AUSTIN MARKET REPORT 2Q 2016
Transcription
AUSTIN MARKET REPORT 2Q 2016
AUSTIN MARKET REPORT 2Q 2016 2 AQUILA KNOWS AUSTIN KEEPING YOU INFORMED AQUILA Commercial is dedicated to DISCLAIMER This report utilizes various providing quality service to our clients. We real estate and economic data sources. The understand that real time market data helps information contained herein is confidential our clients make smart, informed real estate and proprietary in nature. No warranties or decisions. This report is produced and guarantees are made as to the accuracy of distributed quarterly. To receive our the information contained herein. updates, opt in at aquilacommercial.com. VIEW FROM THE EAGLE'S NEST In case you haven’t heard, Austin is hot. We’re now in the dog days of summer and the mercury is regularly reaching the century mark. Despite the fact that you could cook your breakfast taco on the pavement (and probably sell it at a nice premium by calling it “homegrown”), people continue to move to Austin in droves. As of June of this year, the Austin-Round Rock MSA added over 38,000 jobs in twelve months – the fourth most of major metros in the country. The month of June alone saw an Clayton Schleimer Market Research Analyst AQUILA Commercial [email protected] increase of 10,645 people joining the labor force. Where are all of these people moving? The short answer is everywhere – anyone will tell you it’s hard to find a spot in central Texas that is less crowded than just a few years ago. The longer answer is Georgetown, New Braunfels and Pflugerville. These three cities rank among the fastest growing cities in the country with populations of 50,000 or more, with Georgetown topping out the list. 4 VIEW FROM THE EAGLE'S NEST 8,000 3,500,000 7,000 3,000,000 6,000 2,500,000 5,000 2,000,000 4,000 1,500,000 3,000 1,000,000 2,000 500,000 1,000 0 Building Permits Office SF Under Construction Austin Construction - Office & Housing 4,000,000 0 Office SF Under Construction Housing Units Authorized by Building Permits Where are all of these people working? The professional amenities near their offices and residences. The bulk of and business services industry added the most jobs from these live/work/play environments are located in central June 2015 to June 2016 at nearly 8,000 jobs, with leisure areas like downtown, East Austin and The Domain. & hospitality and construction & natural resources close behind at 5,700 and 6,000 jobs added, respectively. These three sectors alone account for more than half of the jobs added in the past year, and they each tell their own unique story. The professional and business services industry – the employers who typically work in the buildings pertinent to this report and often pay the highest wages – attest to Austin as a dominant intellectual capital. The more centrally located office submarkets of the CBD, North Central and It is not surprising that construction is among the fastest East Austin have absorbed more than half the square feet growing industries. 2Q 2016 housing permits reached of the overall market this year: 472,501 out of 743,189 5,809 units, 3,818 of which were single-family. There total. Furthermore, education & health services added the is almost 1.6 million square feet of office space under fourth-most jobs over the past 12 months, most likely at construction as well – more than half of which is in the CBD the University of Texas and its soon-to-be-completed Dell or nearby submarkets. Medical School downtown. The Austin leisure and hospitality industries are also sending So, to answer the question of where are all of these new employees to the hottest areas of the city. As elaborated people working, the answer is primarily in the more in our previous market report, office tenants and young centrally-located areas of Austin. Therein lies one of the professionals are willing to pay a premium for walkable greatest threats to Austin’s continued growth: transportation. VIEW FROM THE EAGLE'S NEST With more people commuting every day from Austin suburbs place to live by addressing four main areas: natural and to their jobs within the city, traffic woes are becoming even built environment; household affordability; mobility; and more of an issue. The theory that if traffic problems are fiscal health. CodeNEXT and the strategic mobility plan not addressed people will stop are parts of the city’s overall moving here has proven to not be long-term comprehensive vision: true. And the weather apparently isn’t holding anyone back either. As it stands now, there are only two main north-south thoroughfares to get you from one side of Austin to the other: I-35 and MoPac Expressway; and any Austinite will tell you to avoid those at all With more people commuting every day from Austin suburbs to their jobs within the city, traffic woes are becoming even more of an issue. The theory that if traffic problems are not addressed people will stop moving here has proven to not be true. Imagine Austin. One aspect of Imagine Austin that can already be seen is the implementation of several Transit Oriented Developments, most notably Plaza Saltillo and MLK Station, both on the Eastside. These aim to provide a complete costs during rush hour. If nothing live/work/play/commute is done and population maintains environment along MetroRail its current trend, it could take three hours to get from Austin stations to further provide alternative living and commuting to Round Rock by the year 2035. For perspective, I was options. Also in East Austin, you can find one of the most able to make it from UT to my parents’ house north of Dallas talked about concepts dealing with the future of travel: in three hours back in my college years (that was only four several of Google’s self-driving cars being tested around years ago, and I was driving a Hyundai). the Mueller community. For a deep-dive into the rumblings Luckily, the city is making serious moves towards solving our transportation issues (and I’m no longer driving a Hyundai). going on in East Austin, see this quarter’s special report on page 7. Mayor Steve Adler and City Council moved forward with Austinites have always been prideful people hanging on proposing an unprecedented $720 million mobility bond in to their past as a small town. The old adage that “The best June. The bond calls for improving several main corridors time to live in Austin is five years ago” is a testament to the throughout the city, allowing for improved bus and bike fact that citizens think the city is getting too full, too big lanes, incentivizing commuters to approach alternative for its own britches, and generally too hot to handle itself. forms of transportation, and bringing drivers away from However, with the citizens’ support, it is poised to leverage I-35 and MoPac and into the city’s more central corridors. its recent explosive growth and continue to be one of the Another city initiative, CodeNEXT, plans to revise the Land hottest, most desirable cities in the country decades into Development Code to make Austin an even more desirable the future. Note: There are some changes to the methodology in this quarter’s market report. For a full explanation of the AQUILA methodology, refer to page 67 at the end of the appendix. 1 http://www.tracer2.com/cgi/dataanalysis/labForceReport.asp?menuchoice=LABFORCE 2 http://kut.org/post/think-traffic-bad-now-2035-it-could-take-3-hours-get-austin-round-rock 3 http://austintexas.gov/department/austin-strategic-mobility-plan 4 http://austintexas.gov/sites/default/files/files/Planning_and_Zoning/CodeNEXT/2016_07_08_Mobility.pdf SPECIAL REPORT EASTSIDE SPECIAL: AUSTIN'S FOURTH PRIMARY SUBMARKET? Just beyond the downtown skyline lies Austin’s Eastside. Less than a mile from the CBD sits one of Austin’s most authentic, eclectic and rapidly changing neighborhoods. An area that has, for most of its recent history, been a working-class neighborhood is now one of the HYDE PARK UPPER EASTSIDE city’s hippest hangouts. Named as one of the hippest neighborhoods in the country1, coffee shops, bars, breweries and taco stands can be found just steps from rows of quaint MUELLER THE UNIVERSITY OF TEXAS CHERRYWOOD CENTRAL EASTSIDE two-bedroom houses that have stood there since the days of the Great Depression. DOWNTOWN AUSTIN In 1990, out of the 21 census tracts LOWER EASTSIDE that make up the “Eastside,” 15 were eligible for gentrification2, but only one actually achieved gentrification status over the next ten years. In 2000, eighteen tracts were eligible for gentrification, and all but four of those have achieved it today – more than all other eligible tracts in Austin combined.3 7 EAST CESAR CHAVEZ WINDSOR PARK SPECIAL REPORT East Austin Household Income Over the past decade, East Austin 100% $75,000 has become a hotbed for house- 90% $67,500 flippers, graduate students, young 80% $60,000 professionals and new families. Multi- 70% $52,500 family development has skyrocketed, 60% $45,000 drawing a new demographic to live 50% $37,500 in the neighborhood. Over the past 40% $30,000 six years, more than 1,700 multi- 30% $22,500 family units have delivered on the 20% $15,000 Eastside. As of the second quarter 10% $7,500 2015, there were another 1,900 0% multifamily units under construction, with almost one thousand more approved for development and ready $0 2014 <$25k $25k-50k $50k-100k $100k-200k >$200k Median household income to break ground. East Austin & Citywide Education To see the appeal of the neighborhood is easy: its relative affordability within 90% 80% the city, proximity to downtown and 70% rich culture have made it a popular 60% place to live and play. And now, 50% the authenticity and sense of quirk 40% that 30% originally 2010 2000 drew in Austin’s creative class is attracting new office prospects as well. 20% 10% The Eastside is serving up to tenants what it is they are looking for: close 0% East Austin Austin Citywide proximity to CBD, affordability, a 2000 plethora of nearby amenities, diverse transportation options and “creative” East Austin High school graduate or higher Austin Citywide Bachelor's degree or higher 2010 2014 Median Home Values $250,000.00 office space build-outs. As rents in Austin’s primary three office submarkets steadily climb, demand has increased for welllocated, amenity-rich $200,000.00 $150,000.00 alternatives. In the current real estate cycle, East $100,000.00 Austin has emerged as a frontrunner to be Austin’s next established office $50,000.00 market. $0.00 2000 Median Home Value East Austin 2010 2014 Median Home Value Austin Citywide (Source: US Census and American Community Survey) 8 SPECIAL REPORT A DIFFERENT OFFICE PRODUCT While many of the Austin office buildings AQUILA Much like the houses in the area, the office buildings traditionally analyzes are large, class “A” multi-tenant each have their own unique architecture. Eleven11, properties with built-in amenities such as fitness for example, features a rust-colored facade with a facilities, delis, etc., the office projects rising on the striking cantilevered terrace covering the sidewalk east side are of quite a different ilk. You won’t find below. Further east, you will find old warehouses high rises or large, sprawling corporate campuses converted into creative office suites alongside here. Instead, offices on the Eastside range from breweries and bistros. These aesthetics and amenities converted warehouses to new mid-rise, mixed-use tend to attract a millennial-minded tenant-base. construction. These office projects often embody the eclectic vibe of the neighborhood, giving way to multiple “creative office” projects under development. Given the unique positioning of East Austin within the overall office market, this budding area offers spaces to suit the needs of different types of tenants. Typical spaces offer open ceilings, stained concrete floors, and exposed brick and ductwork. Floorplates are also smaller than those in Eleven11 the other primary submarkets, resulting in more open layouts. This is largely due to the land-use and development While established accounting or legal firms continue restrictions that run through much of the Eastside. to look for space in the Southwest, Northwest or Some of the built-in amenities typically found in the other submarkets aren’t found in Eastside office projects. Rather than having an on-site deli or fitness area, offices capitalize on the abundance of pre-existing retail within walking distance. Some companies even offer credit to their employees to make use of nearby fitness studios. 