 16

4Q 3Q 16 16

1Q 4Q 17 16

Absorption Absorption

2Q 1Q 17

17

3Q 2Q 17

17

4Q 3Q 17

17

1Q 4Q 18

17

2Q 1Q 18

18

Deliveries Deliveries

3Q 2Q 18

18

4Q 3Q 18

18

1Q4Q 19

18

2Q1Q 19

(160,000) (100,000)

19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS The Houston office submarket, Kingwood, is located in Northeast Houston and situated between the Sam Houston Tollway and the Grand Parkway. This smaller, outlying office submarket has seen a recent boost in development thanks to the Grand Parkway, Houston’s third loop. The submarket currently contains about 2.3M SF of class A & B office space. At the close of 2Q, Kingwood had a vacancy rate of 12.1% with negative absorption of 1,092 SF and 39,508 SF of deals were closed. There is currently more than 40,000 SF of office product under construction in the submarket.

DEALS IN THE MARKET • Plus Four Credit Union Building/19506 North US 59 Highway – a 22,270 SF class B building

NEW DEVELOPMENTS • 215 Kingwood Executive Drive – 41,230 SF LARGE EXISTING VACANCIES • Northeast Medical Tower II/18980 North Memorial Drive North – 83,244 SF

• Professional Center at Kings Crossing II/2755 West Lake Houston Parkway – 20,470 SF

28

28


SUBURBAN OUTLIERS SUBMARKET INTELLIGENCE Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

(38,889)

118,105

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

12.5%

11.9%

12.6%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

31,323

56,353

vs. Prev. Qtr

vs. 12 Mths Ago

(29,218)

41,336 Delivered SF 20,000 Quoted Rates $25.05

-

77,961

vs. Prev. Qtr

vs. 12 Mths Ago

$24.86

$24.50

VITAL STATS

16.0%

200,000

12.0%

250,000

200,000 150,000 11.0%

14.0%

150,000

100,000

10.0%

100,000

12.0%

50,000

50,000

9.0% 0

0

10.0%

8.0%

(50,000)

8.0% 7.0%

(100,000) (100,000)

(50,000)

2Q 1Q 16 16

3Q 2Q 16 16

4Q 3Q 16 16

1Q 4Q 17 16

2Q 1Q 17

17

Absorption Absorption

3Q 2Q 17

17

4Q 3Q 17

17

1Q 4Q 18

17

Deliveries Deliveries

2Q 1Q 18

18

3Q 2Q 18

18

4Q 3Q 18

18

1Q4Q 19

18

2Q1Q 19

19

Vacancy Vacancy

Source: CoStar 2Q 2019 Office Report

CURRENT EVENTS HLC’s Houston office market, Suburban Outliers, consists of the remaining submarkets outside of the major Houston submarkets, such as the CBD, Greenway Plaza, Westchase, and The Woodlands. These smaller submarkets are located on the outskirts of Houston and include more than 11M SF of class A & B office buildings. At the close of 2Q, Suburban Outliers had a vacancy rate of 11.6% with negative absorption of 27,830 SF. Leasing activity was strong with more than 140,000 SF of deals completed in 2Q. There is currently over 127,000 SF of office product under construction with 61,000 SF of space delivered so far this year.

DEALS IN THE MARKET • North Houston Medical Plaza/7007 North Freeway – a

NEW DEVELOPMENTS • 4005 Technology Drive – 205,000 SF • Memorial Hermann Cypress MOB/27700 Highway 290 – 56,271 SF

• North Houston Medical Plaza/7007 North Freeway – 51,306 SF • Trinity Office Building/1920 Country Place Parkway – 29,904 SF • 32100 Dobbin Huffsmith Road – 28,449 SF • 2401 Termini Street – 27,712 SF • Pearland Medical Commons Building Two/8540 Broadway Street – 25,000 SF • 3100 Gulf Freeway – 21,000 SF • Northpoint Crossing Office Building/24445 State Highway 249 – 20,000 SF • 2115 Winnie Street – 20,000 SF

85,989 SF class B office building

• Magnolia Landmark Building/18230 DM 1488 Road – a 65,000 SF class B office building

• 32100 Dobbin Huffsmith Road – a 47,161 SF class A office building

• 9307 Broadway Street – a 39,480 SF class B office building

• 2401 Termini Street – a 38,000 SF class B office building • Texas City Professional Building/2401 Palmer Highway – a 33,486 SF class B office building • 10586 Highway 75 North – a 30,000 SF class B office building • The Offices at Greatwood/6514-6548 Greatwood Parkway – a 27,962 SF class B office building • 3100 Gulf Freeway – a 21,000 SF class B office building

29

29


DALLAS

5950 Berkshire Lane Suite 900 Dallas, Texas 75225 T 972.241.8300 F 972.241.7955

FORT WORTH

1200 Summit Avenue Suite 300 Fort Worth, Texas 76102 T 817.710.1110 F 817.810.9017

www.holtlunsford.com

HOUSTON

11451 Katy Freeway Suite 300 Houston, Texas 77079 T 713.850.8500 F 713.850.8550