Share or view online at colliers.com/texas/houstonindustrial

Houston’s industrial market slows in 2015, but ends the year on a positive note

Research & Forecast Report

HOUSTON | INDUSTRIALQ4 2015

Lisa Bridges Director of Market Research | Houston

During the fourth quarter, 0.7M SF of Houston’s industrial inventory was absorbed, substantially less than the 1.7M SF absorbed in the previous quarter. Although Houston’s industrial market showed signs of slowing due to the downturn in the local economy caused by falling oil prices, 2015 still ended on a positive note, with year-end net absorption totaling a positive 9.5M SF. Industrial leasing activity increased to 4.2M SF from 3.9M SF in the third quarter. The vacancy rate did, however, increase by 20 basis points over the quarter to 5.0% from 4.8% in Q3 2015. Only 15.0% of the 1.8M SF of new inventory delivered in the fourth quarter is leased, but fortunately the 8.8M SF under construction is 64.0% pre-leased.

The average citywide quoted industrial rental rate increased 1.3% between quarters from $6.96 to $7.05 per SF NNN. The average rental rate has increased 10.2% on a year-over-year basis from $6.40 per SF NNN. Rental rates are not expected to change much, if any, in the near-term.

According to the U.S Bureau of Labor Statistics, the Houston metropolitan area created only 23,700 jobs between November 2014 and November 2015. This is an annual increase of just 0.8%, well below the 2014 annual growth rate of 3.4% (97,500 jobs). Local economists have predicted 2015 annual job growth will be around 20,000 jobs, however, we believe that number will be lower.

Summary Statistics Houston Industrial Market Q4 2014 Q3 2015 Q4 2015

Vacancy Rate 4.8% 4.8% 5.0%

Net Absorption (SF) 1.4M 1.7M 0.7M

New Construction (SF) 1.4M 3.2M 1.8M

Under Construction (SF) 7.9M 9.6M 8.8M

Asking Rents Per Square Foot Per Year

Average $6.40 $6.96 $7.05

Warehouse/Distribution $6.00 $6.45 $6.34

Flex/Service $10.06 $11.56 $12.53

Tech/R&D $10.82 $12.57 $13.10

Market IndicatorsRelative to prior period

AnnualChange

Quarterly Change

Quarterly Forecast*

VACANCY

NET ABSORPTION

NEW CONSTRUCTION

UNDER CONSTRUCTION

*Projected

Global Logistic Properties purchased a 192-building portfolio from Industrial Income Trust in November 2015 for $4.55B. Many of the assets are located in Houston. A few of those assets are highlighted below:

1111 Gillingham Ln | 489,253 SF | $37.3M

19802 Imperial Valley | 328,020 SF | $25.1M

6323 Windfern | 374,160 SF | $28.7M

Sale Transaction

2 Houston Research & Forecast Report | Q4 2015 | Industrial | Colliers International

Sales ActivitySource: Real Capital Analytics

Q4 2015

NO. OF PROPERTIES: 49

TOTAL SF: 7.2M

AVERAGE $/SF: $76

AVERAGE CAP RATE: 7.8

Job Growth & Unemployment(not seasonally adjusted)

UNEMPLOYMENT 11/14 11/15

HOUSTON 4.3% 4.9%

TEXAS 4.5% 4.5%

U.S. 5.5% 4.8%

JOB GROWTHAnnual Change

# of Jobs Added

HOUSTON 0.8% 23.7K

TEXAS 1.5% 180.4K

U.S. 1.9% 2.7M

Vacancy & Availability

Houston’s average industrial vacancy rate increased 20 basis points year over year and in Q4 2015 from 4.8% to 5.0%. At the end of the fourth quarter, Houston had 25.7M SF of vacant industrial space. Among the major industrial corridors, the Northeast Corridor has the lowest vacancy rate at 1.2%, followed by the South at 3.1% and then the Southeast Corridor at 3.4%. The largest concentration of vacant space is located in the North Corridor which has a 7.8% vacancy rate.

