Presented by: Patrick Jankowski Senior Vice President, Research Greater Houston Partnership

Metro Houston Economic Outlook

Five years of incredible growth

Gross Domestic Product +$110 billion

Metro Population +570,000 residents

Employment +490,000 jobs

But the boom has come to and end

West Texas Intermediate -57.3% since Q2/14

Metro Exports -15.9% since Q4/14

Employment -0.5% since Q4/14

And things will get worse before they get better

More Layoffs Could Be Coming in the Oil Sector

Oil Slump Forces Deep Cuts by Service Providers

Houston’s energy-dominated office market in for a rest

Houston’s Economy Still Contracting

How bad will it get?

Oil Prices Losses

Recession Peak Trough Rigs Energy Jobs

Mid-1980s $30.75 $12.05 -3,766 (-83.3%) -53,600 (-46.3%)

Early-1990s $35.89 $14.57 -526 (-46.3%) -6,800 (-10.8%)

9-11/Enron $34.55 $19.53 -528 (-41.3%) -4,700 (-7.3%)

Great Recession $136.96 $39.51 -1,119 (-44.4%) -11,900 (-13.6%)

Current $106.31 $44.39 -1,057 (-54.7%) -4,000 (-3.5%)

Note: All losses calculated from the monthly average Sources: U.S. Energy Information Administration, Baker Hughes, U.S. Bureau of Labor Statistics

Not a repeat of the 80s

Oil price collapse

Real estate overbuilding

Banking failures

40

50

60

70

80

90

100

110

$ pe

r bar

rel

Source: U.S. Energy Information Administration

Spot Price, West Texas Intermediate, Weekly Avg.

This downturn driven solely by energy prices

Drilling activity continues to decline

700

900

1,100

1,300

1,500

1,700

1,900

2,100

Source: Baker Hughes

U.S. Rotary Rig Count, '14 - '151,160 rigs

-60.0%

Directional drilling and

fracking

How did we get here?

8.6 9.0

7.4

6.6

5.8 5.2 5.1 5.1 5.0

5.4 5.5 5.6

6.5

7.5

9.0

9.2 8.9

'80 '85 '90 '95 '00 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15* '16*

Source: U.S. Energy Information Administration * Projected

U.S. Crude Production, Million Barrels Per Day

Production finally starting to slip

Change in Cash Flow, Selected U.S. Energy Firms $ Revenues (billions) Difference

Q3/15 Q3/14 $ %

Anadarko 1.688 5.01 -3.32 -66.3

EOG 2.172 5.119 -2.95 -57.6

Apache 1.496 3.441 -1.95 -56.5

Marathon 1.323 2.971 -1.65 -55.5

ConocoPhillips 7.507 12.917 -5.41 -41.9

Hess 1.689 2.736 -1.05 -38.3

Chevron 34.315 54.679 -20.36 -37.2

ExxonMobil 67.344 107.13 -39.79 -37.1

Shell 69.184 109.825 -40.64 -37.0

Occidental 3.246 4.93 -1.68 -34.2 Group Total $189.964 $308.758 $118.794 -46.2%

Source: various company web sites and Securities

Cash flows have been impacted

Layoffs always start in the field

Soon move to the factory floor

Gradually impact workers in the corporate office

Ultimately affect workers throughout the economy

Commodity Downturn Checklist

Concessions from vendors

Cutbacks on exploration activity

Reduction in blue collar head count

Reduction in white collar head count

Asset sales

Mergers and acquisitions

New industry structure

Resumption of growth

Approaching midpoint of the downturn

JOBS LOST/GAINED – HOUSTON AREA, DEC ’14 – JUNE ’15*

--- Losing Jobs --- --- Adding Jobs ---

Sector Jobs Sector Jobs

Manufacturing -14,500 Hotels, Restaurants, Bars +14,300

Oil Field Services -9,500 Construction +6,100

Transport & Warehousing -4,100 Health Care +4,800

Professional & Tech Srvcs -2,800 Other Services +2,000

Exploration -1,000 Finance & Insurance +1,200

Wholesale Trade -1,000 Administrative Srvcs +800 * Selected sectors Source: Quarterly Census of Employment & Wages

YTD impact on jobs uneven

98.4

-8.1

18.7

44.353.4 54.4 53.0

10.6

92.8

17.8

59.7

1.3

-1.7-11.6

39.3

91.1

107.0

90.7

-110.6

49.7

82.9

118.5

89.9104.7

-9.2

December to December Job Growth (000s)

Source: Texas Workforce Commission * YTD

What will 2016 look like?

Office vacancies to rise, rents to slip

HOUSTON OFFICE MARKET

Inventory (Q3/15) 236.7 MSF

Vacancy Rate (direct + sublet) 13.0%

Under Construction 10.1 MSF

Projected Vacancy (mid-’16) 16.5%

Source: Transwestern

Minor impact on industrial

HOUSTON INDUSTRIAL MARKET

Inventory (Q3/15) 476.9 MSF

Vacancy Rate (direct + sublet) 4.8%

Under Construction 9.8 MSF

Projected Vacancy (mid-’16) 5.5%

Source: Transwestern

No new apartments needed

HOUSTON MULTIFAMILY MARKET

Inventory (Q3/15) 602,929 Units

Occupancy Rate 91.1%

Under Construction 26,667 Units

Avg. Absorption (‘10 – ’14) 15,000 units

Source: Transwestern & Apartment Data Services

Retail will remain tight

HOUSTON MULTI-TENANT RETAIL

Inventory (Q3/15) 204.1 MSF

Vacancy Rate 6.4%

Under Construction 2.0 MSF

Absorption (’13 & ’14) 2.0 MSF

Source: Transwestern & Greater Houston Partnership

How long will this downturn last?

13

33

22

58

Current

Great Recession

'00s Recession

'90s Recession

'80s Recession

Source: Greater Houston Partnership calculations based on Texas Workforce Commission data

Months from peak to trough

How long will this downturn last?

Houston won’t disappear in the downturn

Port of Houston 8,000 ships per year

Population Growth 125,000 new residents

Houston Airports 54 million passengers

Texas Medical Center 7.2 million patients

Downstream Energy 25% refining capacity 40% base petrochem

Global Trade Ties 5,700 companies

Resilience Been here before

Houston won’t disappear in the downturn

Historical View of Oil and Employment

• Five years of remarkable expansion coming to a close.

• The economy won’t collapse but a number of sectors will be hurt, some severely.

• Don’t expect an uptick in energy prices will lead to a surge in hiring.

• We have enough office space and apartments for now.

• Growth will eventually return to long-term trend.

• But a challenging 12-18 months lay ahead.

Summary

Presented by: Patrick Jankowski Senior Vice President, Research Greater Houston Partnership

Metro Houston Economic Outlook