www.colliers.com/houston

Q4 2013 | INDUSTRIAL MARKET

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Absorption New Supply Vacancy

With low vacancy, stable rental rates, and positive absorption, Houston’s industrial market remains one of the top ten healthiest U.S. industrial markets. Houston posted 2.1M SF of positive net absorption in the fourth quarter, pushing the net absorption for the year to 7.0M SF. Industrial leasing activity reached 2.7M SF, partly due to large tenants leasing some of the 4.4M SF of space currently under construction. Houston’s average industrial vacancy rate dropped 10 basis points between quarters to 5.2% from 5.3%, and remained unchanged when compared to the same quarter one year ago. The citywide average quoted industrial rental rate increased 0.3% between quarters to $5.92 from $5.90 per SF NNN, and increased 5.9% on a year-over-year basis from $5.59 per SF NNN.

Houston’s lack of available industrial inventory has spurred demand for new product. Developers have responded and currently have 4.4M SF under construction. Some of the increased activity has been driven by build-to-suit projects for companies expanding in or relocating to the Houston market; however, most is in spec developments (3.7M SF). As Houston’s available industrial inventory shrinks, we believe the increasing demand for new product will continue to spur both build-to-suit and spec development.

The Houston metropolitan area added 86,200 jobs between November 2012 and November 2013, an annual increase of 3.1% over the prior year’s job growth. Local economists have forecasted 2014 job growth to remain steady, adding between 68,000 and 72,000 jobs. Further, Houston’s unemployment fell to 5.6% from 5.8% one year ago. Houston area home sales increased 19.4% between November 2012 and November 2013.

Houston’s economy is expected to remain strong in 2014 due to steady job growth and continued expansion in the energy sector.

RESEARCH & FORECAST REPORT HOUSTON INDUSTRIAL MARKET

ABSORPTION, NEW SUPPLY & VACANCY RATES

Houston YE 2013 Industrial Absorption – 7.0M SF

HOUSTON INDUSTRIAL MARKET INDICATORS

Q4 2012 Q4 2013

CITYWIDE NET ABSORPTION (SF) 1.9M 2.1M

CITYWIDE AVERAGE VACANCY 5.2% 5.2%

CITYWIDE AVERAGE RENTAL RATE $5.77 $5.92

SF DELIVERED 1.0M 1.6M

SF UNDER CONSTRUCTION 2.5M 4.4M

Houston

UNEMPLOYMENT 11/12 11/13 HOUSTON 5.8% 5.6%

TEXAS 6.0% 5.8%

U.S. 7.4% 6.6%

JOB GROWTH ANNUAL CHANGE

# OF JOBS ADDED

HOUSTON 3.1% 86.2K

TEXAS 2.5% 275.7K

U.S. 1.7% 2.3M

JOB GROWTH & UNEMPLOYMENT (Not Seasonally Adjusted)

RESEARCH & FORECAST REPORT | Q4 2013 | HOUSTON INDUSTRIAL MARKET

COLLIERS INTERNATIONAL | P. 2

Vacancy & Availability Although 2.2M SF of new inventory delivered during the fourth quarter, Houston’s industrial vacancy rate still dropped by 10 basis points between quarters to 5.2% from 5.3%. At the end of the fourth quarter, Houston had 24.5M SF of vacant space, 1.0M SF less than the previous quarter. Among the major industrial corridors, the Northeast Corridor has the lowest vacancy rate at 2.9%, followed by the Northwest Corridor at 4.1%.

Houston’s industrial construction pipeline had 4.4M SF of projects underway at the end of the fourth quarter, including 3.7M SF of spec development. The largest project under construction is Liberty Property Trust’s 650,000-SF spec warehouse located on Fallbrook in the Northwest Corridor. A list of additional buildings currently under construction can be found on Page 4 of this report.

