Economic Overview

Austin’s economy remained stable and continued its growth during the last quarter of 2014. Ranked ninth among the nation’s top 50 metros, Austin added 28,600 jobs in the year ending November, 2014 according to the Bureau of Labor Statistics. This strong employment growth contributed to the continued fall of the Austin MSA’s unemployment rate. At 3.9% unemployment, the area saw a .8 percentage point decrease in the year ending November, 2014 ranking third among the top 50 metros in the U.S. The main driver of Austin’s economic growth and stability continued to be its technology center.

According to the Milken Institute’s 2014 Best Performing Cities report, not only does Austin out-perform nearly every major U.S. city in the generation of technology and creative industry jobs, but its growth is more stable than most of the nation’s other technology centers. Much of this success can be attributed to large technology companies in Austin such as Dell, Apple, Samsung and AMD among others, who created a strong technology center for the area focused in hardware and chip manufacturing. Over recent years Austin’s technology industry has evolved into new sectors such as internet-related services and computer systems. Further, with the development of the University of Texas’ Dell Medical School, a strong biotech sector has begun to emerge. Austin also saw promising growth in other economic sectors. According to the Bureau of Labor Statistics, Austin saw a 5.1% increase in construction jobs, 5.9% increase in leisure and hospitality employment and an 8.4% increase in the professional and business services labor force over the past year.

The thriving Austin economy has made it the fastest-growing metro in the state of Texas. The latest Census Bureau estimate from 2013 has the Austin MSA’s population sitting at 1.8 million. This estimate has Austin exceeding 2 million residents by 2016. Over the next 10 years, Austin is expected to grow by 33.6%. The Milken Institute’s 2014 Best Performing Cities report also noted that Austin has the nation’s highest rate of net in-migration with 31,000 more people moving to Austin than leaving.

Austin

Partnership. Performance.

OFFICE MARKET MONITORFOURTH QUARTER 2014

Market TakeawayThe Austin office market remained strong through the end of 2014, highlighting a year of rising rental rates, shrinking vacancies and the delivery of over 1 million square feet of new product.

Market Facts

Asking Rents

Net Absorption

Vacancy Rates

4Q14 Highlights

• IBC Bank Plaza and Colorado Tower delivered in the CBD, but as both exceeded 90% pre-leasing the inventory added had little effect on the submarket’s vacancy rate

• Loncoln Property Company broke ground on 5th + Colorado, a 179,000 square foot building in Austin’s CBD

• The office portion of the Seaholm development neared completion as Athenahealth prepares for their February move-in

• The Domain 7 building delivered adding over 200,000 square feet to the North submarket

• Champion Office Park, buildings I & II, delivered 230,000 square feet to the Northwest submarket

• Construction began on Aspen Lake II with completion slated for Fall 2015. Currently, 54% of its total 128,000 square feet has been pre-leased

• Rental rates for class A space in the CBD climbed past $41

• Austin’s thriving economy and jobs market continued to bring substantial employment and population growth

Office Market Overview

Vacancy

The high demand for office space seen throughout the first three quarters of 2014 continued as the year came to a close. Illustrating this high demand was the continued fall of the Austin office market’s vacancy rate. Including all submarkets and building classes, the fourth quarter closed out with a vacancy rate of just 10.7% - down from 11.3% in the third quarter. This drop is even more notable when considering that nearly 800,000 square feet of new office product hit the market in the fourth quarter. Most notably, the fourth quarter vacancy rate in Austin’s CBD sat at only 8.8% down a whole percentage point and a half from the third quarter. The Far Northwest vacancy rate is also one to note, as Freescale Semiconductor’s vacating of their nearly 300,000 square foot space at 7700 Parmer late in the fourth quarter has temporarily inflated the small submarket’s vacancy rate to 25%. However, when the Northwest and Far Northwest submarkets are combined, the resulting vacancy rate of 12.3% is much more indicative of market conditions.