9 CBD, Eastside office projects are competing instead to attract more creative tenants such as advertising, media, music and web-design companies, which are the fastest-growing segments of talent moving to Austin, and more specifically the Eastside. SPECIAL REPORT DEFINING THE SUBMARKET In order to more clearly analyze the Eastside as an professionals spending their weekends in the area, office submarket, we limited the definition of the whereas the thought of crossing I-35 on a Saturday East Austin office submarket to the following area: night was not even a consideration just five years north of the Colorado river, between I-35 and US ago. Now, locally-owned businesses thrive east of 183. This area can also be parsed into three smaller downtown, bringing in customers who might live just micromarkets: The Lower Eastside, Central Eastside blocks away or across the country on vacation. What and Upper Eastside. (See the map on page 7 for was once a generally overlooked neighborhood full reference.) These three areas each have their own of worn-down houses is now being redeveloped into unique culture and style, attracting a mixed pool of a tourist destination live with contemporary homes tenants and office product. and nationally-renowned boutiques, bars and restaurants. Lower Eastside The increase in popularity can be partially attributed to the city designating East 6th as a core The Lower Eastside is comprised of the area north transportation corridor, allowing increased traffic of the river, west of 183 and south of 12th Street. flow to and from downtown. The added ease-of- This micromarket is so close to the CBD—just across access has given rise to thousands of Class A multi- I-35—that it is almost an extension of downtown family units being developed over the past decade, itself. The city has instituted several measures to with many more under construction and in the help facilitate growth in the area, and the area has planning stages. responded favorably. Developers are also taking advantage of the Lower Here you will find the highest density of bars and Eastside’s popularity with several mixed-use projects. restaurants outside of downtown. The East 6th One such project, Eastside Village, is currently Street entertainment district, for example, has under construction and offers both a new Class A seen an explosion of college students and young 10 Patio at Burn Pizza + Bar on East 6th Street SPECIAL REPORT office building (recently purchased by CIM Group developer of the Domain in Northwest Austin first in June) and 800 multi-family units atop ground dipped their toes into Lower Eastside waters with a floor retail. Tenants who have signed on at Eastside little project at 2021 E. Fifth Street in 2013. Targeted Village early to take advantage of the excitement of towards the creative workers that reside in the area, the area include C3 Presents, who relocated their the project was quickly preleased by EnviroMedia, headquarters from downtown, and Conde Nast, one of Austin’s most notable marketing firms. The who will be opening their new Digital Innovation success of the development has since been followed Center in the building. by another, larger proposed office project, 901 E. Blocks away 6th, which is still in the from planning stages. Eastside Village will be Endeavor Real Estate Group’s Plaza Saltillo, which will offer over 100,000 square feet of retail and office space, a public park, and 800 residential units. Plaza Saltillo is one of the city’s two designated Some of the greatest potential on the Eastside lies in redeveloping existing owner-occupied offices into multi-tenant, Class A buildings. Adjacent to Eastside Village and Plaza Saltillo are two more multi-use office developments: The Foundry by Cielo and Fourth & by Capsa Ventures. Currently under construction, these two projects combined will feature over 100,000 sf of office space and 115 Transit residential units. Although Oriented Development (TOD) sites on the Eastside. The TOD presents an smaller exciting opportunity for tenants to capture a whole developments, the rise of these live/work/play new mix of commuters who will be brought to their solutions attest to the growth of the Lower Eastside’s area from as far away as Leander via MetroRail. popularity, proving that just one or two developments Endeavor’s involvement on the Eastside is a testament are not enough to capture all of the demand in the to the area’s high demand for office product. The area. 11 Food truck park on East 6th Street than Transwestern’s and Endeavor’s SPECIAL REPORT Starting Rental Rates - CBD vs Lower Eastside Source: AQUILA Market Research Lease Comparables $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 1/1/2010 1/1/2011 1/1/2012 12/31/2012 1/1/2014 1/1/2015 1/1/2016 Lower Eastside Starting Rent CBD Starting Rent Lower Eastside Starting Rent Trendline CBD Starting Rent Trendline 1/1/2017 1/1/2018 While large ground-up mixed-use redevelopment in redeveloping existing owner-occupied offices projects like the Eastside Village and Plaza Saltillo into multi-tenant, Class A buildings. Prime examples are getting most of the hype on the Lower Eastside, of such projects are the former Goodwill Career there is a plethora of smaller projects that continue to Academy building at East 6th and Chicon Streets change the landscape. Central Austin Management and the Capital Area Rural Transportation System Group, for example, has two projects along office less than a block down the street. These Springdale Road – Canopy and Springdale General projects—recently sold to office developers—will – that will include over 200,000 sf of space across add over 200,000 sf to the market. Riverside more than 15 buildings. Also in planning stages Resources has four total sites of this kind under is 1719 East 2nd Street. Much like the recently ownership on the Lower Eastside awaiting lead delivered 2400 Webberville and 1711 Cesar tenants to break ground on potentially 300,000+ sf Chavez projects, this 10,000 sf project embodies of space between the four of them. the “creative” solution that small marketing and technology firms are looking for on the Eastside: white-box conditioned with custom finish-outs at a low rent. Some of the greatest potential on the Eastside lies As demand for limited downtown space increases, the rise of the Lower Eastside as an extension of downtown appears to be imminent. As shown in the graph above, starting rental rates are quickly approaching downtown levels 12 EAST AUSTIN 51 ST ST 11 AIR LVD 38 TH MANOR 18 KING RT B 5 BERKMAN DR DEVELOPMENTS LUTHER MARTIN 12 PO 1/ 2S T 7 RD 26 D JR BLV 2 29 1 1TH ST SP 10 30 AL ST CES 1 16 CH AVE Z ST 24 CH AR 17 D CO M 3 V RT BL 15 31 23 19 20 4 25 T V ALLE Y RD 8 21 27 13 32 14 22 AIRPO AIL 9 PLEA SAN ROR 33 NS T MET ST VE OOD A ROSEW ICO 6TH RIN GD AL ER D 28 6 13 OFFICE Project Name Status Completion Date Office SF Developer/Owner Endeavor 1 2021 E. Fifth Street Recently Delivered 2014 30,100 2 2921 E 17th St Bldgs B-D Recently Delivered 2015 100,000 3 2400 Webberville Recently Delivered 2015 Q2 8,000 4 1711 Cesar Chavez Recently Delivered 2016 Q2 7,156 Emergence Commercial Realty 5 The Diamond Building at Mueller Under Construction 2016 Q3 37,198 Catellus 6 atx Factory Under Construction 2016 Q3 11,500 Vijay Mehra 7 The Station on Manor Under Construction 2016 Q4 31,600 Lincoln Ventures 8 901 E 6th Planned 2017 Q1 132,000 Endeavor 9 Springdale General Planned 2018 Q1 165,000 Central Austin Management Group 10 The Lab on East Sixth (CARTS Site) Planned 2018 Q4 115,000 Altair 11 Build to Suit Opportunities at Mueller Planned TBD 2,000,000 Catellus 12 The Park at Mueller Planned TBD 116,000 Catellus 13 6th & Onion Planned TBD 100,000 Riverside Resources 14 5th & Onion Planned TBD 82,000 Riverside Resources 15 1817 E 6th (Former Goodwill) Planned TBD 80,000 Riverside Resources 16 4th & Robert Martinez Planned TBD 43,000 Riverside Resources 17 Canopy Planned TBD 40,200 Central Austin Management Group 18 2015 Manor Planned TBD 23,000 Lincoln Ventures 19 Chavez Village Planned TBD 14,618 ECC Commercial 20 1719 East 2nd Planned TBD 10,000 Lonestar Syndicate MIXED USE Project Name Status Completion Date Office SF Retail SF Residential Units Developer/Owner 16,000 256 Cypress 7,500 348 Transwestern 97 Capsa Ventures LLC 208 Trammel Crow Residential 18 Cielo Property Group 21 Corazon Recently Delivered 2015 Q2 22 Eastside Village Recently Delivered 2016 Q2 94,500 23 Fourth & Under Construction 2017 Q2 42,000 24 Alexan on 6th Under Construction 2017 Q2 25 The Foundry Under Construction 2017 Q4 75,369 26 The CityLine at MLK Station Planned 2017 Q3 134,000 11,000 22 CityLine Development 27 Plaza Saltillo Planned TBD 120,000 110,000 800 Endeavor 28 One Two East Planned TBD 472 Legend Communities 6,440 MULTI-FAMILY Project Name Status Residential Units Completion Date Developer/Owner 29 Eleven by Windsor Recently Delivered 257 2013 Windsor 30 7East Recently Delivered 186 2015 Stonelake 31 Eastside Station Recently Delivered 330 2016 Q2 Flournoy 32 Spire Planned 260 TBD 33 8th and Embassy Planned 176 TBD 14 SPECIAL REPORT for new deals done on the Lower Eastside. million square feet of office and retail use, and over While rates have historically hovered around 60% 100 acres of public open space. The development of those in the CBD, recent deliveries of Class A is nearing its final stages of construction, with the spaces within the past year have fetched rates on majority of commercial space completed with the par with those in older buildings downtown. With exception of several build-to-suit opportunities. over 800,000 sf of office product in its pipeline, the Lower Eastside is set to prove itself as a major player for centrally-located Austin office space. The most notable tenants of the Mueller district include Seton Healthcare’s administrative campus and Texas Mutual Insurance Co., who announced Furthermore, Reconnect Austin plans to physically in April that it will be building its new corporate remove the greatest barrier between downtown headquarters next to Dell Children’s Medical and the Lower Eastside: I-35. The Reconnect Austin Center – one of largest office deals of the year at plan proposes to bury I-35 underground and literally 270,000 sf. The close proximity to the new UT bridge the gap between downtown and East Austin medical school and Dell Children’s Medical Center with surface-level walkways, mixed-use buildings makes the area desirable to medical office users. and open areas. While such plans will likely not be realized anytime soon, they point to the growth of As the popularity of East Austin East Austin as a primary urban area. continues to grow, tenants and residents Central Eastside alike will surely desire the next, hippest spots with affordability and To the north of 12th Street from the Lower Eastside lies proximity to downtown. the Central Eastside. The Central Eastside extends up to 51st Street and East to Highway 183. If the Lower Eastside is considered an extension of downtown, then the Central Eastside would be considered an The Central Eastside is also home Austin’s second extension of the University of Texas. Just east of I-35, transit oriented development east of I-35: MLK UT has its baseball and softball fields, as well as Station. Cityline Companies LLC is planning the several administrative buildings. The university is still Cityline at MLK Station development. Set to deliver in the market to purchase and redevelop lots as it in 2017, the CityLine Development will offer over expands its footprint. 