Houston’s industrial construction pipeline had 8.8M SF of projects underway at the end of the fourth quarter, and about 4.0M SF is spec development. The largest project under construction is a 4,000,000-SF build-to-suit engineering, manufacturing and logistics campus for Daikin Industries, an HVAC equipment manufacturer consolidating its operations at a site located on Kermier Rd and Hwy 290 in Waller County. A list of buildings currently under construction can be found on Page 3 of this report.

Absorption & Demand

Houston’s industrial market posted 0.7M SF of positive net absorption in the fourth quarter, with the North Corridor submarket contributing the largest amount at 685,629 SF, followed by the Southeast Corridor which posted 442,393 SF of absorption. The Southwest Corridor posted 96,565 SF, and the South Corridor contributed 72,436 SF of net absorption. Three submarkets posted negative net absorption and include the Northwest Corridor with 381,301 SF, the Inner Loop Corridor with 118,017 SF, and the Northeast Corridor with 51,988 SF of negative net absorption.

There were several major tenant move-ins contributing to net absorption gains in the fourth quarter including Mariak (103,908 SF) and GLT Fabricators Inc. (100,000 SF) both in the East-Southeast Far submarket, Pathmark Transportation (76,234 SF), and Arc Designs Inc. (30,000 SF) in the Northwest Hwy 6 submarket.

Rental Rates

According to CoStar, our data service provider, Houston’s citywide average quoted industrial rental rate for all product types increased 1.3% from $6.96 per SF NNN in the third quarter, to $7.05 per SF NNN in the fourth quarter.  According to Colliers’ internal data, actual lease transactions are in the $4.56 – $5.04 per SF NNN range for newer bulk industrial spaces, while flex rates range from $7.20 to $10.80 per SF depending on the allowance provided for tenant improvements and the location of the property.

By property type, the average quoted NNN rental rates are as follows: $6.34 per SF for Warehouse Distribution space; $4.56 per SF for Bulk Logistics space; $12.53 per SF for Flex/Service space; with Tech/R&D space averaging $13.10 per SF, according to CoStar.

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

$5.00

$5.50

$6.00

$6.50

$7.00

Industrial Rental Rate and Vacancy Percentage Houston, TX Avg. Rent Avg. Vacancy

*Vacancy percentage includes direct and sublease space.

3 Houston Research & Forecast Report | Q4 2015 | Industrial | Colliers International33

Q4 2015 Top Industrial Lease TransactionsBUILDING NAME/ADDRESS SUBMARKET SF TENANT LEASE DATE

City Park East East-Southeast Far 905,000 Exel1 Dec-15

8800 Citypark Loop Northeast Hwy 90 663,821 Michelin North America, Inc.1 Nov-15

Bay Area Business Park East-Southeast Far 565,760 Dunavant Dec-15

20710 Hempstead Rd Northwest Hwy 6 357,887 McKesson Corp Nov-15

16240 Port NW West Outer Loop 261,990 GE Oil and Gas1 Dec-15

11503 Highway 225 East-Southeast Far 210,000 Jacobson Warehouse Co1 Dec-15

801 Seaco Ct East-Southeast Far 135,231 Valassis Communications, Inc.1 Dec-15

14810 North Freeway North Hardy Toll Road 109,386 Forward Air2 Dec-15

16727 Park Row Northwest Outliers 65,000 FTD Oct-15

Leasing ActivityHouston’s industrial leasing activity, which includes renewals, increased by 8.8% on a quarterly basis, but decreased by 47.0% on an annual basis, recording 4.2M square feet in Q4 2015. The table below highlights some of the larger transactions that occurred in Q4 2015.

1 Renewal 2 Colliers International Transaction

Under Construction - 150,000 SF or greater

Q4 2015 Industrial Under Construction - 150,000 SF or greater

BUILDING ADDRESS SUBMARKET RBA % LEASED DEVELOPER DELIVERY DATE BUILDING DESCRIPTION

19001 Kermier Northwest Hwy 6 4,000,000 100% Prologis Aug-16 BTS for Daikin Industries

777 Highway 90A W Sugar Land 650,000 100% Graycor Construction Company Inc.

Feb-16 BTS for Aldi

600 Fallbrook Dr North Fwy/Tomball Pky 500,400 0.0% Hines May-16 Spec Distribution

3013 Highway 225 East-Southeast Far 394,489 100% Transwestern Mar-16 Spec Warehouse

9431 Bay Area Blvd East-Southeast Far Ind 353,600 100% Stream Realty Partners Sep-16 Spec Warehouse

14151 E Hillcroft St - Phase I -Bldg 1

Southwest Far 240,000 0.0% Hines Real Estate Investment Trust, Inc.