Rental Rates According to CoStar, our data service provider, Houston’s citywide average quoted industrial rental rate for all product types increased 1.0% from $5.86 per SF NNN in the third quarter to $5.92 per SF NNN in the fourth quarter. According to Colliers’ internal data, actual lease transactions are in the $4.32 – $4.80 per SF NNN range for newer bulk industrial spaces, while flex rates are ranging from $6.60 to $9.00 per SF, depending on the allowance for tenant improvements and the location of the of the property.

By property type, the average quoted NNN rental rates are as follows: $5.54 per SF for Distribution space; $4.57 per SF for Bulk Logistics space; $9.30 per SF for Flex/Service space; with Tech/R&D space averaging $14.25 per SF, according to CoStar.

Absorption & Demand Houston’s industrial market posted

2.1M SF of positive net absorption in the fourth quarter, bringing the 2013 year-end total to 7.0M SF. The Northwest Corridor submarket clearly out- performed all others in the fourth quarter, posting the largest positive net quarterly absorption of 1.5MSF, followed by the Southwest Corridor with 304K SF.

There were several major tenant move-ins contributing to net absorption gains in the fourth quarter, including Igloo (535,000 SF); Smart Warehousing, LLC (151,260 SF); PrimeSource (149,500 SF); Builders First Source (148,400 SF); Williams-Sonoma (74,100 SF); and Rectorseal (69,133 SF).

Leasing Houston’s industrial leasing activity reached 2.7M SF in the fourth quarter. A list of select fourth quarter industrial lease transactions are included in the table below.

1 Colliers International transaction 2 Renewal 3 Expansion 4Pre-lease proposed or under construction

Building Name/Address Submarket SF Tenant Lease Date

225 RailPort East-Southeast Far 600,000 Frontier Logistics LP4 Oct-13

Pinto Business Park North Fwy/Tomball Pky 500,000 HD Supply4 Nov-13

DCT Airtex Industrial Center North Hardy Toll Road 267,000 B&G Foods Dec-13

Gillingham Distribution Center Sugar Land/Ft Bend Co 161,755Keller Warehousing and Distribution, LLC1 Dec-13

Pinto Business Park North Fwy/Tomball Pky 130,000 The Reynolds Co4 Nov-13

1128 Silber Rd Northwest Inner Loop 98,506 Integrity Packaging1 Oct-13

Central Green Distribution Center North Hardy Toll Road 83,575 Wartsila North America1,2 Dec-13

Ten West Crossing Bldg 3 Northwest Outliers 67,743 Welltec Dec-13

13721 S Gessner Hwy 59/Hwy 90 (Alt) 47,430 ToolMart Dec-13

1805 Brittmoore Road West Outer Loop 31,250 Benthic USA, LLC Oct-13

1234 Silber Road Northwest Inner Loop 30,757 Sunny Sky Products Oct-13

1218 Silber Road Northwest Inner Loop 25,000 Arbor Contract Services, Inc Oct-13

Beltway Service Center Southwest Outer Loop 24,069 Export 220 Volt, Inc.1,2 Dec-13

7540 Fairview Street West Outer Loop 22,500 Tobul Accumulator, Inc. Oct-13

Q4 2013 Top Industrial Leases

RESEARCH & FORECAST REPORT | Q4 2013 | HOUSTON INDUSTRIAL MARKET

COLLIERS INTERNATIONAL | P. 3

Houston Industrial Market Summary

Sales Activity

Q4 2013

Total Sales : $1.5B

No. of Properties: 44

Total SF: 13.0M

Average $/SF: $64

Average Cap Rate: None reported

Menco Management Group sold a 114,923-SF Class B industrial distribution warehouse to Monmouth Real Estate Investment Corp. for $15.3M or $133 per SF. The building, completed in 2013, is leased to Federal Express through 11/2023.

Deepwater Corrosion Services, Inc. sold a 18,384-SF Class C industrial warehouse to HWM Properties for $1.5M or $81 per SF. The building is located on Train Ct in the Northwest Industrial submarket. The property was sold as a sale leaseback to Deepwater Corrosion Services, Inc.