130,000 of office space, 11,000 sf of retail, The Central Eastside is tamer than the Lower Eastside, as residents are typically graduate students or young families, often new to Central Texas. To that end, multi-national retailers are more apt to lay claim to this area, most notably in the Mueller Community. After Austin’s first civilian airport, Robert Mueller Municipal Airport, was replaced by Austin Bergstrom International Airport in 1999, the 700-acre site was redeveloped into a Planned Unit Development (PUD) by Catellus. The area is replete with single and multi-family housing for over 13,000 residents, 4 15 and 36,000 sf of residential townhomes, as well as a structured parking garage. Currently under construction across the street, the MLK Station Apartments will also offer 355 multi-family units as well as 11,000 sf of restaurant and retail space. 100,000 sf of office space already exists at MLK Station. Completed in 2015, 2921 East 17th Street Buildings B-D are fully leased and home to several Austin nonprofits, including Sustainable Food Center, PeopleFund, Creative Action and Interfaith Action of Central Texas. SPECIAL REPORT Eastside Village Thoroughfares such as Airport Boulevard, Manor Road and Martin Luther King Jr. Boulevard are examples of core transit corridors connecting the Central Eastside to the rest of Austin, and many retailers are capitalizing on the added traffic generated by the increased accessibility. Manor Road, for example, has several of the hippest new bars outside of the downtown and East 6th areas, as well as Salty Sow, one of Austin’s must-eat restaurants, as evidenced by Michelle Obama’s recent patronage during this year’s SXSW conference. Lincoln Ventures is one of the first office developers to capitalize on the Manor Road frenzy with two creative office buildings under construction at The Station on Manor – just blocks away from the MLK Station TOD – and another mixed-use development set to break ground later this year: 2015 Manor, which has already signed Texas Mutual Insurance Company for approximately 270,000 sf. Upper Eastside The Upper Eastside, defined by the area north of 51st Street, south of Highway 290 and west of Highway 183, is the least developed office market. Here you will find mainly older, Class B and C office buildings along the highways and mid-to-late-century homes in between. The area is not to be dismissed; however, as just north of Highway 290 lie several industrial complexes, and many would argue that the Lower and Central Eastside looked much like this area does now just a few decades ago. As the popularity of East Austin continues to grow, tenants and residents alike will surely desire the next, hippest spots with affordability and proximity to downtown. Furthermore, with Round Rock just to the north and quickly expanding down I-35 as plans are set in place to ease the traffic flow, the two growing areas will have to meet somewhere in between. 16 SPECIAL REPORT 1711 Cesar Chavez WHAT DOES THIS MEAN FOR YOU? Landlords: The Eastside presents an exciting Tenants: If you’re looking for an opportunity to re- opportunity to invest in one of Austin’s fastest grow- locate within Austin, the Eastside is in high demand ing submarkets. With so much support from the and can be a great fit for modern tenants. With City of Austin to develop the area, and with more a burgeoning bar and restaurant scene, employees gracious land-use regulations, the neighborhood will be enlivened to office within walking distance has certainly not hit its full potential yet. As long as of some of Austin’s coolest amenities. Chances are Austin continues to grow, people are going to flock some of your employees are already living there. to the Eastside since it embodies so much that Aus- Time is of the essence though, as rents are growing tin stands for: quirky, creative, authentic, unique. at a faster pace than in other submarkets. One of This makes the Eastside more of a competitor to AQUILA’s own clients, for example, signed a lease capture the media-type and technology firms that on the Eastside for $12 per sf in 2012. Just three may have historically looked for space in the other years later they signed another lease on the Eastside primary submarkets. An example of such a com- for double that amount. With most new build-outs, pany is Conde Nast. Just five years ago it would asking rents are in the low-to-mid-twenties, compa- have been unimaginable to see a multinational rable to those in the Northwest submarket. media publishing company sign a lease for space east of I-35. Now, however, the company will feel right at home. 1 http://www.forbes.com/sites/morganbrennan/2012/09/20/americas-hippest-hipster-neighborhoods/#30546b41ccaa To be eligible to gentrify, a tract's median household income and median home value needed to fall within the bottom 40th percentile of all tracts within a metro area at the beginning of the decade. Tracts considered to have gentrified recorded increases in the top third percentile for both inflation-adjusted median home values and percentage of adults with bachelors’ degrees. 2 17 3 http://www.governing.com/gov-data/austin-gentrification-maps-demographic-data.html 4 Reconnectaustin.com AUSTIN CITYWIDE 2Q UPDATE 300,427 SF Net Absorption 10.40% Direct & Sublease Vacancy Rate $37.02 Avg. Class A Full Service Rental Rate View of Hartland Plaza and downtown via 5th Street; Photo by Scott Mason Photography 18 SNAPSHOT: CAPITAL MARKETS MAJOR SALES TRANSACTIONS 100 CONGRESS SOLD AVENUE Market CBD CHAMPION SOLD OFFICE PARK Market AUSTIN SOLD CENTRE NW Market CBD A Class A Class A Class Size (SF) 412,000 Size (SF) 221,136 Size (SF) 326,335 Buyer Invesco Real Estate Buyer Menlo Equities Buyer Sidra Real Estate, Inc. Seller Metlife Real Estate Investors Seller Granite Properties Seller Lincoln Property Company Price $125,000,000 Price $92,900,000 Price $130,000,000 Price/SF $607 Price/SF $420 Price/SF $398 Notes Invesco bought 50% stake, Metlife retained 50% PLAZA ON THE SOLD LAKE I & II EASTSIDE SOLD VILLAGE LAKEWOOD ON SOLD THE PARK, BLDG B Market SW Market E Market NW Class A Class A Class B Size (SF) 234,874 Size (SF) 95,135 Size (SF) 102,056 Buyer Intercontinental Real Estate Corp Buyer CIM Group Buyer CapRidge Partners Seller Cornerstone Seller Equity Commonwealth $74,750,000 Transwestern Development Co. Seller Price Price $20,958,958 Price/SF $318 Price/SF $205 Price $32,750,000 Price/SF $344 Interior Space at Eastside Village 19 RIATA CORPORATE SOLD PARK STONEBRIDGE SOLD PLAZA NW Market NW Class A Class A Size (SF) 688,433 Size (SF) 386,101 Buyer Partners Group Buyer KBS Seller Accesso Partners Seller Heitman Price Undisclosed Price Unknown Price/SF Undisclosed Price/SF Unknown Partners Group bought 50% stake, Accesso retained 50% Notes Currently under contract Market Notes MAJOR LEASES SIGNED Leases signed this quarter over 20,000 sf: CBD • Deloitte signed three big leases this quarter, the largest of which is for 47,374 sf at 500 W 2nd. The financial consulting firm will be relocating their current offices at 400 W. 15th to the new location downtown. Deloitte signed two smaller leases as well: 12,153 sf at 7700 Parmer Bldg C in the Far Northwest and 13,607 sf at Westlake Oaks Executive Park in the Southwest submarket. NORTHWEST • Trend Micro announced it will fully occupy Domain 5. The IT security firm will be moving in to the 74,805 sf building this Fall. • Aristocrat Technologies leased 24,412 sf at Domain 1 in June. Set to move in December, the gaming company will be relocating from their current offices at Northview Centre II, also in the Northwest submarket. • Cognitive Scale signed a new lease for 35,751 sf at 9500 Arboretum. • Atkins Global signed for approximately 37,000 sf at Domain 1. The engineering firm is currently at Bridgepoint Square, also in the Northwest submarket. SOUTHWEST • Emergo Group subleased 20,724 sf of EZCorp’s space at Rollingwood Center I. • Mirna Therapeutics leased 23,578 SF at Encino Trace II, bringing the newest Class A office product in the Southwest to 36% occupied. 20 AUSTIN OFFICE DEVELOPMENT PIPELINE This timeline shows office projects over 30,000 SF that have either broken ground or will be breaking ground soon. 2016 2017 3Q 1Q Braker Pointe III* 195,230 SF Northwest 500 W 2nd 489,404 SF CBD Pioneer Bank Building 46,000 SF Central Domain 8 290,983 Northwest The Diamond Building at Mueller 35,015 SF East *Already existing-coming to market 2Q 2016 4Q The Station on Manor 31,600 SF East 2Q 801 Barton Springs 90,500 SF South Walsh Tarlton Overlook 55,500 SF Southwest Lantana Ridge I & II 175,000 SF Southwest Fourth & 42,000 SF East 3Q Shoal Creek Walk 218,432 SF CBD The Overlook at Barton Creek 53,091 SF Southwest 3Q Westview* 98500 SF *Already existing-coming to market 4Q 2017 21 CBD PLANNED Future Developments Future Developments 405 Colorado 195,511 SF CBD Paloma Ridge C 112,500 SF Northwest 604 W 6th Street 31,035 SF CBD Research Park Bldg 6 117,314 SF Northwest Austin American Statesman TBD SF CBD Riata Corporate Park Bldg 1 65,000 SF Northwest Novare/Post Office TBD SF CBD Riata Crossing Bldg 6 49,716 SF Northwest Rainey Gateway 355,000 SF CBD Frontera Ridge 400,000 SF Round Rock Third + Shoal 338,279 SF CBD St. Elmo 225,000 SF South Waller Creek Center 325,000 SF CBD The Waterfront 625,000 SF South 901 E 6th 132,000 SF East Galleria Oaks I & II 147,928 SF Southwest Canopy 40,200 SF East Overwatch Campus Phase II 123,525 SF Southwest Cityline at MLK 134,000 SF East Regency Park 90,000 SF Southwest Mueller Market District 2,000,000 SF East Rollingwood Center III 107,000 SF Southwest Plaza Saltillo 120,000 SF East Southwest 165,000 SF East The Backyard Buildings B, J, & H 171,450 SF Springdale General The Foundry (310 Comal) 75,369 SF East The Terrace 3 203,130 SF Southwest The Lakes at TechRidge Buildings A & B 97,600 SF East The Terrace 4 285,663 SF Southwest The Terrace 5 218,809 SF Southwest The Park at Mueller 116,000 SF East Amber Oaks Phase I 90,300 SF Northwest Amber Oaks Phase II 90,300 SF Northwest Amber Oaks Phase III 45,000 SF Northwest Aspen Lake Three 128,700 SF Northwest Domain Tower 308,000 SF Northwest Four Points Centre Building 3 250,000 SF Northwest Four Points Centre Building 4 80,000 SF Northwest 22 23 CBD 2Q UPDATE Last quarter, Austin’s CBD saw the biggest quarter-over-quarter jump in asking Class A rental rates of all time: a $3.88 jump from 4Q 2015 to 1Q 2016. The primary cause of this spike can be attributed to the dramatic increases in operating expenses. This quarter, the positive trend continued, though much more steadily, with a stable $0.41 increase to $47.93. The fact that there was not a negative shift in rental rates from such a drastic spike in the first quarter points to the strength of the market. 