HOUSTON Q3 2011OFFICE MARKET UPDATE

* Arrows show change over prior quarter

Houston’s office market continued its growth throughout the third quarter 2011. Net absorption for Houston was positive 1,108,925 SF, according toCoStar’s third quarter report. The Class A market reported positive absorpition of 792,645 SF. Vacancy for the Class A buildings in Houston’s 8 majorsubmarkets was down 0.8%, or approximately 800,000 SF, from Q2 to Q3 2011. The average rental rate rose slightly across the city and the averagegross rate in Q3 2011 is approximately $32.09 for Class A properties. The Energy Corridor and Katy Freeway submarkets improved the most over thepast quarter, with vacancy rates dropping 3.9% to 15.6%. For the remainder of 2011, it is expected the office market will continue to shift from a ten-ant market to a landlord market with concessions such as rent abatement being pulled back and rates continuing upward trends. Most of Houston’ssubmarkets are short on large blocks of available space and with limited new major development predicted to be completed until 2013-2014, con-tinued absorption will strengthen Houston’s office market.

HOUSTON CITY TRENDS

Houston Unemployment RateAverage Class A Gross Rent PSFClass A Direct SF AvailableClass A Sublease SF Availablev100K+ Contiguous Spaces Available

8.6%$32.0912.4%2.4%39 Bldgs.

HOUSTON CONTINUES ECONOMIC RECOVERYThe Texas Workforce Commission is reporting the Houston Metropolitan area gained a total of 65,600 jobs, at a growth rate of 2.6%, from August 2010to August 2011. The growth rate of 2.6% exceeded Texas’ other major metropolitan areas over the same period. According to the U.S. Bureau ofLabor Statistics, Houston is responsible for 1 out of every 20 jobs created during the U.S. recovery.

Although Houston has recovered 120,100 of the 152,800 jobs lost during the recession, the recovery has been uneven. Four sectors including personalservices, health care, hotels/food services, and educational services have recovered 100% of the jobs lost. However, other industries, such as finance,construction, and real estate, have yet to recover one-fifth of their losses. Recovery in the oil and gas industry, Houston’s main economic driver, hasbeen steady since 2009. When oil prices fell from $135 per barrel to their low of approximately $35 per barrel, 2,900 oil and gas extraction jobs were lost.Oil field services lost 12,700 jobs during the recession. New shale discoveries have added momentum to the industry and helped in recouping all of theoil and gas extraction jobs and 7,300 of the energy service jobs. The chart below shows the percentage of jobs recovered since the recession began,as shown by the different industries. Due to a business-friendly climate and low corporate tax rate, the state of Texas continues to create jobs at anincredible rate, outpacing every other state since June 2009.

Source: Greater Houston Partnership: Economy at a Glance, August 2011 Source: Federal Reserve Bank of Dallas / Wall Street Journal, June 2011

PERCENTAGE OF JOBS RECOVERED, BY INDUSTRY NET NEW JOBS ADDED SINCE JUNE 2009

* Only Class-A BuildingsSource: CoStar Q3 2011 Report

14.4%

13.3%

VACANCY RATES: HOUSTON v. NATIONAL AVERAGE

HOUSTON Q3 TRENDS

U.S. Average Houston Average

SUBMARKET TOTALS & AVERAGES

SubmarketTotal Inventory

(SF)Direct Available

(SF)Direct Available

(%)Sublet Available

(SF)Sublet Available

(%)Occupied

%Average Net Rental Rate

Average Operating Expenses

Average Gross Rental Rate

Central Business District 29,171,442 2,802,406 9.6% 869,848 3.0% 87.4% $24.59 $12.06 $36.65

Galleria Area 16,860,440 1,645,078 9.8% 220,960 1.3% 88.9% $19.65 $11.49 $31.14

Katy Fwy & Energy Corridor 9,857,098 1,538,755 15.6% 185,077 1.9% 82.5% $19.46 $11.33 $30.79

Westchase District 7,021,726 879,049 12.5% 148,785 2.1% 85.4% $20.98 $11.48 $32.46

North Belt & Greenspoint 4,909,129 310,694 6.3% 191,235 3.9% 89.8% $14.27 $10.34 $24.61

Greenway Plaza 7,057,406 821,932 11.6% 192,922 2.7% 85.6% $16.77 $11.10 $27.87

North Loop & Northwest 3,076,490 953,216 31.0% 32,849 1.1% 67.9% $14.01 $9.84 $23.85Sugar Land & Fort Bend 2,435,842 996,498 40.9% 47,781 2.0% 57.1% $16.55 $9.39 $25.94

TOTALS 80,389,573 9,947,628 12.4% 1,889,457 2.4% 85.3% $20.64 $11.45 $32.09

Below is a summary of the totals and averages for Houston’s major submarkets. Only Class A buildings are included in the survey. Although vacancyrates are up in the Central Business District, rental rates have ticked up slightly higher for the submarket. The Energy Corridor vacancy rates fell to 15.6%,down from 19.5% in Q2 2011. Rates in the Galleria area have climbed higher to an average of $19.65 NNN and vacancy continues its downward trend.Houston’s outlying submarkets all saw vacancy decrease, with the exception of Sugar Land, which remained constant over the previous quarter.

Sublease Available

Direct Available

Occupied

FULL FLOOR AVAILABILITY TOTALSFull floor availability can be used as a barometer for how a submarket is performing. We track full floor availability totals, both for direct space andsublease opportunities. The chart below highlights the number of direct and sublease floors available for Q3 2011, as compared to the number avail-able since the end-of-year 2010.

DIRECT FLOORS AVAILABLE

Q1 2011Q4 2010

SUBLEASE FLOORS AVAILABLE

Q1 2011Q4 2010

Total Floors Available Direct Q2 2011: 366Total Floors Available Direct Q3 2011: 318

Total Sublet Floors Available Q2 2011: 45Total Sublet Floors Available Q3 2011: 48

(48) 3

Q2 2011 Q2 2011

* 2200 Post Oak included in total** Largest changes in full floors was BP’s 13-floor lease at Three Eldridge & MetroNational’s new Nexen building is now included in the full-floor total*** ExxonMobil Floors not included in total, as exact floors are unknown

Q3 2011 Q3 2011

The number of floors being vacated by Continental decreased from 28 to 6#

# * ** ***

HOUSTON Q3 2011OFFICE MARKET UPDATE

LARGE TENANT MARKET ALTERNATIVESBelow is a list of Class A buildings with greater than 100,000 square feet contiguous available, sorted by the space each building currently has avail-aible. There are 22 buildings pffering blocks of space greater than 100,000 square feet. The CBD has the most large blocks available with 7, followedby the Energy Corridor with 7 large blocks available.

SIGNIFICANT Q3 2011 LEASE TRANSACTIONSA look at the major lease transactions that occurred during Q3 2011.

SIGNIFICANT RECENT SALES TRANSACTIONSRecent sales transactions that have closed throughout Houston’s major submarkets.

HOUSTON Q3 2011OFFICE MARKET UPDATE