Sources: Real Capital Analytics; CoStar Comps

Market Rentable Area Direct Vacant SF

Direct Vacancy

Rate

Sublet Vacant SF

Sublet Vacancy

Rate

Total Vacant SF

Total Vacancy

Rate

4Q13 Net Absorption

YE 2013 Net Absorption

4Q13 Completions

YE 2013 Completions

SF Under Construction

Greater Houston Total 483,638,295 24,476,429 5.1% 594,616 0.1% 25,071,045 5.2% 2,058,205 7,024,157 2,170,623 8,045,817 4,447,149

CBD-NW Inner Loop 11,485,642 645,832 5.6% 22,200 0.2% 668,032 5.8% (36,055) 103,974 - - - Downtown 31,717,528 1,839,091 5.8% - 0.0% 1,839,091 5.8% (69,756) (79,042) - - - North Inner Loop 5,083,616 451,369 8.9% - 0.0% 451,369 8.9% - - - - - Southwest Inner Loop 7,313,135 47,070 0.6% - 0.0% 47,070 0.6% 35,828 89,742 - - - Total CBD Corridor 55,599,921 2,983,362 5.4% 22,200 0.0% 3,005,562 5.4% (69,983) 114,674 - - -

North Fwy/Tomball Pky 16,216,491 1,097,705 6.8% 4,000 0.0% 1,101,705 6.8% 175,992 484,823 - 529,075 1,103,268 North Hardy Toll Rd 26,972,843 2,033,643 7.5% 98,965 0.4% 2,132,608 7.9% 6,498 666,334 531,712 1,961,669 583,148 North Outer Loop 18,139,153 1,139,357 6.3% - 0.0% 1,139,357 6.3% 64,114 104,432 25,000 271,616 351,250 The Woodlands/Conroe 14,109,086 606,349 4.3% - 0.0% 606,349 4.3% 18,958 226,525 10,000 165,645 137,803 Total North Corridor 75,437,573 4,877,054 6.5% 102,965 0.1% 4,980,019 6.6% 265,562 1,482,114 566,712 2,928,005 2,175,469

Northeast Hwy 321 1,181,673 - 0.0% - 0.0% - 0.0% 14,879 9,480 - - - Northeast Hwy 90 15,807,048 227,946 1.4% 129,000 0.8% 356,946 2.3% (7,725) 100,860 - 20,000 30,560 Northeast I-10 3,602,145 143,081 4.0% - 0.0% 143,081 4.0% (7,911) 6,991 - 21,000 - Northeast Inner Loop 11,602,910 433,599 3.7% - 0.0% 433,599 3.7% 57,595 302,897 - - - Total Northeast Corridor 32,193,776 804,626 2.5% 129,000 0.4% 933,626 2.9% 56,838 420,228 - 41,000 30,560

Hwy 290/Tomball Pky 15,583,805 1,011,376 6.5% - 0.0% 1,011,376 6.5% 30,691 219,523 210,085 541,560 1,094,670 Northwest Hwy 6 4,148,353 114,536 2.8% - 0.0% 114,536 2.8% 33,034 34,311 44,400 58,800 - Northwest Inner Loop 58,478,596 2,031,205 3.5% 143,120 0.2% 2,174,325 3.7% 200,100 388,413 - 150,000 - Northwest Near 16,848,047 807,297 4.8% 52,719 0.3% 860,016 5.1% 169,517 197,280 - 317,840 132,470 Northwest Outlier 16,785,333 1,100,855 6.6% - 0.0% 1,100,855 6.6% 1,110,041 2,142,294 1,297,426 2,823,853 63,868 West Outer Loop 23,040,101 266,854 1.2% 23,600 0.1% 290,454 1.3% (33,301) 423,921 19,500 77,750 288,350 Total Northwest Corridor 134,884,235 5,332,123 4.0% 219,439 0.2% 5,551,562 4.1% 1,510,082 3,405,742 1,571,411 3,969,803 1,579,358