115,454 SF Net Absorption 6.08% Direct & Sublease Vacancy Rate $53.73 Avg. Class A Full Service Rental Rate View of the State Capitol from the 5th floor of 900 Congress; By: Scott Mason Photography 24 CBD UPDATE Downtown asking rental rates reached all-time highs for the second consecutive quarter across all classes of buildings this quarter. While the CBD saw negative absorption for the first time in two years, the majority of this negative activity occurred in Class B and C buildings. When looking at the list of Class A buildings in or near the core of downtown (the list of these competitive set buildings can be found on page 47), over 100,000 sf of space was absorbed. This comes in the wake of the delivery of Lincoln Property Group’s 5th + Colorado, the first Class A office delivery since 501 Congress one year ago. 5th + Colorado delivered 84% occupied with an asking rental rate of $40.00 – tying it for the highest asking rate in Austin with 100 Congress and Frost Bank Tower. One of the largest increases in vacancy occurred at 301 Congress, which saw an increase in vacancy of 44,541 sf this quarter. This can be attributed to the fact that Gerson Lehrman Group was occupying about 40,000 sf of temporary space while their new space on the 14th & 15th floors was being built-out and off market. Considering this, only six buildings saw a true increase in directly unoccupied space, 25 with the average of those increases totaling approximately 10,500 sf. In total, there was just over 400,000 sf available to lease within the downtown Class A competitive set at the close of the quarter. This is the highest total of available square footage in three quarters, but well below the ten-year average of approximately 700,000 sf. Over the past ten years, the CBD competitive set has added 1.3 million sf with an average total vacancy rate of 12.3%. With rental rates continuing to squeeze upwards, the market for prime downtown office space further tightened this quarter. Between the two new office projects under construction – 500 W 2nd and Shoal Creek Walk – there is only 320,213 sf remaining to pre-lease. Given these statistics, it appears as though there is no slowdown in sight for downtown rental rates, further highlighting the importance of comparable spaces on the periphery of downtown. For an in depth analysis of increasing operating expenses, see the special report in AQUILA’s 2015 Q4 Austin Market Report 1 Delivery Quarter Building Name NRA (SF) % Occupied at Delivery Asking Base Rental Rate at Delivery 2014 Q3 IBC Bank Plaza 194,749 93% $28.50 2015 Q1 Colorado Tower 373,334 96% $33.00 2015 Q1 Seaholm 143,151 100% $28.00 2015 Q2 501 Congress 122,551 81% $32.00 2016 Q2 5th + Colorado 179,000 84% $40.00 CBD COMPETITIVE SET PERFORMANCE CBD COMPETITIVE SET Quarter Net Rentable Area Direct Vacant SF Sublease Available SF Net Absorption* Direct & Sublease Vacancy Rate Average Class A Full Service Rental Rate 2014 Q3 5,827,916 483,868 81,356 227,210 9.70% $45.13 2014 Q4 5,827,916 503,540 69,160 (7,476) 9.83% $46.49 2015 Q1 6,344,401 421,858 55,200 612,127 7.52% $47.28 2015 Q2 6,466,952 479,092 40,409 80,108 8.03% $47.74 2015 Q3 6,466,952 370,193 38,822 110,486 6.32% $48.70 2015 Q4 6,471,834 237,718 55,748 120,431 4.53% $52.03 2016 Q1 6,471,834 239,406 101,083 (47,023) 5.26% $52.80 2016 Q2 6,651,030 319,379 84,852 115,454 6.08% $53.73 *Absorption includes sublease space NET ABSORPTION 600 12% 400 8% 200 0 4% 2014 Q3 2014 Q4 Di rect Vacant SF 2015 Q1 2015 Q2 2015 Q3 2015 Q4 Su blease Avai lable SF 2016 Q1 2016 Q2 Absorption (Thousands of SF) 16% Vacancy Rate Availability (Thousands of SF) 800 700 96% 600 95% 500 94% 400 93% 300 92% 200 91% 100 90% 0 89% (100) 0% Di rect & Subleas e Vacancy Rate 2014 Q3 2014 Q4 Net Abs orption* 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 Occupancy Rate AVAILABLE SF VS. VACANCY RATE 88% Di rect & Subleas e Occupancy Rate $55 16% $53 14% $51 12% $49 10% $47 8% $45 6% $43 2014 Q3 2014 Q4 2015 Q1 2015 Q2 Average Class A Full Service Rental Rate 2015 Q3 2015 Q4 2016 Q1 2016 Q2 Vacancy Rate Rental Rate VACANCY VS. RENTAL RATES 4% Di rect & Subleas e Vacancy Rate 26 CBD DEVELOPMENT & LARGE AVAILABILITY 27 LARGE BLOCKS OF CONTIGUOUS AVAILABILITY Building Available SF Max. Contiguous 300 West 6th 31,373 SF 29,952 SF 301 Congress 62,471 SF 20,591 SF One Congress Plaza 26,136 SF 23,142 SF OFFICE PROJECTS UNDER CONSTRUCTION Building 500 W 2nd 801 Barton Springs Shoal Creek Walk Westview* Est. Delivery % Preleased Total SF 53% 500,436 SF 1Q 2017 0% 90,500 SF 2Q 2017 61% 218,432 SF 3Q 2017 0% 98,500 SF 4Q 2017 *Already existing - coming to market 4Q 2017 HOTEL/RESIDENTIAL UNDER CONSTRUCTION Units/Rooms 5th & West Units/Rooms Est. Delivery 154 Units 4Q 2017 226 Units, 160 Rooms TBD 422 Rooms 3Q 2017 1,066 Rooms 3Q 2017 190 Rooms 4Q 2016 436 Units 1Q 2017 The Austin Proper 250 Rooms, 120 Units 2Q 2017 The Independent 370 Units 3Q 2018 Hotel Zaza/Gables Aloft & Element Fairmont Hyatt House Hotel NorthShore FUTURE/PLANNED DEVELOPMENTS Units/Rooms 405 Colorado 604 W 6th Street Austin American Statesman Novare/Post Office Size/Units Use 195,511 SF Office 31,035 SF Office TBD Office TBD Office Rainey Gateway 355,000 SF Office Third + Shoal 338,279 SF Office Waller Creek Center 325,000 SF Office 164 Units Multifamily TBD Multifamily 196 Units Multifamily 70 Rainey Green Water Residential Tower Rise - 8th & Nueces 28 AVAILABILITY SUMMARY CBD CLASS A SUBLEASE SPACE AVAILABLE SPACE 32 31 30 23 29 28 28 27 27 26 26 26 25 25 25 24 24 24 23 23 23 22 2,674 SF 22 22 31,051 SF 22 22 22 21 29,952 SF 21 21 32,603 SF 21 21 21 20 20 32,603 SF 20 20 20 19 19 33,931 SF 19 19 18 33,931 SF 18 18 18 31,822 SF 17 17 17 17 16 16 16 16 15 15 15 14 14 14 20 19 1,421 SF 6,861 SF 18 18 17 17 17 17 16 16 16 16 15 15 15 15,598 SF 15 14 14 14 14 23,798 SF 14 13 13 12 12 11 11 10 10 9 9 8 15 5,855 SF 29 942 SF 2,502 SF 1,648 SF 2,277 SF2,838 SF 19 19,087 SF 782 SF 18 13 13 13 13 13 13 12 12 12 12 12 12 11 11 11 11 11 11 10 10 10 10 10 10 9 9 9 9 9 9 8 8 8 8 8 8 8 7 7 7 7 7 7 7 7 6 6 6 6 6 6 6 6 5 5 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4 4 3 3 4,118 SF 3 3 3 3 3 3 3 6,593 SF 2 2 19,912 SF 2 6,432 SF2,358 SF 2 2 2 2 2 7,887 SF 1 1 1 2,195 SF 1 1 1 1 1 2,809 SF 2,893 SF 8,487 SF 20,591 SF 17,436 SF 20,396 SF 28,967 SF 4,995 SF 2,965 SF 2 8,860 SF 100 Congress 100 Congress Ave. 300 W 6th 300 W 6th St. 301 Congress 301 Congress Ave. 400 W 15th 400 W 15th St. 500 W 2nd 500 W 2nd St. 501 Congress 501 Congress Ave. 515 Congress 515 Congress Ave. 5th + Colorado 201 W 5th St. 600 Congress 600 Congress Ave. 411,536 SF 22 Floors 95% Leased $39.00-$40.00 NNN $20.84 Op/Ex $59.84-$60.84 Gross 454,225 SF 23 Floors 93% Leased $36.00 NNN $21.75 Op/Ex $57.75 Gross 428,419 SF 22 Floors 85% Leased $34.00-35.00 NNN $19.55 Op/Ex $53.55-$54.55 Gross 281,196 SF 17 Floors 97% Leased $25.50 NNN $14.65 Op/Ex $40.15 Gross 500,436 SF 29 Floors 47% Pre-Leased $38.00 - $40.00 NNN $15.50 Op/Ex 122,551 SF 5 Floors 76% Leased $20.00-$35.00 NNN $20.93 Op/Ex $40.93-$55.93 Gross 258,176 SF 26 Floors 99% Leased $34.00 NNN $18.05 Op/Ex $52.05 Gross 179,000 SF 18 Floors 85% Leased $33.00-$40.00 NNN $15.20 Op/Ex $48.20-$55.20 Gross 32 Floors 98% Leased $34.00 NNN $18.75 Op/Ex $52.75 Gross $52.75 Gross 29 Availability Summary 1 33 32 31 3,325 SF 30 30 29 29 29 28 28 28 27 27 27 3,733 SF 26 26 25 25 24 24 24 23 23 23 22 22 22 21 21 21 21 21 20 20 20 20 20 20 19 19 19 19 19 19 18 18 18 18 18 18 17 17 17 17 17 17 16 16 16 26 4,471 25 16 16 16 16 15 15 15 15 15 15 15 14 14 14 14 14 14 14 13 13 13 13 13 13 13 13 21,218 SF 12 12 12 12 12 12 12 12 21,218 SF 11 11 11 11 11 11 11 21,218 SF 10 10 10 10 878 SF 10 10 21,218 SF 9 9 9 9 23,142 SF 9 9 8 8 7 7 11 7,322 SF 10 10 9 2,110 SF 7 6 8,933 SF 4,403 SF 5 5,418 SF 9 1,993 SF 14,328 SF 8 8 8 8 7 7 7 7 7 6 6 6 6 6 6 5 5 5 5 5 5 8 8 10,821 SF 30 2,116 SF 6 7,306 SF 5 4 963 SF 4 4 4 4 4 4 4 3 1,716 SF 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 816 Congress 816 Congress Ave. Austin Centre 701 Brazos St. Chase Tower 221 W 6th St. Colorado Tower 303 Colorado St. Frost Bank Tower 401 Congress Ave. IBC Bank Plaza 500 W 5th St. One Congress Plaza 111 Congress Ave. San Jacinto Center 98 San Jacinto Blvd. Shoal Creek Walk 835 W 6th St. 434,081 SF 20 Floors 97% Leased $27.00 -32.00 NNN $17.59 Op/Ex $44.59 - 49.59 Gross 326,335 SF 16 Floors 93% Leased $28.00 NNN $17.65 Op/Ex $45.65 Gross 389,503 SF 21 Floors 99% Leased $37.50 NNN $19.85 Op/Ex $57.35 Gross 373,334 SF 30 Floors 100% Leased $34.00 NNN $16.83 Op/Ex $50.83 Gross 535,078 SF 33 Floors 97% Leased $40.00 NNN $21.75 Op/Ex $61.75 Gross 194,749 SF 13 Floors 100% Leased $33.00 NNN $21.00 Op/Ex $54.00 Gross 518,385 SF 30 Floors 95% Leased $35.00-$38.00 NNN $18.14 Op/Ex $53.14-$56.14 Gross 406,279 SF 21 Floors 100% Leased $36.00 NNN $20.02 Op/Ex $56.02 Gross 218,432 SF 14 Floors 61% Pre-Leased $31.00 - $35.00 NNN $16.50 Op/Ex $47.50 - $51.50 Gross 30 NORTHWEST SUBMARKET 2Q UPDATE -79,052 SF Net Absorption 12.53% Direct & Sublease Vacancy Rate $35.44 Avg. Class A Full Service Rental Rate Following a drop in vacancy rates at the end of 2015, the NW submarket has experienced an uptick in vacancy rates this year. The 1Q 2016 vacancy rate rose significantly in response to the delivery of two major projects, Domain 1 and Domain 5, which introduced over 200,000 sf of new space to the Northwest submarket. Coupled with the addition of IBM’s Broadmoor Campus, the vacancy rate rose over two hundred basis points from 4Q 2015 to 1Q 2016. NORTHWEST UPDATE Domain 8, currently under construction with an estimated delivery date of 1Q 2017, will add another 300,000 sf to the NW submarket. This addition, which will be the largest Class A office building at The Domain, is currently 0% preleased. However, it is widely believed that there are deals in place to fill most of this space upon delivery. This quarter, the bulk of the availability in the competitive set can be attributed to Braker Pointe III. As renovations are underway at the old Harcourt building, almost 200,000 sf of vacant space is being counted against the area’s absorption. Out of the 132 competitive set buildings in the Northwest submarket, only 17 saw an increase in directly available area, while 27 experienced positive direct absorption. Several transactions occurred this quarter in the NW submarket. Two major properties exchanged hands, including the 137,000 sf Quarry Oaks III, leased by Bazaarvoice, and the 100,000 sf Lakewood on the Park B, which sold for approximately $21 million. Trend Micro signed on for approximately 75,000 sf of space at Domain 5. Accruent also recently announced that it will consolidate its Austin headquarters in a building at the Domain. 