Austin’s office rental rates continue to grow along with its population

Research & Forecast Report

AUSTIN | OFFICEQ3 2016

Kaitlin Holm Research and Marketing Coordinator | Austin

Austin continues to grow and the office rental rates are going along for the ride. Austin’s population is growing faster than any other metro in the U.S., and now the CBD rates are higher than other large metro’s including Chicago, Miami, and even Los Angeles. As a result, the vacancy rates are starting to fall, and there’s about 350,000 square feet set to deliver by the end of 2016 and 1,297,228 square feet coming in Q1 2017.

Three buildings totaling 259,480 SF delivered in the third quarter, and 216,549 SF of that was preleased. The largest building that delivered was the 179,846 SF 5th & Colorado building, located in the CBD submarket.

The citywide average rental rate increased by 7.3% from $36.02 per square foot to $38.68 per square foot over the quarter. Class A rental rates in Austin’s CBD increased by 12.4% over the quarter to $50.90 per square foot from $49.52 per square foot in Q2. Overall suburban Class A rental rates also increased, from $33.69 per square foot to $35.20 over the quarter.

It was announced in October that Austin’s population will double in size by 2040, reaching over 4 million people. This makes it America’s fastest growing metro. Austin is also expected to climb from the 33rd largest metro in America to the 21st by 2040. Though the population continues to increase, Austin’s unemployment rate has decreased yet again. According to the Austin Chamber, Austin is ranked first for unemployment rates among the top 50 metros in America, followed closely by San Francisco.

Vacancy & Availability

Austin’s citywide vacancy rate decreased marginally between quarters from 11.9% to 11.7%. The CBD Class A vacancy rate remained the same over the past two quarters at 7.2%. The suburban Class A vacancy rate was also paused at Q2’s rate of 13.6% for this quarter.

Overall suburban vacancy decreased over the quarter to 12.9%. Submarkets that saw a decrease in vacancy over the quarter include Cedar Park, East, Far Northwest, Northeast, Northwest,

Summary Statistics Austin Office Market Q3 2015 Q2 2016 Q3 2016

Vacancy Rate 11.5% 11.9% 11.7%

Net Absorption (Million Square Feet) 1.044 (.015) .326

New Construction (Million Square Feet) .000 .110 .409

Under Construction (Million Square Feet) 1.709 1.644 1.151

Class A Vacancy Rate CBD Suburban

9.7%12.8%

7.2%13.6%

7.2%13.6%

Gross Asking Rents Per Square Foot Per Year

Average $34.89 $36.02 $38.68

CBD Class A $44.21 $45.27 $50.90

Suburban Class A $32.77 $33.69 $35.20

Market IndicatorsRelative to prior period

AnnualChange

Quarterly Change

Quarterly Forecast*

VACANCY

NET ABSORPTION

NEW CONSTRUCTION

UNDER CONSTRUCTION

*Projected

CBD Rents Suburban RentsQ3-13 38.66 25.47Q4-13 39.1 25.61Q1-14 38.93 26.62Q2-14 38.58 26.73Q3-14 40.48 27.25Q4-14 40.25 27.21Q1-15 40.63 28.18Q2-15 40.15 29.08Q3-15 42.35 29.12Q4-15 42.48 29.34Q1-16 42.54 29.52Q2-16 43.32 29.62Q3-16 48.51 31.08

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

CBD Rents Suburban Rents

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

CBD Vacancy Suburban Vacancy

2 Austin Research & Forecast Report | Q3 2016 | Office | Colliers International

Round Rock, Southeast, and West Central. The Round Rock submarket saw the largest decrease in vacancy falling from 18.3% to 8.5% over the quarter, which was due to Houghton Mifflin Harcourt moving into their 85,000 SF space at 2700 La Frontera Blvd.

Absorption, New Supply and Vacancy

Absorption & Demand

Austin’s office market posted 326,073 square feet of positive net absorption in Q3 2016. The three submarkets that experienced the largest increase in net absorption during 2016, so far, include West Central, Far Northwest, and Round Rock. A majority of the positive net absorption in the third quarter can be attributed to the Northwest submarket’s Class A office space that saw 142,178 square feet of positive net absorption. The second highest positive net absorption occurred in Class B space in the East submarket, with 101,480 square feet absorbed in the third quarter.

The Southwest submarket had eight tenants move into spaces 10,000 SF or larger, yet still saw 107,883 SF of negative absorption in Class A space. One of the tenants that entered the Southwest submarket was Yeti Coolers, who moved into their 87,000 SF space at 7601 Southwest Pky.

Citywide, Class B space saw 139,660 SF of positive net absorption in the third quarter. Positive net absorption in Cllass B space occurred in the East, Northeast, Round Rock, and Southeast submarkets.