Feb-16 Spec Distribution

Beltway 8 & US Hwy 90-A -Bldg 2

Hwy 59/Hwy 90 (Alt) 217,440 0.0% Conor Commercial and USAA Real Estate

Jan-16 Spec Warehouse

1300 Greens Pky North Fwy/Tomball Pky 213,218 0.0% Prologis Feb-16 Spec Distribution

9531 Bay Area Blvd East-Southeast Far Ind 212,160 100% Stream Realty Partners Sep-16 Spec Warehouse

3009 Highway 225 East-Southeast Far Ind 205,015 50.0% Transwestern Mar-16 Spec Warehouse

252 Fallbrook Dr North Fwy/Tomball Pky Ind

193,000 0.0% Hines May-16 Spec Warehouse

Volta Dr. & Kenswick Dr North Hardy Toll Road 168,425 0.0% Cypressbrook Company Jan-16 Spec Distribution

3011 Highway 225 East-Southeast Far Ind 154,360 0.0% Transwestern Jun-16 Spec Warehouse

9631 Bay Area Blvd East-Southeast Far Ind 153,655 0.0% Stream Realty Partners Sep-16 Spec Warehouse

4 Houston Research & Forecast Report | Q4 2015 | Industrial | Colliers International

Q4 2015 Houston Industrial Market Statistical Summary

MARKET RENTABLE AREA

DIRECT VACANT SF

DIRECT VACANCY

RATE

SUBLET VACANT

SF

SUBLET VACANCY

RATE

TOTAL VACANT SF

TOTAL VACANCY

RATE

4Q15 NET ABSORP-

TION

3Q15 NET ABSORP-

TION

4Q2015 COMPLE-

TIONS

3Q15 COMPLE-

TIONS

SF UNDER CONSTRUC-

TION

HOUSTON TOTAL 512,487,923 25,065,697 4.9% 637,722 0.1% 25,703,419 5.0% 745,717 1,750,510 1,845,442 3,227,629 8,779,199

CBD-NW Inner Loop 11,540,364 554,021 4.8% 34,446 0.3% 588,467 5.1% (61,062) (49,559) - - -

Downtown 31,314,898 1,575,569 5.0% - 0.0% 1,575,569 5.0% 24,167 3,656 - - - North Inner Loop 4,922,255 433,437 8.8% - 0.0% 433,437 8.8% (60,623) 22,800 - 22,800 - Southwest Inner Loop 7,474,873 35,499 0.5% - 0.0% 35,499 0.5% (20,499) - - - -

INNER LOOP CORRIDOR TOTAL

55,252,390 2,598,526 4.7% 34,446 0.1% 2,632,972 4.8% (118,017) (23,103) - 22,800 -

North Fwy/Tomball Pky

20,197,118 1,865,743 9.2% 43,328 0.2% 1,909,071 9.5% 215,580 339,848 105,800 457,606 906,618

North Hardy Toll Rd 31,606,360 2,855,528 9.0% 67,062 0.2% 2,922,590 9.2% 395,827 530,198 272,146 594,550 290,565 North Outer Loop 19,368,281 1,077,599 5.6% 58,812 0.3% 1,136,411 5.9% (32,632) 25,392 109,600 30,000 The Woodlands/Conroe

15,031,760 769,548 5.1% 28,045 0.2% 797,593 5.3% 106,854 (155,719) - 25,000 24,000

NORTH CORRIDOR TOTAL

86,203,519 6,568,418 7.6% 197,247 0.2% 6,765,665 7.8% 685,629 739,719 487,546 1,077,156 1,251,183

Northeast Hwy 321 1,225,573 - 0.0% - 0.0% - 0.0% 0 0 - - - Northeast Hwy 90 16,547,802 165,900 1.0% - 0.0% 165,900 1.0% (10,400) 40,600 11,200 70,000 - Northeast I-10 3,850,085 62,980 1.6% 12,500 0.3% 75,480 2.0% (11,518) (16,508) - - - Northeast Inner Loop 11,302,600 138,063 1.2% - 0.0% 138,063 1.2% (30,070) (9,200) - - - NORTHEAST CORRIDOR TOTAL