32 NORTHWEST UPDATE NORTHWEST MICROMARKETS Round Rock Cedar Park FAR NORTHWEST/ ROUND ROCK Pflugerville Lake Travis McNeil Arboretum Domain ARBORETUM SHEPHERD MOUNTAIN West Lake Hills Tarrytown Austin The flurry of activity within the Arboretum/ Domain Micromarket suggests that proximity to amenities is a major factor attracting tenants to the Northwest submarket. The 2Q 2016 rental rate for this micromarket, $36.09, is more than a dollar higher than the rental rate for the overall submarket and quickly approaching rates in the Southwest submarket. At $34.62 in 2Q, rental rates in the Northwest 33 remain the lowest of the three major submarkets. Combined with the growth of amenities in and around the Domain, comparatively low rental rates will likely continue to draw major companies into the Northwest submarket. Images on pages 31 + 32: Aspen Lake Two; By: Scott Mason Photography NORTHWEST COMPETITIVE SET PERFORMANCE NORTHWEST COMPETITIVE SET Quarter Net Rentable Area Direct Vacant SF Sublease Available SF Net Absorption* Direct & Sublease Vacancy Rate Average Class A Full Service Rental Rate 2014 Q3 2014 Q4 12,389,252 911,833 321,739 12,845,611 1,197,426 320,587 189,579 9.96% $32.12 171,918 11.82% $32.93 2015 Q1 12,931,909 992,203 2015 Q2 13,120,924 897,208 292,334 319,774 9.93% $33.39 284,035 292,309 9.00% $33.83 2015 Q3 13,634,732 1,453,835 287,248 (46,032) 12.77% $33.40 2015 Q4 2016 Q1 14,156,083 1,460,249 235,206 566,979 11.98% $34.14 15,142,863 1,422,335 395,496 864,404 12.00% $35.14 2016 Q2 15,142,863 1,471,413 425,470 (79,052) 12.53% $35.44 *Absorption includes sublease space NET ABSORPTION 12% 1,200 9% 800 6% 400 3% 0 0% 2014 Q3 2014 Q4 Di rect Vacant SF 2015 Q1 2015 Q2 2015 Q3 2015 Q4 Su blease Avai lable SF 2016 Q1 2016 Q2 1,000 92% 600 91% 400 90% 200 89% 0 88% (200) Di rect & Subleas e Vacancy Rate 93% 800 2014 Q3 2014 Q4 Net Abs orption* 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 Occupancy Rate 15% 1,600 Absorption (Thousands of SF) 2,000 Vacancy Rate Availability (Thousands of SF) AVAILABLE SF VS. VACANCY RATE 87% Di rect & Subleas e Occupancy Rate $36 15% $35 13% $34 11% $33 9% $32 7% $31 5% $30 2014 Q3 2014 Q4 2015 Q1 2015 Q2 Average Class A Full Service Rental Rate 2015 Q3 2015 Q4 2016 Q1 2016 Q2 Vacancy Rate Rental Rate VACANCY VS. RENTAL RATES 3% Di rect & Subleas e Vacancy Rate 34 NORTHWEST AUSTIN LARGE OFFICE AVAILABILITY 20,000 SF + of available space Building Direct Vacant SF Sublease Available SF Total Available SF Building Direct Vacant SF Sublease Available SF Total Available SF 1 Amber Oaks F 60,652 0 60,652 14 Paloma Ridge B 81,101 0 81,101 2 Amber Oaks J 6,245 33,147 39,392 15 Park Centre Bldg 3 45,711 5,397 51,108 3 Atrium Office Centre 27,384 0 27,384 16 Prominent Pointe I 30,987 0 30,987 4 Austin Oaks 5 Braker Pointe III 6 Bridgepoint Square 2 53,246 2,659 55,905 17 Research Park Place 8 33,518 0 33,518 167,158 0 167,158 18 Research Park Plaza IV 3,355 96,334 99,689 4,814 16,005 20,819 19 Research Park Plaza V 72,709 0 72,709 7 Domain 1 86,271 0 86,271 20 Reserve at Bull Creek B 43,713 0 43,713 8 Domain 3 0 20,041 20,041 21 Reserve at Bull Creek C 43,695 0 43,695 9 IBM Broadmoor Campus 144,818 0 144,818 22 Riata Corporate Park Bldg 4 57,188 0 57,188 Riata Corporate Park Bldg 7 0 21,477 21,477 9,616 16,662 26,278 10 Ladera Bend 3 11 Lakewood Center I 12 Lakewood on the Park B 13 Paloma Ridge A 35 0 27,980 27,980 23 23,885 45,020 68,905 24 River Place Corporate Park II 24,446 0 24,446 25 The Park at 8300 N. MoPac 6,911 31,958 38,869 103,368 0 103,368 26 Tower of the Hills/Tower Point 25,383 0 25,383 NORTHWEST AUSTIN OFFICE DEVELOPMENT Building Total SF Percent Preleased Estimated Delivery Status 1 Braker Pointe III* 195,230 15% 2016 Q3 Coming to Market 2 Domain 8 290,983 0% 2017 Q1 Under Construction 3 Four Points Centre Bldg 3 250,000 0% 2018 Q1 Planned 4 Amber Oaks Phase I 90,300 0% Planned Planned 5 Amber Oaks Phase II 90,300 0% Planned Planned 6 Amber Oaks Phase III 45,000 0% Planned Planned 7 Aspen Lake Three 128,700 0% Planned Planned 8 Domain Tower 308,000 0% Planned Planned 9 Frontera Ridge 400,000 0% Planned Planned 10 Four Points Centre Bldg 4 80,000 0% Planned Planned 11 Paloma Ridge C 112,500 0% Planned Planned 12 Research Park Bldg 6 117,314 0% Planned Planned 13 Riata Corporate Park Bldg 1 65,000 0% Planned Planned 14 Riata Crossing Bldg 6 49,716 0% Planned Planned *Already existing - Coming to market 3Q 2016 Planned Under Construction 36 SOUTHWEST SUBMARKET 2Q UPDATE -20,795 SF Net Absorption 10.99% Direct & Sublease Vacancy Rate $38.82 A historically resilient submarket, the performance of the competitive set of Southwest Class A office buildings remained fairly on par with the previous two quarters. With no major deliveries since Encino Trace in 3Q 2015, vacancy rates steadily climbed for the third quarter in a row, reaching its highest level in almost four years at nearly 11%. Absorption is now at a negative 13,653 sf for the year. Avg. Class A Full Service Rental Rate Lobby of The Terrace; Photo by Scott Mason Photography SOUTHWEST UPDATE In spite of these seemingly adverse statistics, asking rental rates steadily marched upwards to a record high rate of $38.82 – the 17th consecutive quarter of record highs – and several new projects and leases were announced this quarter. lifestyle company prepares for explosive growth with mentions of an initial public offering, the move down the street from their current headquarters at 5301 Southwest Parkway will be a short, but huge event for both the company and the Austin real estate market. In addition to Lantana Ridge, two more projects Mirna Therapeutics signed for approximately broke ground this quarter: Walsh Tarlton 24,000 sf at the recently delivered Encino Overlook and The Trace II. According to Overlook at Barton their Form 8-K filing Creek, which will with the SEC in June, add 55,500 sf Mirna is entitled to and 53,091 sf of approximately $80/ Over a million space, respectively. sf of improvement square feet of Meanwhile, over allowances and planned developments a million square three months of free feet of planned rent for a 123-month remain in the pipeline developments remain lease with a starting waiting to sign major in the pipeline base rental rate of waiting to sign major approximately $25/ tenants and begin tenants and begin sf – $1.50/sf higher construction. construction. than the asking rate. Apple plans to start moving in to its 215,000 sf space at Capital Ridge later this year – more than a year after the lease was signed. Given this information, CBRE, who tracks absorption according to physical occupancy of space, will likely show a huge uptick in absorption in the Southwest submarket in 3Q. It was confirmed this quarter that Yeti signed on to fully occupy 175,000 sf at Lantana Ridge I & II upon its delivery in 2017. As the outdoor Given the above information, the Southwest submarket proves to be a curious one. Landlords are proceeding cautiously with developments, hoping to land credit or desirable tenants like Apple or Yeti before breaking ground. Smaller companies are still attracted to the Southwest submarket as well due to its proximity to Westlake Hills, where many executives reside. There is increasing demand for higher-quality spaces – much like in the CBD. For example, in the Near Southwest 38 SOUTHWEST UPDATE micromarket, there have been ten deals under 10,000 sf this year in The Terrace project alone. The movement of tenants towards newer spaces has caused Class A rental rates to rise while Class C rates dropped by $1.74 this quarter. Furthermore, Class A is the only property class to experience positive total absorption year-to-date. SOUTHWEST MICROMARKETS Lake Travis McNeil Arboretum Domain FAR SW West Lake Hills Barton Creek Tarrytown Austin Lost Creek NEAR SW Sunset Valley ABIA 39 SOUTHWEST COMPETITIVE SET PERFORMANCE SOUTHWEST COMPETITIVE SET Quarter Net Rentable Area Direct Vacant SF Sublease Available SF Net Absorption* Direct & Sublease Vacancy Rate Average Class A Full Service Rental Rate 2014 Q3 7,102,874 294,587 169,604 132,700 6.54% $35.27 2014 Q4 7,102,547 386,333 182,477 (104,946) 8.01% $35.87 2015 Q1 7,100,750 399,919 188,613 (21,519) 8.29% $36.76 2015 Q2 7,782,464 428,605 213,812 627,829 8.25% $37.35 2015 Q3 7,949,325 353,625 264,345 191,308 7.77% $37.41 2015 Q4 8,158,872 634,326 246,492 (53,301) 10.80% $37.94 2016 Q1 8,161,143 680,309 195,638 7,142 10.73% $38.47 2016 Q2 8,161,143 696,616 200,126 (20,795) 10.99% $38.82 *Absorption includes sublease space 15% 800 12% 600 9% 400 6% 200 0 3% 2014 Q3 2014 Q4 Di rect Vacant SF 2015 Q1 2015 Q2 2015 Q3 2015 Q4 Su blease Avai lable SF 2016 Q1 2016 Q2 800 95% 600 93% 400 91% 200 89% 0 87% (200) 0% Di rect & Subleas e Vacancy Rate 2014 Q3 2014 Q4 Net Abs orption* 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 Occupancy Rate 1,000 Absorption (Thousands of SF) NET ABSORPTION Vacancy Rate Availability (Thousands of SF) AVAILABLE SF VS. VACANCY RATE 85% Di rect & Subleas e Occupancy Rate $40 12% $38 10% $36 8% $34 6% $32 2014 Q3 2014 Q4 2015 Q1 2015 Q2 Average Class A Full Service Rental Rate 2015 Q3 2015 Q4 2016 Q1 2016 Q2 Vacancy Rate Rental Rate VACANCY VS. RENTAL RATES 4% Di rect & Subleas e Vacancy Rate 40 SOUTHWEST AUSTIN LARGE OFFICE AVAILABILITY 20,000 SF + of available space Building 1 41 Direct Vacant SF Sublease Available SF Total Available SF 3700 San Clemente 70,192 0 70,192 135,366 0 135,366 5,896 24,275 30,171 2 3900 San Clemente 3 Barton Skyway II 4 Cityview Center 5 Encino Trace II 6 Las Cimas II 7 8 9 The Park on Barton Creek 1 0 24,478 24,478 101,822 0 101,822 19,402 6,641 26,043 Rialto II 0 36,421 36,421 Rollingwood Center I & II 0 31,000 31,000 21,262 2,203 23,465 10 The Park on Barton Creek 2 38,991 0 38,991 11 The Summit at Lantana Bldgs 1-5 52,934 0 52,934 12 The Terrace 6 13,055 8,258 21,313 SOUTHWEST AUSTIN OFFICE DEVELOPMENT Building Total SF 1 Walsh Tarlton Overlook 2 Lantana Ridge I & II 3 The Overlook at Barton Creek 4 5 Percent Preleased Estimated Delivery Status 55,500 0 2017 Q2 Under Construction 175,000 100% 2017 Q2 Under Construction 53,091 0 2017 Q3 Under Construction Galleria Oaks I & II 147,928 50% Planned Planned The Backyard - Buildings B, J, & H 171,450 0 Planned Planned 6 Overwatch Campus Phase II 123,525 0 Planned Planned 7 Regency Park 90,000 0 Planned Planned 8 Rollingwood Center III 107,000 0 Planned Planned 9 The Terrace 3 203,130 0 Planned Planned 10 The Terrace 4 285,663 0 Planned Planned 11 The Terrace 5 218,809 0 Planned Planned Planned Under Construction 42 AVAILABILITY SUMMARY SOUTHWEST CLASS A 4,901 SF 5 5 5 5 5 4 4 4 4 4 4 3 3 3 3 3 2 2 1 1 3 11,073 SF 2 1 NSW 7,153 SF 2 5,736 SF 2 2 1 5,438 SF 1 1 NSW NSW NSW 3,647 SF 2,762 SF NSW NSW Barton Oaks Plaza I 901 S Mopac Expy Barton Oaks Plaza II 901 S Mopac Expy Barton Oaks Plaza III 901 S Mopac Expy Barton Oaks Plaza IV 901 S Mopac Expy Barton Oaks Plaza V 901 S Mopac Expy One Barton Skyway 1501 S Mopac Expy 5 Floors 99,404 SF 95% Leased $27.00 NNN $15.98 