Construction & New Deliveries

At the close of the third quarter only 244,054 square feet of new office space had delivered in 2014 while numerous projects were under construction or breaking ground. During the fourth quarter however, several projects in Austin’s CBD, North, Northwest and Southwest submarkets delivered. This brought the 2014 total of new deliveries up to 1.2 million square feet. The approximately 1 million square feet of new product that delivered during the final quarter of 2014 included the IBC Bank Plaza and Colorado Tower in the CBD, the Domain 7 building in the North submarket, the Champion Office Park buildings I & II in Northwest Austin, as well as The Overlook at Rob Roy in the Southwest submarket. Significant portions of these new deliveries were pre-leased, hence their minimal effect on vacancy figures overall. Colorado Tower and IBC Bank Plaza, two of the year’s largest deliveries, were over 90% pre-leased before the fourth quarter had even begun. Should demand continue as it did in 2014, many of the projects under construction that are set to deliver in 2015 could have the same minimal effect on vacancy and rental rates. Notable projects currently under construction are the half-million square foot 500 W 2nd development in the CBD, Aspen Lake II in the Far Northwest submarket and Encino Trace in the Southwest submarket. Heading into 2015, Aspen Lake II is over 50% pre-leased with Encino Trace showing similar activity with over 40% of its 320,000 square feet pre-leased.

Rental Rates

While vacancy continued its downward trend and Austin’s construction pipeline followed its upward trend, rental rates followed their recently familiar rise. Class A space in the CBD and Northwest submarkets averaged $1 higher in the fourth quarter compared to the third quarter while class A space in the South and Southwest submarkets averaged $2 higher.

Fourth Quarter 2014Austin Office Market Monitor

Absorption

As limited availability, high rental rates and other factors such as transportation have prompted firms to look outside of Austin’s CBD for space, the North, Northwest, South and Southwest submarkets trended behind in a similar fashion of rising rates and falling vacancy as the more affordable product was absorbed. Over the course of 2014, a net of 447,519 square feet of space was absorbed in the CBD. Austin’s remaining submarkets with the highest year-to-date net absorption included the North, Northwest, South and Southwest submarkets. Austin’s North and Southwest submarkets each saw over 200,000 square feet of net absorption during 2014 while the Northwest and South submarkets saw over 160,000 square feet and 94,000 square feet in net absorption respectively. At year’s end a total of 1,171,011 square feet of space was absorbed in Austin’s office market.

The outlook for Austin’s office market into 2015 looks promising as we await the delivery of more new product. With a strong economy that is less dependent on the oil market compared to most Texas cities, Austin should remain a stable marketplace and continue to see strong population and employment growth with continued high demand for office space.

Austin Office Market Monitor Fourth Quarter 2014

Tenant Name Building Submarket Square Feet

EZCorp, Inc. Rollingwood Center, Bldg. 1 Southwest 138,900

Bazaarvoice, Inc. Quarry Oaks Northwest 137,615

ARA Diagnostics Quarry Oaks Northwest 30,578

Mike Kennedy, Principal & Managing Director 512.474.2411 Mike.Kennedy@avisonyoung.com

For more information:

Largest 4Q Lease Transactions

Andrew Alizzi, Research Coordinator 512.717.3087 Andrew.Alizzi@avisonyoung.com©2013 Avison Young Texas, LLC. All rights reserved.

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THE INFORMATION CONTAINED HEREIN WAS OBTAINED FROM SOURCES BELIEVED RELIABLE; HOWEVER, AVISON YOUNG MAKES NO GUARANTEES, WARRANTIES OR REPRESENTATIONS AS TO THE COMPLETENESS OR ACCURACY THEREOF. THE PRESENTATION OF THIS PROPERTY IS SUBMITTED SUBJECT TO ERRORS, OMISSIONS, CHANGE OF PRICE, OR CONDITIONS, PRIOR TO SALE OR LEASE, OR WITHDRAWAL WITHOUT NOTICE.

Year-to-Date Market IndicatorsMARKET INVENTORY CONSTRUCTION

PIPELINEVACANCY RATE ABSORPTION AVG. RENTAL RATE