32,926,060 366,943 1.1% 12,500 0.0% 379,443 1.2% (51,988) 14,892 11,200 70,000 -

Hwy 290/Tomball Pky 19,307,765 3,159,107 16.4% 5,863 0.0% 3,164,970 16.4% (213,402) 112,242 23,600 707,462 -

Northwest Hwy 6 4,873,185 187,685 3.9% - 0.0% 187,685 3.9% 96,150 (31,225) 60,700 35,000 4,144,740 Northwest Inner Loop 59,772,127 1,957,929 3.3% 158,069 0.3% 2,115,998 3.5% (243,178) 151,327 204,070 66,420 - Northwest Near 17,864,001 785,773 4.4% 43,394 0.2% 829,167 4.6% (83,438) 70,769 - 216,846 -

Northwest Outlier 18,300,736 1,187,155 6.5% 11,880 0.1% 1,199,035 6.6% 105,455 226,279 124,793 404,060 12,000 West Outer Loop 24,209,315 801,631 3.3% 48,360 0.2% 849,991 3.5% (42,888) (21,324) - 22,500 - NORTHWEST CORRIDOR TOTAL

144,327,129 8,079,280 5.6% 267,566 0.2% 8,346,846 5.8% (381,301) 508,068 413,163 1,452,288 4,156,740

South Highway 35 32,847,295 942,817 2.9% 45,032 0.1% 987,849 3.0% 87,852 36,192 - - - South Inner Loop 12,222,118 414,950 3.4% 4,865 0.0% 419,815 3.4% (15,416) 89,054 - - - SOUTH CORRIDOR TOTAL

45,069,413 1,357,767 3.0% 49,897 0.1% 1,407,664 3.1% 72,436 125,246 - - -

East I-10 Outer Loop 13,199,454 26,347 0.2% - 0.0% 26,347 0.2% - - - - - East-Southeast Far 51,699,527 2,518,091 4.9% 23,783 0.0% 2,541,874 4.9% 298,764 274,910 483,234 482,400 1,907,026 Southeast Outer Loop 17,672,293 272,668 1.5% - 0.0% 272,668 1.5% 143,629 3,869 - - - SOUTHEAST CORRIDOR TOTAL

82,571,274 2,817,106 3.4% 23,783 0.0% 2,840,889 3.4% 442,393 278,779 483,234 482,400 1,907,026

Highway 59/Highway 90

22,217,868 1,025,927 4.6% 15,534 0.1% 1,041,461 4.7% (16,331) 9,011 74,796 83,985 349,000

Southwest Far 10,697,263 746,605 7.0% 16,000 0.1% 762,605 7.1% (41,766) 34,008 - 39,000 452,500 Southwest Outer Loop

12,877,598 548,236 4.3% - 0.0% 548,236 4.3% 41,057 (38,925) - - 12,750

Sugar Land/Ft Bend Co

20,345,409 956,889 4.7% 20,749 0.1% 977,638 4.8% 113,605 102,815 375,503 - 650,000

SOUTHWEST CORRIDOR TOTAL

66,138,138 3,277,657 5.0% 52,283 0.1% 3,329,940 5.0% 96,565 106,909 450,299 122,985 1,464,250

Market Summary

Bloomberg named Houston among the nation’s richest and most productive cities in America, sitting in the No. 9 spot. Only two Texas cities are on the list. Dallas came in at No. 11.

5 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International

Copyright © 2015 Colliers International.The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Colliers International | Market000 Address, Suite # 000 Address, Suite #+1 000 000 0000colliers.com/<<market>>

5 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International

Copyright © 2015 Colliers International.The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Colliers International | Houston1233 West Loop South, Suite 900 Houston, Texas 77027+1 713 222 2111colliers.com/texas/houston

FOR MORE INFORMATIONLisa BridgesDirector of Market Research | Houston+1 713 830 2125lisa.bridges@colliers.com

Q4 2015 Highlights