Op/Ex $42.98 Gross 5 Floors 116,368 SF 84% Leased $26.50 NNN $15.56 Op/Ex $42.06 Gross 5 Floors 121,467 SF 91% Leased $26.50 NNN $14.59 Op/Ex $41.09 Gross 5 Floors 104,324 SF 100% Leased $26.27 NNN $14.73 Op/Ex $41.00 Gross 5 Floors 119,549 SF 97% Leased $27.00 NNN $14.47 Op/Ex $41.47 Gross 4 Floors 195,324 SF 100% Leased $26.50 NNN $14.95 Op/Ex $41.45 Gross 5 42,671 SF 4 3 42,369 SF 3 3 2 16,782 SF 2 4 1 1 FSW FSW 3,700 SF 3 2 19,402 SF 2,947 SF 1 3,694 SF FSW 3,042 SF 4 6,176 SF 3 2 1 1 1 FSW FSW FSW Encino Trace II 5707 Southwest Pkwy Las Cimas I 804 Las Cimas Pkwy Las Cimas II 807 Las Cimas Pkwy Las Cimas III 805 Las Cimas Pkwy Las Cimas IV 900 S Capital of Tx Hwy 4 floors 161,606 SF 100% Leased $23.50 NNN $13.15 Op/Ex $36.65 Gross 4 floors 158,137 SF 36% Leased $23.50 NNN $13.15 Op/Ex $36.65 Gross 3 Floors 82,853 SF 96% Leased $23.50 NNN $14.29 Op/Ex $37.79 Gross 4 Floors 156,682 SF 88% Leased $26.50 NNN $14.92 Op/Ex $41.42 Gross 4 Floors 156,682 SF 94% Leased $26.50 NNN $14.73 Op/Ex $41.23 Gross 5 Floors 142,000 SF 100% Leased $27.00 NNN $14.58 Op/Ex $41.58 Gross 18,658 SF 17,159 SF 27,276 SF NSW 5 5 4 11,874 SF 4 3 50,798 SF 3 3 3 3 2 2 2 2 50,798 SF 2 1 1 1 1 21,896 SF 1 NSW Rollingwood Center I 2500 Bee Caves Rd Rollingwood Center II 2500 Bee Caves Rd 4 Floors 145,437 SF 100% Leased $30.00 NNN $12.00 Op/Ex $42.00 Gross 2 Floors 69,150 SF 100% Leased $30.00 NNN $12.00 Op/Ex $42.00 Gross FSW 3600 San Clemente B 3600 N Capital of Tx Hwy 3 Floors 90,267 Sf 100% Leased $26.50 NNN $15.63 Op/Ex $42.13 Gross 51,534 SF FSW 3700 San Clemente 3700 N Capital of Tx Hwy 5 Floors 249,870 SF 72% Leased $26.00 NNN $10.50 Op/Ex $36.50 Gross 3 2 Encino Trace I 5707 Southwest Pkwy 4 FSW 3900 San Clemente 3900 N Capital of Tx Hwy 5 Floors 251,146 SF 46% Leased $24.50 NNN $13.81 Op/Ex $38.31 Gross Availability Summary 43 14,373 SF 2 Southwest Submarket 4 3 52,934 SF 2 1 FSW The Summit at Lantana Bldg 300 7171 Southwest Pkwy 4 Floors 217,077 SF 76% Leased $25.00 NNN $13.06 Op/Ex $38.06 Gross 7 6 5 5 4 4 4 4 4 3 3 3 3 3 2 2 2 2 2 2 1 1 1 1 1 1 4 3 5,896 SF 24,275 SF NSW 9,303 SF NSW 5 NSW FSW FSW FSW Two Barton Skyway 1601 S Mopac Expy Three Barton Skyway 1221 S Mopac Expy Four Barton Skyway 1301 S Mopac Expy Capital Ridge 320 Capital of Tx Hwy Dimensional Place 1 6304 Bee Caves Rd Dimensional Place 2 6300 Bee Caves Rd 4 Floors 195,639 SF 97% Leased $26.50 NNN $14.61 Op/Ex $41.11 Gross 4 Floors 173,302 SF 95% Leased $26.50 NNN $14.52 Op/Ex $41.02 Gross 5 Floors 222,580 SF 100% Leased $26.50 NNN $13.86 Op/Ex $40.36 Gross 7 floors 238,000 SF 100% Leased $30.00 NNN $10.56 Op/Ex $40.56 Gross 7 Floors 220,000 SF 100% Leased $24.00 NNN $12.42 Op/Ex $36.42 Gross 5 Floors 156,000 SF 100% Leased $22.50 NNN $15.00 Op/Ex $37.50 Gross 5 4 3 3 2 2 4,125 SF 1 1 NSW 5 21,262 SF 4 3 2,203 SF 5 3 9,506 SF 2 20,228 SF 2 1 18,763 SF 1 NSW The Park on Barton Creek One 3711 S Mopac Expy 5 floors 102,608 SF 79% Leased $25.00 NNN $14.02 Op/Ex $39.02 Gross 3 Floors 121,147 SF 100% Leased $27.50 NNN $14.02 Op/Ex $41.52 Gross 9,980 SF 2 NSW Mira Vista 2705 Bee Caves Rd 3 Plaza on the Lake I 5001 Plaza on the Lake Dr. 3 Floors 122,530 SF 93% Leased $28.50 NNN $15.35 Op/Ex $43.85 Gross 6 5,725 SF 6 5 8,258 SF 5 2,974 SF 4 4 4 4 4 3 3 6,354 SF 3 3 3 2 2 3,840 SF 2 2 2 1 1 FSW The Summit at Lantana Bldg 400 7171 Southwest Pkwy 4 Floors 220,218 SF 100% Leased $25.00 NNN $13.06 Op/Ex $38.06 Gross NSW 3,447 SF NSW 1 4,356 SF NSW FSW Plaza on the Lake II 4801 Plaza on the Lake Dr. 3 Floors 114,261 SF 100% Leased $28.50 NNN $14.96 Op/Ex $43.46 Gross 2,052 SF 19,000 SF 1 NSW The Terrace I 2600 Via Fortuna The Terrace II 2700 Via Fortuna The Terrace VI 2901 Via Fortuna The Terrace VII 2801 Via Fortuna 5 Floors 115,460 SF 91% Leased $25.50 NNN $15.68 Op/Ex $41.18 Gross 5 Floors 114,635 SF 97% Leased $25.50 NNN $15.65 Op/Ex $41.15 Gross 6 Floors 197,909 SF 93% Leased $28.50 NNN $15.92 Op/Ex $44.42 Gross 6 Floors 192,214 SF 99% Leased $28.50 NNN $15.99 Op/Ex $44.49 Gross Austin, TX Q2 2016 Class A Office Space 2 1 FSW 5000 Plaza on the Lake 5000 Plaza on the Lake Dr. 3 Floors 119,463 SF 92% Leased $27.50 NNN $15.85 Op/Ex $43.35 Gross 5 1 8,936 SF 1 FSW The Park on Barton Creek Two 3711 S Mopac Expy 5 floors 102,587 SF 62% Leased $25.00 NNN $14.47 Op/Ex $39.47 Gross 3 To find out more, visit: SUBLEASE SPACE AVAILABLE SPACE aquilacommercial.com/reports 44 View from a patio at The Terrace; Photo by Scott Mason Photography TheAppendix Competitive Sets 47-58 Central Business District 47 Arboretum/Domain 48 Shepherd Mountain/2222 51 Far Northwest 53 Near Southwest 55 Far Southwest 57 Longterm Performance of Submarkets 59 Longterm Performance: CBD vs. Suburban 60 CBD Overall Performance 61 Southwest Overall Performance 63 Northwest Overall Performance 65 The AQUILA Methodology 67 COMPETITIVE SET BUILDING LISTS AND SUBMARKET DATA CBD COMPETITIVE SET BUILDINGS Net Rentable Area Direct Vacant SF Sublease Available SF Asking Rental Rate Estimated OpEx 100 Congress 411,536 20,182 5,855 $40.00 ↑ $20.84 300 West 6th 454,225 31,373 ↑ 3,616 ↑ $36.00 $21.75 301 Congress 418,338 62,471 ↑ 0↓ $35.00 $19.55 400 West 15th 281,196 8,627 21,442 $25.50 ↓ $15.92 501 Congress 122,747 28,967 ↑ 20,396 $35.00 $20.93 515 Congress 263,058 2,277 ↓ 2,838 ↓ $34.00 ↑ $18.05 5th + Colorado 179,000 27,047 0 $40.00 $15.20 600 Congress Ave. 503,951 9,642 ↓ 0 $34.00 $18.75 816 Congress 434,081 10,821 3,325 ↑ $32.00 ↑ $17.59 Austin Centre 326,335 21,621 ↓ 3,826 ↓ $28.00 $17.65 Capitol Center 164,044 9,985 ↑ 7,097 ↓ $30.00 $19.70 Capitol Tower 172,837 10,580 ↑ 0 $31.00 $16.52 Chase Tower 389,503 1,993 ↓ 5,418 $37.50 ↑ $19.85 ↑ Colorado Tower 373,334 0 0 $34.00 $16.83 Frost Bank Tower 535,078 14,328 ↑ 0 $40.00 $21.75 IBC Bank Plaza 194,749 0 0 $33.00 $21.00 Lavaca Plaza 118,635 7,784 ↑ 0↓ $32.50 $21.74 Littlefield Building 109,779 15,132 ↓ 0 $35.00 $18.08 One Congress Plaza 518,385 26,136 ↓ 3,733 $38.00 ↓ $18.14 ↑ San Jacinto Center 406,279 0 7,306 ↑ $36.00 $20.02 ↑ Scarbrough Building 130,789 10,413 ↓ 0 $35.00 ↑ $19.04 Seaholm 143,151 0 0 $28.00 $12.00 Building Name 47 COMPETITIVE SET ARBORETUM/DOMAIN MICROMARKET PERFORMANCE ARBORETUM/DOMAIN COMPETITIVE SET Quarter Net Rentable Area Direct Vacant SF Sublease Available SF Net Absorption* Direct & Sublease Vacancy Rate Average Class A Full Service Rental Rate 2014 Q3 6,253,014 401,651 157,535 173,068 8.94% $33.66 2014 Q4 6,474,987 445,544 121,157 214,458 8.75% $34.38 2015 Q1 6,553,774 447,850 71,595 126,043 7.93% $34.46 2015 Q2 6,742,789 389,248 63,891 255,321 6.72% $34.77 2015 Q3 6,719,697 407,169 76,078 (53,200) 7.19% $34.38 2015 Q4 6,938,611 322,314 93,200 286,647 5.99% $34.82 2016 Q1 8,253,506 617,666 88,016 1,024,727 8.55% $35.76 2016 Q2 8,253,506 687,546 100,846 (82,710) 9.55% $36.09 *Absorption includes sublease space 15% 800 12% 600 9% 400 6% 200 3% 0 0% 2014 Q3 2014 Q4 Di rect Vacant SF 2015 Q1 2015 Q2 2015 Q3 2015 Q4 Su blease Avai lable SF 2016 Q1 2016 Q2 Di rect & Subleas e Vacancy Rate 1,100 1,000 900 800 700 600 500 400 300 200 100 0 (100) 97% 95% 93% 91% 89% Occupancy Rate 1,000 Absorption (Thousands of SF) NET ABSORPTION Vacancy Rate Availability (Thousands of SF) AVAILABLE SF VS. VACANCY RATE 87% 2014 Q3 2014 Q4 Net Abs orption* 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 85% Di rect & Subleas e Occupancy Rate $37 11% $36 9% $35 7% $34 5% $33 2014 Q3 2014 Q4 2015 Q1 2015 Q2 Average Class A Full Service Rental Rate 2015 Q3 2015 Q4 2016 Q1 2016 Q2 Vacancy Rate Rental Rate VACANCY VS. RENTAL RATES 3% Di rect & Subleas e Vacancy Rate 48 COMPETITIVE SET ARBORETUM/DOMAIN MICROMARKET COMPETITIVE SET BUILDINGS Net Rentable Area Direct Vacant SF Asking Rental Rate Estimated OpEx 3307 Northland 98,888 1,103 ↓ 9500 Arboretum 182,331 0 0 $17.50 $11.52 ↑ 0 $22.00 $13.51 Arboretum Atrium 90,280 2,515 8,222 ↑ $21.00 $14.38 Arboretum Plaza One 146,347 Arboretum Plaza Two 98,828 2,446 ↑ 0 $27.00 $15.53 0 0 $27.00 $15.53 Arboretum Point 150,033 0 0 $23.00 $13.44 Atrium Office Centre 199,858 27,384 ↑ 0 $18.00 $8.05 Austin Oaks 445,240 53,246 ↑ 2,659 $19.00 $11.60 Balcones Centre 74,876 0 0 $24.00 $9.86 Braker Pointe I 77,454 8,714 ↓ 0 $22.50 $13.31 Braker Pointe II 103,114 1,953 5,162 $22.50 $13.07 Braker Pointe III 196,380 167,158 ↑ 0 $25.00 $12.84 Colina West 69,299 3,448 ↑ 1,150 $20.50 $11.73 Domain 1 124,571 86,271 0 $30.00 $11.00 Domain 2 143,331 0 0 $29.00 $11.00 Domain 3 179,006 0 20,041 $26.00 ↑ $10.34 Domain 4 152,012 0 0 $24.00 $11.16 Building Name Domain 5 78,987 0 0 $26.00 $11.00 Domain 7 221,973 0↓ 0 $29.00 $12.00 Domain Gateway 173,962 0 0 $28.00 ↑ $14.95 Great Hills Corporate Center I 59,228 2,403 ↓ 0 $18.50 $11.39 Great Hills Corporate Center II 60,429 0↓ 0 $18.00 $11.39 Great Hills Corporate Center III 56,422 13,207 ↑ 0 $18.50 $11.39 Great Hills Plaza 139,252 5,855 ↓ 0 $21.00 ↑ $12.93 Greystone Plaza 78,248 5,800 ↓ 0 $20.00 $13.04 Heritage Plaza 74,736 7,677 0 $28.50 ↑ $12.49 IBM Broadmoor Campus 49 Sublease Available SF 1,111,734 144,818 0 TBD Neg. Kaleido I & II 73,149 2,072 ↓ 0 $18.50 $9.93 Lakeview Plaza 120,559 9,276 ↑ 4,608 ↑ $21.00 $12.22 Northpoint Centre I & II 151,126 1,394 ↓ 0 $23.00 $12.33 COMPETITIVE SET Net Rentable Area Direct Vacant SF Sublease Available SF Asking Rental Rate Estimated OpEx Offices at the Domain Bldg 1 92,955 0↓ 0 $27.50 $15.49 Offices at the Domain Bldg 2 75,509 0 0 $27.50 $14.75 Building Name One Far West Plaza 70,642 885 0 $18.00 $12.87 Park North I & II 133,568 1,337 0 $19.50 $11.83 Plaza 7000 155,076 6,214 ↓ 2,653 $26.00 $13.82 Prominent Pointe I 150,376 30,987 ↓ 0 $24.50 $14.72 Prominent Pointe II 102,567 0↓ 12,579 $24.50 $15.62 ↓ Quarry Lake Business Center 117,512 0↓ 0 $21.00 $11.88 ↓ Quarry Oaks I 165,435 0 0 $27.00 ↑ $11.82 Quarry Oaks II 126,000 2,044 0 $27.00 ↑ $11.48 Quarry Oaks III 137,615 0 11,814 $28.00 ↑ TBD ↑ Reunion Park 118,142 17,116 ↑ 0 $19.00 $11.16 Stone Creek I 76,860 0 0 $24.00 $10.90 Stone Creek II 162,723 5,077 0 $24.00 $13.31 Stone Creek Park 77,185 0 0 $20.00 $13.45 Stonebridge Plaza I 193,200 0↓ 0 $27.50 ↑ $14.97 Stonebridge Plaza II 192,864 10,898 0 $27.50 ↑ $15.04 Stratum Executive Center Bldg A 61,000 4,055 0 $21.50 ↑ $14.12 Stratum Executive Center Bldg B 61,000 0 0 $21.50 ↑ $14.12 Stratum Executive Center Bldg C 61,000 6,169 0 $21.50 ↑ $14.12 Stratum Executive Center Bldg D 61,000 3,715 ↑ 0 $21.50 ↑ $14.12 The Campus at Arboretum 1 60,059 5,351 ↑ 0 $23.50 $14.13 The Campus at Arboretum 2 33,135 0 0 $23.50 $13.60 The Campus at Arboretum 3 32,765 0 0 $23.50 $14.53 The Campus at Arboretum 4 85,916 12,572 0 $23.50 $14.17 The Campus at Arboretum 5 105,000 0 0 $23.50 $13.94 The Park at 8300 N. MoPac 93,317 6,911 31,958 $23.00 $14.01 UFCU Plaza 246,869 15,194 ↓ 0 $22.00 ↑ $13.30 Westech 360 Bldgs 1-4 175,529 4,025 ↑ 0 $20.00 $13.60 Westpark Office 1-4 97,034 8,256 0 $18.50 $10.89 50 COMPETITIVE SET SHEPHERD MOUNTAIN/2222 MICROMARKET PERFORMANCE SHEPHERD MOUNTAIN/2222 COMPETITIVE SET Quarter Net Rentable Area Direct Vacant SF Sublease Available SF Net Absorption* Direct & Sublease Vacancy Rate Average Class A Full Service Rental Rate 2014 Q3 2,453,857 2014 Q4 2,688,442 211,437 92,007 (14,565) 12.37% $32.28 389,788 127,233 21,008 19.23% $33.10 2015 Q1 2015 Q2 2,690,750 207,238 179,538 132,553 14.37% $34.17 2,690,750 181,807 152,245 52,724 12.41% $34.45 2015 Q3 2,690,750 193,874 135,899 4,279 12.26% $34.55 2015 Q4 2,690,835 173,907 