South Highway 35 31,038,342 1,193,426 3.8% 23,600 0.1% 1,217,026 3.9% (757) 95,616 17,500 133,474 17,500 South Inner Loop 12,959,587 793,977 6.1% - 0.0% 793,977 6.1% (89,560) (248,222) - - - Total Southern Corridor 43,997,929 1,987,403 4.5% 23,600 0.1% 2,011,003 4.6% (90,317) (152,606) 17,500 133,474 17,500

East I-10 Outer Loop 13,047,099 235,136 1.8% - 0.0% 235,136 1.8% (40,001) (119,601) - - - East-Southeast Far 46,527,657 4,285,906 9.2% 13,000 0.0% 4,298,906 9.2% 217,291 545,045 - 338,574 420,462 Southeast Outer Loop 18,079,956 594,010 3.3% - 0.0% 594,010 3.3% (95,656) (220,888) - - - Total Southeast Corridor 77,654,712 5,115,052 6.6% 13,000 0.0% 5,128,052 6.6% 81,634 204,556 - 338,574 420,462

Highway 59/Highway 90 21,838,715 873,433 4.0% 52,372 0.2% 925,805 4.2% 62,942 741,510 15,000 490,000 223,800 Southwest Far 10,711,120 818,571 7.6% 12,500 0.1% 831,071 7.8% 124,028 254,423 - 83,961 - Southwest Outer Loop 12,750,635 692,991 5.4% 4,240 0.0% 697,231 5.5% 74,530 197,557 - - - Sugar Land/Ft Bend Co 18,569,679 991,814 5.3% 15,300 0.1% 1,007,114 5.4% 42,889 355,959 - 61,000 - Total Southwest Corridor 63,870,149 3,376,809 5.3% 84,412 0.1% 3,461,221 5.4% 304,389 1,549,449 15,000 634,961 223,800

Houston Industrial Market Statistical Summary4th Quarter and Year-end 2013

RESEARCH & FORECAST REPORT | Q4 2013 | HOUSTON INDUSTRIAL MARKET

COLLIERS INTERNATIONAL | P. 4

Q4 2013 Industrial Under Construction – 50,000 SF or greater

Q4 2013 Industrial Deliveries - 15,000 SF or greater

Submarket Building Address RBA% Pre- Leased Developer

Estimated Delivery Building Description

Hwy 290/Tomball Pky Ind 8303 Fallbrook Dr 650,000 0.0% Liberty Property Trust May-14 Spec Warehouse

North Fwy/Tomball Pky Ind 10565 Greens Crossing Blvd 600,750 82.9% Hines Jun-14 Spec Warehouse, HD Supply leased 500K

Hwy 290/Tomball Pky Ind DCT Northwest Phase 1 384,680 0.0% DCT Industrial Trust Sep-14 Spec Office Warehouse

North Hardy Toll Rd 19802 Imperial Valley Dr 328,020 0.0% Avera Companies Jan-14 Spec Warehouse/ Distribution

North Outer Loop 121 Esplanade 244,550 0.0% IDI Apr-14 Spec Office/Warehouse

East-Southeast Far 3750 Highway 225 185,168 0.0% The Carson Companies Feb-14 Spec Distribution Warehouse

West Outer Loop 16257 Port NW - Bldg 6 171,850 0.0% Transwestern Jan-14 Spec Distribution Warehouse

North Fwy/Tomball Pky 11220 Ella Blvd 163,000 0.0% Liberty Property Trust Jan-14 Spec Office/Warehouse

North Outer Loop 13627 W Hardy Rd 151,339 100.0% TNRG Jan-14 BTS Office/Warehouse

South Hwy 35 11951 Spectrum Blvd 150,000 100.0% Unknown Feb-14 BTS Dover Manufacturing

North Hardy Toll Road 525 Century Plaza Dr 149,760 100.0% Avera Companies Jan-14 PrimeSource leased building