79,703 76,248 9.42% $35.16 2016 Q1 2,690,835 266,741 97,821 (110,952) 13.55% $36.11 2016 Q2 2,690,835 293,144 137,974 (66,556) 16.02% $36.16 *Absorption includes sublease space 525 18% 350 12% 175 0 6% 2014 Q3 2014 Q4 Di rect Vacant SF 2015 Q1 2015 Q2 2015 Q3 2015 Q4 Su blease Avai lable SF 2016 Q1 2016 Q2 Di rect & Subleas e Vacancy Rate $36 18% $34 12% $32 6% $30 2014 Q3 2014 Q4 2015 Q1 2015 Q2 Average Class A Full Service Rental Rate 51 2015 Q3 2015 Q4 2016 Q1 2016 Q2 0% Di rect & Subleas e Vacancy Rate Vacancy Rate Rental Rate VACANCY VS. RENTAL RATES 24% 160 91% 120 89% 80 87% 40 85% 0 83% (40) 81% (80) 79% (120) (160) 0% $38 Absorption (Thousands of SF) 24% Vacancy Rate Availability (Thousands of SF) 700 NET ABSORPTION 77% 2014 Q3 2014 Q4 2015 Q1 Net Abs orption* 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 Di rect & Subleas e Occupancy Rate 75% Occupancy Rate AVAILABLE SF VS. VACANCY RATE COMPETITIVE SET SHEPHERD MOUNTAIN/2222 MICROMARKET COMPETITIVE SET BUILDINGS Building Name Net Rentable Area Direct Vacant SF Sublease Available SF Asking Rental Rate Estimated OpEx Bridgepoint Plaza I 105,333 0 0 $23.50 $13.54 ↑ Bridgepoint Plaza II 72,640 5,016 ↓ 6,287 $23.50 $13.54 Bridgepoint Square 1 84,692 6,636 ↓ 3,933 $24.50 $13.22 Bridgepoint Square 2 92,459 4,814 16,005 ↑ $24.50 $13.22 Bridgepoint Square 3 78,352 0 0 $24.50 $13.22 Bridgepoint Square 4 109,175 10,987 0 $24.50 $13.22 Bridgepoint Square 5 76,793 5,646 0 $24.50 $13.22 Champion Office Park I & II 230,000 0 0 $26.50 $11.00 Four Points Centre I & II 192,396 0 0 $23.50 $13.44 Ladera Bend 1 56,466 0 0 $22.00 $16.34 Ladera Bend 2 45,732 0 0 $22.00 $14.10 ↑ Ladera Bend 3 56,196 0 27,980 ↑ $22.00 $14.67 ↑ Lakewood Center I 47,389 23,885 ↑ 45,020 $22.50 $13.49 Lakewood Center II 44,611 0 0 $22.50 $13.49 Lakewood on the Park B 102,086 24,446 ↑ 0 $21.50 $12.51 Lakewood on the Park C 78,596 14,573 ↑ 0 $21.50 $12.51 Millennium Building 125,612 0 0 $24.00 $12.58 Park Centre Bldg 1 89,822 0↓ 0 $18.00 $12.60 Park Centre Bldg 2 35,095 18,730 0 $18.00 $12.60 Park Centre Bldg 3 78,270 45,711 ↓ 5,397 $18.00 $12.60 Reserve at Bull Creek A 43,867 11,365 0 $20.00 $12.20 Reserve at Bull Creek B 43,713 43,713 0 $20.00 $12.20 Reserve at Bull Creek C 43,695 43,695 0 $20.00 $12.20 River Place Corporate Park I 76,529 0 0 $22.00 $14.50 River Place Corporate Park II 114,491 9,616 ↓ 16,662 ↑ $22.00 $14.12 River Place Corporate Park III 113,465 0 15,707 $22.00 $13.82 River Place Corporate Park IV 87,639 8,601 0 $22.00 $14.07 River Place Corporate Park V 67,601 0 0 $22.00 $14.21 River Place Corporate Park VI 62,037 0 0 $22.00 $14.13 River Place Corporate Park VII 69,119 0 0↓ $22.00 $14.39 Shepherd Mountain Plaza 100,937 4,995 ↑ 983 ↑ $33.00 $12.39 Stone Cliff 66,027 10,715 0 $18.00 $12.46 52 COMPETITIVE SET FAR NORTHWEST MICROMARKET PERFORMANCE FAR NORTHWEST COMPETITIVE SET Quarter Net Rentable Area Direct Vacant SF Sublease Available SF Net Absorption* Direct & Sublease Vacancy Rate Average Class A Full Service Rental Rate 2014 Q3 3,682,381 298,745 72,197 31,076 10.07% $29.40 2014 Q4 3,682,182 362,094 72,197 (63,548) 11.79% $30.26 2015 Q1 3,687,385 337,115 41,201 61,178 10.26% $30.93 2015 Q2 3,687,385 326,153 67,899 (15,736) 10.69% $31.66 2015 Q3 4,224,285 852,792 75,271 2,889 21.97% $31.12 2015 Q4 4,526,637 964,028 62,303 204,084 22.67% $32.36 2016 Q1 4,198,522 537,928 209,659 (49,371) 17.81% $33.30 2016 Q2 4,198,522 490,723 186,650 70,214 16.13% $33.73 *Absorption includes sublease space 24% 1,000 20% 800 16% 600 12% 400 8% 200 4% 0 2014 Q3 2014 Q4 Di rect Vacant SF 2015 Q1 2015 Q2 2015 Q3 2015 Q4 Su blease Avai lable SF 2016 Q1 2016 Q2 Di rect & Subleas e Vacancy Rate 25% 20% $32 15% $30 10% $28 5% $26 2014 Q3 2014 Q4 2015 Q1 2015 Q2 Average Class A Full Service Rental Rate 53 2015 Q3 2015 Q4 2016 Q1 2016 Q2 0% Di rect & Subleas e Vacancy Rate Vacancy Rate Rental Rate VACANCY VS. RENTAL RATES $34 96% 200 90% 100 84% 0 78% (100) 0% $36 300 2014 Q3 2014 Q4 Net Abs orption* 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 Di rect & Subleas e Occupancy Rate 72% Occupancy Rate 1,200 Absorption (Thousands of SF) NET ABSORPTION Vacancy Rate Availability (Thousands of SF) AVAILABLE SF VS. VACANCY RATE COMPETITIVE SET FAR NORTHWEST MICROMARKET COMPETITIVE SET BUILDINGS Net Rentable Area Direct Vacant SF Sublease Available SF Asking Rental Rate Estimated OpEx Amber Oaks A 78,164 0 0 $19.50 $11.67 Amber Oaks B 44,184 0 0 $19.50 $8.30 Amber Oaks C 44,184 0 0 $19.50 $8.60 Amber Oaks D 28,733 0 0 $19.50 $10.45 Building Name Amber Oaks E 63,111 0 0 $19.50 $8.03 Amber Oaks F 79,732 60,652 ↓ 0 $19.50 $11.64 Amber Oaks G 106,455 4,572 0 $19.50 $11.61 Amber Oaks H 101,045 0 0 $19.50 $10.93 Amber Oaks I 50,313 10,828 0 $19.50 $13.03 Amber Oaks J 50,111 6,245 33,147 $19.50 $12.14 Aspen Lake One 204,940 0 0 $22.00 ↑ $13.26 Aspen Lake Two 129,000 0 0 $24.50 $10.00 Crossings at Lakeline I 114,726 0 6,612 ↓ $21.50 $11.83 ↓ Crossings at Lakeline II 118,046 6,788 ↓ 2,189 ↑ $21.50 $12.03 Paloma Ridge A 106,200 106,200 0 $19.00 ↑ $9.50 Paloma Ridge B 106,200 83,915 ↓ 0 $19.00 ↑ $9.50 Parmer Business Park 7, 8, 9 123,731 0 0 $18.50 $5.60 Parmer Business Park D, E, F 107,283 0 0 $18.50 $5.60 Pecan Park I 136,444 0 0 $22.50 ↑ $11.91 ↑ Pecan Park II 136,245 0 0 $19.50 $9.45 Research Park Place 7 125,701 0↓ 2,799 $23.00 ↑ $13.20 ↑ Research Park Place 8 125,700 33,518 0 $23.00 ↑ $13.20 ↑ Research Park Plaza I 135,541 11,747 0 $23.00 $14.98 Research Park Plaza II 131,027 0 0 $23.00 $14.98 Research Park Plaza III 173,530 0 0 $24.00 $13.08 Research Park Plaza IV 184,114 3,355 96,334 $24.00 $14.93 Research Park Plaza V 172,854 72,709 ↓ 0 $24.00 $11.06 Riata Corporate Park Bldg 2 63,372 7,054 9,767 ↑ $22.00 $13.65 ↑ Riata Corporate Park Bldg 3 63,849 0 0 $22.00 $13.65 ↑ Riata Corporate Park Bldg 4 93,737 57,188 ↑ 0 $22.00 $13.65 ↑ Riata Corporate Park Bldg 5 93,828 6,215 ↓ 0 $22.00 $13.65 ↑ Riata Corporate Park Bldg 6 93,835 0 0 $22.00 $13.65 ↑ Riata Corporate Park Bldg 7 92,719 0 21,477 $22.00 $13.65 ↑ Riata Corporate Park Bldg 8 93,718 0 14,325 ↓ $22.00 $13.65 ↑ Riata Corporate Park Bldg 9 92,973 0 0 $22.00 $13.65 ↑ Riata Crossing Bldg 1 81,775 0 0 N/A N/A Riata Crossing Bldg 2 114,906 0 0 N/A N/A Riata Crossing Bldg 3 81,229 0 0 N/A N/A Riata Crossing Bldg 4 79,465 0 0 N/A N/A Tower of the Hills/Tower Point 175,802 25,383 ↑ 0 $26.00 ↑ $12.82 ↓ 54 COMPETITIVE SET NEAR SOUTHWEST MICROMARKET PERFORMANCE NEAR SOUTHWEST COMPETITIVE SET Quarter Net Rentable Area Direct Vacant SF Sublease Available SF Net Absorption* Direct & Sublease Vacancy Rate Average Class A Full Service Rental Rate 2014 Q3 2,712,851 174,207 126,557 56,791 11.09% $37.06 2014 Q4 2,713,137 158,703 124,248 18,099 10.43% $37.50 2015 Q1 2,711,340 143,863 125,110 12,181 9.92% $38.69 2015 Q2 2,925,937 110,815 101,710 271,045 7.26% $38.96 2015 Q3 2,925,937 105,532 175,528 (68,535) 9.61% $39.31 2015 Q4 2,925,937 149,170 165,733 (33,843) 10.76% $40.02 2016 Q1 2,926,017 137,847 113,003 64,133 8.57% $40.53 2016 Q2 2,926,017 185,286 85,148 (19,584) 9.24% $40.93 *Absorption includes sublease space 16% 300 12% 200 8% 100 4% 0 2014 Q3 2014 Q4 Di rect Vacant SF 2015 Q1 2015 Q2 2015 Q3 2015 Q4 Su blease Avai lable SF 2016 Q1 2016 Q2 0% $41 15% $39 12% $37 9% $35 2014 Q3 2014 Q4 2015 Q1 2015 Q2 Average Class A Full Service Rental Rate 55 2015 Q3 2015 Q4 2016 Q1 2016 Q2 6% Di rect & Subleas e Vacancy Rate Vacancy Rate Rental Rate VACANCY VS. RENTAL RATES 18% 100% 200 96% 100 92% 0 88% (100) Di rect & Subleas e Vacancy Rate $43 300 2014 Q3 2014 Q4 Net Abs orption* 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 84% Di rect & Subleas e Occupancy Rate Occupancy Rate 400 Absorption (Thousands of SF) NET ABSORPTION Vacancy Rate Availability (Thousands of SF) AVAILABLE SF VS. VACANCY RATE COMPETITIVE SET NEAR SOUTHWEST MICROMARKET COMPETITIVE SET BUILDINGS Net Rentable Area Direct Vacant SF Barton Creek Plaza I 72,974 Barton Creek Plaza II 64,718 Barton Creek Plaza III 64,842 Building Name Sublease Available SF Asking Rental Rate Estimated OpEx 9,875 ↑ 0 $24.00 ↑ $13.65 6,466 8,929 ↑ $24.00 $12.83 ↑ 0 0 $24.00 $12.83 ↑ Barton Oaks Plaza I 99,404 4,901 0 $27.00 $15.98 Barton Oaks Plaza II 116,448 18,226 ↑ 0 $26.50 $15.56 Barton Oaks Plaza III 121,467 11,174 ↑ 0 $26.50 $14.59 Barton Oaks Plaza IV 112,000 0 0 $26.27 $14.73 Barton Oaks Plaza V 119,549 3,647 2,762 ↑ $27.00 $14.47 Barton Skyway I 195,324 3,240 3,596 $26.50 ↑ $14.95 Barton Skyway II 195,639 5,896 ↓ 24,275 $26.50 ↑ $14.61 Barton Skyway III 173,302 9,303 ↑ 0↓ $26.50 ↑ $14.52 Barton Skyway IV 222,580 0 0 $26.50 ↑ $13.86 Centre I 39,903 1,525 ↑ 0 $20.50 ↓ $12.50 Centre II 54,610 11,083 ↓ 0 $19.50 $12.47 Mira Vista 121,147 0 4,125 ↑ $27.50 $14.02 Overlook at Gaines Ranch 50,725 10,949 ↑ 0 $26.50 $14.61 ↓ Rollingwood Center I & II 214,587 0 31,000 ↓ $30.00 ↑ $12.00 Spyglass Point 58,576 0 0 $22.00 $13.45 The Park on Barton Creek 1 102,608 21,262 2,203 $25.00 $14.02 The Park on Barton Creek 2 102,587 38,991 ↑ 0 $25.00 $14.47 The Terrace 1 115,460 10,194 ↓ 0↓ $25.50 ↑ $15.99 The Terrace 2 114,635 3,447 0 $25.50 ↑ $15.65 The Terrace 6 196,717 13,055 ↓ 8,258 $28.50 ↑ $15.92 The Terrace 7 196,215 2,052 0 $28.50 ↑ $15.99 56 COMPETITIVE SET FAR SOUTHWEST MICROMARKET PERFORMANCE FAR SOUTHWEST COMPETITIVE SET Quarter Net Rentable Area Direct Vacant SF Sublease Available SF Net Absorption* Direct & Sublease Vacancy Rate Average Class A Full Service Rental Rate 2014 Q3 4,390,023 120,380 43,047 75,909 3.72% $34.16 2014 Q4 4,389,410 227,630 58,229 (123,045) 6.51% $34.86 2015 Q1 4,389,410 256,056 63,503 (33,700) 7.28% $35.57 2015 Q2 4,856,527 317,790 112,102 356,784 8.85% $36.39 2015 Q3 5,023,388 248,093 88,817 259,843 6.71% $36.31 2015 Q4 5,232,935 485,156 80,759 (19,458) 10.81% $36.75 2016 Q1 5,235,126 542,462 82,635 (56,991) 11.94% $37.28 2016 Q2 5,235,126 511,330 114,978 (1,211) 11.96% $37.58 *Absorption includes sublease space 12% 450 9% 300 6% 150 0 3% 2014 Q3 2014 Q4 Di rect Vacant SF 2015 Q1 2015 Q2 2015 Q3 2015 Q4 Su blease Avai lable SF 2016 Q1 2016 Q2 Di rect & Subleas e Vacancy Rate $36 12% $34 8% $32 4% $30 2014 Q3 2014 Q4 2015 Q1 2015 Q2 Average Class A Full Service Rental Rate 57 2015 Q3 2015 Q4 2016 Q1 2016 Q2 0% Di rect & Subleas e Vacancy Rate Vacancy Rate Rental Rate VACANCY VS. RENTAL RATES 16% 450 99% 300 96% 150 93% 0 90% (150) 0% $38 Absorption (Thousands of SF) 15% Vacancy Rate Availability (Thousands of SF) 600 NET ABSORPTION 2014 Q3 2014 Q4 Net Abs orption* 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 87% Di rect & Subleas e Occupancy Rate Occupancy Rate AVAILABLE SF VS. VACANCY RATE COMPETITIVE SET FAR SOUTHWEST MICROMARKET COMPETITIVE SET BUILDINGS Net Rentable Area Direct Vacant SF Sublease Available SF Asking Rental Rate Estimated OpEx 3600 San Clemente Bldg B 90,267 0 0 $26.50 $15.63 3700 San Clemente 249,870 70,192 ↓ 0 $29.50 $13.27 3900 San Clemente 251,146 135,366 ↑ 0 $24.50 $13.81 5000 Plaza on the Lake 118,063 9,560 ↑ 9,980 $27.50 $15.85 7000 West at Lantana 1 & 2 136,075 0 0 DND DND Canyon at Wild Basin 74,580 11,207 ↑ 0 $24.50 $12.04 ↑ Capital Ridge 216,511 0 0 $30.00 $10.56 Cielo Center 270,711 6,292 ↑ 0↓ $19.50 $13.32 Cityview 1 46,702 0 0 $22.00 ↑ $13.55 Cityview 2 47,809 0 0 $22.00 ↑ $13.55 Cityview 3 48,044 0 2,015 $22.00 ↑ $13.55 Cityview Center 137,763 0 24,478 $26.00 $11.79 Crystal Mountain 1, 2 & 3 61,762 17,544 ↑ 1,590 $26.00 $9.41 Dimensional Place I 220,000 0 0 $24.00 $12.42 Dimensional Place II 156,000 0 0 $24.00 $12.42 Encino Trace I 161,606 0 0 $23.50 $13.15 Encino Trace II 158,137 101,822 ↓ 0 $23.50 $13.15 Escalade Bldg A 58,344 9,440 0 $19.50 $13.46 Escalade Bldg B 57,142 4,621 0 $19.50 $13.46 Lake Pointe II 42,933 5,489 0 $14.00 $10.09 Las Cimas I 85,000 3,700 ↓ 0 $23.50 ↓ $14.29 Las Cimas II 156,069 19,402 6,641 ↑ $26.50 $14.92 Las Cimas III 157,418 9,218 ↑ 0 $26.50 $14.73 Las Cimas IV 138,008 0 14,373 ↑ $27.00 $14.58 Lost Creek Point 73,026 4,695 ↑ 0 $18.00 $12.29 Parkway at Oak Hill I & II 145,475 6,021 ↓ 0 $24.00 $13.84 ↑ Plaza 290 63,163 3,585 ↑ 0 $18.50 $12.50 Plaza on the Lake I 122,530 8,936 0 $28.50 ↑ $15.35 Plaza on the Lake II 111,166 0 0 $28.50 ↑ $14.96 Rialto I 77,755 11,003 ↑ 3,892 ↑ $23.50 $13.64 Rialto II 77,732 0 36,421 $23.50 $13.64 The Enclave Bldgs 1-4 44,704 2,781 ↑ 0 $19.00 $9.97 The Summit at Lantana Bldgs 1-5 865,832 52,934 0 $25.00 $13.06 Travis Oaks 123,434 0↓ 0 $24.00 ↑ $13.30 Vista Ridge I 75,131 2,199 0 $19.00 $11.00 Westlake Place 61,184 5,608 0↓ $20.00 $13.39 Wild Basin Atrium Bldg A & B 118,910 6,859 0 $18.00 $9.40 & ↑ Wild Basin I 60,498 2,856 1,004 ↑ $19.00 $11.81 Wild Basin II 74,626 0 14,584 ↑ $19.00 $10.87 Building Name 58 LONG TERM PERFORMANCE OF SUBMARKETS Numbers based on CBRE statistics. 20% 6 15% 4 10% 2 5% 0 0% Citywide Sublease Vacancy 5 40% 4 32% 3 24% 2 16% 1 8% 0 0% $45 $40 $35 $30 $25 $20 Southwest Northwest 12% 6% 0% 2,500 30% 2,000 24% 1,500 18% 1,000 12% 500 6% 0 0% Southwes t Di rect Avai lability Southwes t Vacancy Rate Southwes t Su blease Availability Citywide Vacancy Rate ABSORPTION & OCCUPANCY RATE *Absorption includes sublease space. 4 95% 3 90% 2 85% 1 80% 0 75% -1 70% -2 65% Citywide CBD 59 CBD Sublease Availability Citywide Vacancy Rate SOUTHWEST AVAILABLE SF VS. VACANCY RATE Year Over Year Direct & Sublease Absorption (Millions of SF) $50 CBD 18% CBD Dire ct Availability CBD Vacancy Rate Northwest Sublease Availabi lity Citywide Vacancy Rate CITYWIDE AVERAGE CLASS A ASKING RATES Full Service Rental Rate Direct & Sublease Vacancy Rate Availability (Millions of SF) NORTHWEST AVAILABLE SF VS. VACANCY RATE Northwest Direct Availability Northwest Vacancy Rate 24% Citywide Vacancy Rate Availability (Thousands of SF) Citywide Direct Vacancy 30% Direct & Sublease Vacancy Rate 8 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Direct & Sublease Vacancy Rate 25% Direct & Sublease Occupancy Rate 30% 10 Availability (Thousands of SF) 12 CBD AVAILABLE SF VS. VACANCY RATE Direct & Sublease Vacancy Rate Availability (Millions of SF) CITYWIDE AVAILABLE SF VS. VACANCY RATE Northwest Southwes t Citywide Occupancy Rate LONG TERM PERFORMANCE CBD VS. SUBURBAN Numbers based on CBRE statistics. DIRECT & SUBLEASE VACANCY RATES 30% $50 25% $40 20% Vacancy Rate $60 $30 $20 $10 10% 5% $0 0% CBD Su burban CBD Vacancy Rate Citywide 12 30% 10 25% 8 20% 6 15% 4 10% 2 5% 0 0% CBD Su burban Su burban Vacancy Rate Citywide Vacancy Rate SF UNDER CONSTRUCTION Citywide Vacancy Rate Direct & Sublease Vacancy Rate DIRECT & SUBLEASE AVAILABILITY Direct & Sublease Availability (Millions of SF) 15% Area Under Construction (Millions of SF) Full Service Rental Rate AVERAGE CLASS A ASKING RATES 4 3 2 1 0 CBD Northwest Southwes t 60 CBD OVERALL PERFORMANCE CBD SUBMARKET Quarter Net Rentable Area Direct Vacant SF Net Absorption* Direct & Sublease Vacancy Rate Average Class A Full Service Rental Rate 2014 Q3 9,252,285 1,041,014 185,807 11.90% $41.39 2014 Q4 9,252,285 802,517 176,610 9.44% $43.13 2015 Q1 9,768,770 1,135,835 139,236 12.81% $43.83 2015 Q2 9,809,755 870,240 291,638 10.20% $41.90 2015 Q3 9,809,755 672,222 135,085 7.83% $44.17 2015 Q4 9,732,884 631,228 83,341 7.07% $43.64 2016 Q1 9,732,884 565,112 88,208 5.94% $47.52 2016 Q2 9,954,349 706,027 25,998 7.80% *Absorption includes sublease space NET ABSORPTION 1,500 15% 300 95% 1,200 12% 250 93% 600 6% 300 3% 0 0% 2014 Q3 2014 Q4 Di rect Vacant SF 2015 Q1 2015 Q2 2015 Q3 2015 Q4 Su blease Avai lable SF 2016 Q1 2016 Q2 Di rect & Subleas e Vacancy Rate VACANCY RATES VS. RENTAL RATES 24% $48 21% $47 18% $46 15% $45 12% $44 9% $43 $42 6% $41 3% $40 2014 Q3 2014 Q4 2015 Q1 2015 Q2 Average Class A Full Service Rental Rate 2015 Q3 2015 Q4 2016 Q1 2016 Q2 Vacancy Rate Rental Rate $49 0% Di rect & Subleas e Vacancy Rate 91% 89% 150 87% 100 85% 50 0 83% 2014 Q3 2014 Q4 Net Abs orption* 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 Di rect & Subleas e Occupancy Rate 81% Occupancy Rate 9% 200 Absorption (Thousands of SF) 900 Vacancy Rate Availability (Thousands of SF) AVAILABLE SF VS. VACANCY RATE 61 $47.93 Numbers based on CBRE statistics. AUSTIN CBD OFFICE RENTAL RATE PROJECTIONS $60 3% Job Growth $55 Full Service Rental Rates $50 1% Job Growth $45 $40 $35 $30 $25 $20 $15 2004 2005 2006 2007 2008 2009 Historic Rental Rate 2010 2011 AQUILA Model 2012 2013 3% Job Growth 2014 2015 2016 2017 2018 1% Job Growth AUSTIN CBD OFFICE VACANCY RATE PROJECTIONS 35% 11.0 Shoal Creek Walk 10.5 25% 10.0 20% 9.5 15% 9.0 10% 8.5 Market Size (Millions of SF) Total Vacancy Rate 500 W 2nd 30% 1% Job Growth 5% 0% 2004 8.0 3% Job Growth 2005 2006 2007 Market Size 2008 2009 2010 Historic Vacancy Rate 2011 2012 AQUILA Model 2013 2014 3% Job Growth 2015 2016 2017 2018 7.5 1% Job Growth 62 NORTHWEST OVERALL PERFORMANCE NORTHWEST OVERALL SUBMARKET PERFORMANCE Net Rentable Area Direct Vacant SF Net Absorption* Direct & Sublease Vacancy Rate 2014 Q3 16,697,337 1,566,544 (78,989) 10.64% $30.65 2014 Q4 16,817,337 1,540,054 93,312 10.46% $30.83 2015 Q1 17,154,310 1,879,975 138,145 11.65% $32.06 2015 Q2 17,269,310 1,819,734 180,936 11.56% $32.74 2015 Q3 17,269,310 1,665,124 237,697 9.96% $33.26 2015 Q4 17,535,625 1,283,335 311,312 8.99% $34.14 2016 Q1 18,039,828 1,868,483 136,576 11.17% $33.77 2016 Q2 18,114,632 1,788,996 167,959 10.60% $34.62 *Absorption includes sublease space Numbers based on CBRE statistics. 2,500 15% 2,000 12% 1,500 9% 1,000 6% 500 3% 0 2014 Q3 2014 Q4 Di rect Vacant SF 2015 Q1 2015 Q2 2015 Q3 2015 Q4 Su blease Avai lable SF 2016 Q1 2016 Q2 0% $34 13% $32 10% $30 7% $28 2014 Q3 2014 Q4 2015 Q1 2015 Q2 Average Class A Full Service Rental Rate 2015 Q3 2015 Q4 2016 Q1 2016 Q2 4% Di rect & Subleas e Vacancy Rate Vacancy Rate Rental Rate VACANCY RATES VS. RENTAL RATES 16% 600 95% 450 93% 300 91% 150 89% 0 87% (150) Di rect & Subleas e Vacancy Rate $36 Absorption (Thousands of SF) NET ABSORPTION Vacancy Rate Availability (Thousands of SF) AVAILABLE SF VS. VACANCY RATE 63 Average Class A Full Service Rental Rate 2014 Q3 2014 Q4 Net Abs orption* 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 Di rect & Subleas e Occupancy Rate 85% Occupancy Rate Quarter NORTHWEST SUBMARKET OFFICE RENTAL RATE PROJECTIONS $40 3% Job Growth Full Service Rental Rates $35 1% Job Growth $30 $25 $20 $15 2004 2005 2006 2007 2008 2009 Historic Rental Rate 2010 2011 AQUILA Model 2012 2013 3% Job Growth 2014 2015 2016 2017 2018 1% Job Growth NORTHWEST SUBMARKET OFFICE VACANCY RATE PROJECTIONS 30% 20.0 Domain 8 Braker Pointe III 19.0 25% 17.0 Total Vacancy Rate 20% 16.0 1% Job Growth 15% 15.0 14.0 10% 3% Job Growth 13.0 Market Size (Millions of SF) 18.0 12.0 5% 11.0 0% 2004 2005 2006 2007 Market Size 2008 2009 2010 Historic Vacancy Rate 2011 2012 AQUILA Model 2013 2014 3% Job Growth 2015 2016 2017 2018 10.0 1% Job Growth 64 SOUTHWEST OVERALL PERFORMANCE SOUTHWEST OVERALL SUBMARKET PERFORMANCE Quarter Net Rentable Area Direct Vacant SF Net Absorption* Direct & Sublease Vacancy Rate Average Class A Full Service Rental Rate 2014 Q3 9,458,793 653,880 187,746 9.24% $31.38 2014 Q4 9,418,793 640,998 29,201 8.41% $34.87 2015 Q1 9,446,430 589,875 66,172 7.98% $34.35 2015 Q2 10,109,725 1,070,609 21,626 12.21% $33.76 2015 Q3 10,257,625 1,192,565 200,870 12.29% $35.03 2015 Q4 10,484,922 769,552 131,055 9.80% $35.85 2016 Q1 10,484,886 777,581 80,164 9.25% $36.65 2016 Q2 10,484,886 985,849 (90,753) 11.40% *Absorption includes sublease space NET ABSORPTION 12% 900 9% 600 6% 300 3% 2014 Q3 2014 Q4 Di rect Vacant SF 2015 Q1 2015 Q2 2015 Q3 2015 Q4 Su blease Avai lable SF 2016 Q1 2016 Q2 400 Di rect & Subleas e Vacancy Rate $38 16% $36 12% $34 8% $32 4% $30 2014 Q3 2014 Q4 2015 Q1 2015 Q2 Average Class A Full Service Rental Rate 65 2015 Q3 2015 Q4 2016 Q1 2016 Q2 0% Di rect & Subleas e Vacancy Rate Vacancy Rate Rental Rate VACANCY RATES VS. RENTAL RATES 92% 200 90% 0 (200) 0% 94% 88% 2014 Q3 2014 Q4 Net Abs orption* 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 Di rect & Subleas e Occupancy Rate 86% Occupancy Rate 15% 1,200 Absorption (Thousands of SF) 1,500 Vacancy Rate Availability (Thousands of SF) AVAILABLE SF VS. VACANCY RATE 0 $37.18 Numbers based on CBRE statistics. SOUTHWEST SUBMARKET OFFICE RENTAL RATE PROJECTIONS $40 3% Job Growth 1% Job Growth Full Service Rental Rates $35 $30 $25 $20 $15 2004 2005 2006 2007 2008 2009 Historic Rental Rate 2010 2011 AQUILA Model 2012 2013 2014 3% Job Growth 2015 2016 2017 2018 1% Job Growth SOUTHWEST SUBMARKET OFFICE VACANCY RATE PROJECTIONS 25% 12.0 The Overlook at Barton Creek Lantana Ridge I & II Walsh Tarlton Overlook 11.0 Total Vacancy Rate 10.0 15% 9.0 1% Job Growth 8.0 10% 3% Job Growth 7.0 Market Size (Millions of SF) 20% 5% 6.0 0% 2004 2005 2006 2007 2008 Market Size 2009 2010 Historic Vacancy Rate 2011 2012 AQUILA Model 2013 2014 3% Job Growth 2015 2016 2017 2018 5.0 1% Job Growth 66 THE AQUILA METHODOLOGY CHANGES THIS QUARTER • All submarket, micromarket and individual property materials, tables and graphs prior to the appendix are based on AQUILA research unless otherwise noted. Historically, submarket statistics have been based on CBRE statistics. CBRE-based submarket statistics have been moved to the appendix. • The figures on the title pages for each of the submarkets (pages 24, 31, 37) are now based on AQUILA research. Historically, they have been based on CBRE statistics. The figures on the title page for the citywide update (page 18) is still based on CBRE statistics. • Absorption figures based on CBRE statistics have historically been our calculation of the difference of total occupied square feet (Absorption = (NRA2 – Total Vacant SF2) – (NRA1 – Total Vacant SF1)). This differs from CBRE’s calculation, which is measured as changes on physically occupied space — amount occupied compared and measured to amount occupied. As of 2016 Q1, CBRE no longer discloses Total Vacant SF. Therefore, on the datasets that are based on CBRE statistics, the absorption figures now directly reflect those provided by CBRE, rather than on our calculation. DEFINITIONS CBD Competitive Set Buildings – Class A buildings located in, or near, the core of downtown Suburban Competitive Set Buildings – newer suburban office buildings that typically have structured parking and amenities such as conference rooms, workout facilities and/or delis Direct Vacant SF – space that is currently vacant and immediately available to lease Sublease Available SF – space that is currently available to sublease Direct & Sublease Vacancy Rate = (Direct Vacant SF + Sublease Available SF)/(Net Rentable Area) Absorption = (NRA2 – Direct Vacant SF2 – Sublease Available SF2) – (NRA1 – Direct Vacant SF1 – Sublease Available SF1) 67 YOUR NOTES: 68 1717 W. Sixth Street, Suite 400 Austin, Texas 78703 512 684-3800 aquilacommercial.com 1