South Hwy 35 7232 Airport Blvd 137,297 100.0% Unknown Dec-14 BTS Powell Electrial Systems

Northwest Near Ind 7330 Langfield Rd 132,470 72.4% Avera Companies Jan-14 Spec Warehouse, Spears Manufacturing

North Hardy Toll Road 16501 Central Green Blvd 129,143 0.0% Verde Jan-14 Spec Office/Warehouse

North Hardy Toll Road 16507 Central Green Blvd 129,143 0.0% Verde Jan-14 Spec Office/Warehouse

Hwy 59/Hwy 90 (Alt) 13615 S Gessner Rd 123,300 0.0% Stream Realty Partners, L.P. Mar-14 Spec Office/Warehouse

North Fwy/Tomball Pky Ind 433 Plaza Verde Dr 120,159 0.0% Hines Jun-14 Spec Office/Warehouse

North Fwy/Tomball Pky Ind 545 Plaza Verde Dr 120,159 0.0% Hines Apr-14 Spec Office/Warehouse

East-Southeast Far 3700 Highway 225 118,500 0.0% The Carson Companies Feb-14 Spec Office/Warehouse

North Outer Loop Ind 71 Esplanade 106,700 0.0% IDI Mar-14 Spec Office/Warehouse

Hwy 59/Hwy 90 (Alt) 13721 S Gessner 85,500 55.5% Stream Realty Partners, L.P. Jun-14 Spec Office/Warehouse

North Fwy/Tomball Pky 1050 Greens Pky 67,200 0.0% Liberty Property Trust Jan-14 Spec Office/Warehouse

Northwest Outliers 461 Stonegate Dr 63,382 100.0% Clay Development Jan-14 Spec Office/Warehouse

East-Southeast Far 3800 Highway 225 61,794 0.0% The Carson Companies Feb-14 Spec Crane-Served Office/Warehouse

Northwest Outliers Ind 22110 Merchants Way 51,868 0.0% InSite Apr-14 Spec Warehouse

Submarket Building Address RBA%

Leased Developer Delivered Building DescriptionNorthwest Outliers 28501 US-90 Hwy 535,000 100.0% Panattoni Oct-13 BTS for Igloo

Northwest Outliers 28900 US-90 Hwy 500,000 100.0% Panattoni Oct-13 BTS Weatherford Artificial Lift Systems

Northwest Outliers 30602 Mcallister Rd 400,000 100.0% KDW Ltd Nov-13 BTS Goya Food Processing

North Hardy Toll Rd Imperial Valley Dr @ FM 1960 328,020 0.0% Avera Companies Dec-13 Spec Warehouse/ Distribution

North Hardy Toll Rd 14700 North Fwy 267,170 100.0% DCT Industrial Trust Nov-13 Spec Office/Warehouse, B&G Foods leased

North Hardy Toll Road 19245 Kenswick Dr 74,880 0.0% Trammell Crow Company Nov-13 Spec Office/Warehouse

Northwest Outliers 22220 Merchants Way 67,743 100.0% InSite Commercial Real Estate Dec-13 Spec Office/Warehouse, Welltec leased

North Hardy Toll Road 19345 Kenswick Dr 58,370 0.0% Trammell Crow Company Nov-13 Spec Office/Warehouse

Northwest Outliers 22330 Merchants Way 45,633 52.7% InSite Commercial Real Estate Dec-13 Spec Office/Warehouse

Hwy 290/Tomball Pky 7337 Empire Central Dr 20,085 0.0% Boyd Commercial Nov-13 Spec Office/Warehouse

North Hardy Toll Rd 15370 Vantage Pky W 17,646 0.0% Northwinds Commercial Realty Oct-13 Spec Office/Warehouse

North Hardy Toll Rd 15380 Vantage Pky W 17,646 100.0% Northwinds Commercial Realty Oct-13 Spec Office/Warehouse. Metso Automation leased

RESEARCH & FORECAST REPORT | Q4 2013 | HOUSTON INDUSTRIAL MARKET

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