Rental Rates

According to CoStar, our data provider, Austin’s citywide average rental rate increased over the quarter from $36.02 per square foot to $38.68. As expected, the highest rates across the Austin market in the second quarter were in CBD Class A buildings, where rental rates reached $50.90 per square foot. Rental rates were also high in the West Central submarket and Central submarket where Class A rental rates reached $40.18 per square foot and $40.09 per square foot respectively.

Citywide Class B rental rates rose in Q3 to $27.57 per square foot from $26.03 in Q2. Class B rates in the CBD decreased by 8.7% over the quarter from $36.34 per square foot to $39.51 per square foot.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

Net Absorption New Supply Vacancy

Job Growth & Unemployment(not seasonally adjusted)

UNEMPLOYMENT 8/15 8/16

AUSTIN 3.4% 3.5%

TEXAS 4.6% 5.0%

U.S. 5.0% 5.2%

JOB GROWTHAnnual Change

# of Jobs Added

AUSTIN 3.2% 30.9K

TEXAS 1.6% 186.9K

U.S. 1.7% 2.4M

CBD vs. SuburbanCLASS A OFFICE VACANCY

CLASS A OFFICE RENTS

33 Austin Research & Forecast Report | Q3 2016 | Office | Colliers International

Q3 2016 Top Office Lease TransactionsBUILDING NAME/ADDRESS SUBMARKET SF TENANT LEASE DATE

3900 N Capital of Texas Hwy Southwest 101,596 Samsung SARC Jul-16

11801 Domain Dr North/Domain 80,757 Amazon Sep-16

12301 Research Blvd Northwest 67,955 Cadence Jul-16

Park on Barton Creek Southwest 63,597 Fresenius1 Sep-16

3297 Ranch Road 620 S Southwest 37,757 TrueCar Jul-16

5001 Plaza on the Lake Dr Southwest 32,625 Amherst Holdings LLC1 Sep-16

8300 N MoPac Expy Northwest 31,958 Unknown2 Sep-16

12331-B Riata Trace Pky Northwest 31,715 Bankers Toolbox1 Aug-16

805 Las Cimas Parkway Southwest 28,078 PeopleAdmin Inc.1 Sep-16

11801 Domain Dr North/Domain 24,916 Aristocrat Technologies Inc Aug-16

206 E 9th St CBD 24,024 NetLine Aug-16

500 W 2nd Street CBD 22,404 Fish & Richardson Sep-16

400 W 15th St CBD 17,281 Unknown Jul-16

10809 Burnet Rd North/Domain 17,033 Unknown Aug-16

12357 - A Riata Trace Pky Northwest 16,652 Zynga Aug-16

9240 Research Blvd Northwest 16,109 Extellent Professional Development Centers Sep-16

1601 S MoPac Expy Southwest 15,796 Unknown Aug-16

10415 Morado Cir Northwest 11,336 Park University Aug-16

9600 Great Hills Trl Northwest 11,258 E2 Open Jul-16

3900 N Capital of Texas Hwy Southwest 10,858 Merrill Lynch Jul-16

Leasing ActivityAustin’s office leasing activity recorded 1,144,532 SF in Q3 2016. Major transactions this quarter included a new lease for Samsung SARC at 3900 N Capital of Texas Hwy and a renewal for Frensenius.

1 Renewal 2 Expansion3 Sublease4 Pre-lease/proposed or under construction

Q3 2016 Significant Sales Transactions – (100,000 SF or greater)BUILDING NAME SUBMARKET RBA (SF) YEAR BUILT BUYER SELLER SALE PRICE $/SF CLOSED

800 Cesar Chavez St* CBD 126,124 2015 Clarion Partners Seaholm Power LLC $75,841,912.00 $601.33 Sep-16

9606 N MoPac Expy* Northwest 200,628 1999 KBS Realty Advisors Heitman $63,053,948.00 $314.28 Jul-16

9600 N MoPac Expy* Northwest 193,921 2001 KBS Realty Advisors Heitman $60,946,052.00 $314.28 Jul-16

6433 N Champion Grandview Way* Northwest 116,800 2014 Menlo Equities Endeavor Real Estate Group $48,710,789.00 $417.04 Jul-16

6433 N Champion Grandview Way* Northwest 103,800 2015 Menlo Equities Endeavor Real Estate Group $43,289,211.00 $417.04 Jul-16

8701 N MO Pac Expy Central 119,858 1987 Eurus Capital Equity Commonwealth $21,500,000.00 $179.38 Aug-16

Sales ActivityAustin’s office investment sales activity included six sales transactions (including three portfolio sales) with an average sale price of $373 per SF.

Sources: CoStar and Real Capital Analytics*Part of a portfolio

4 Austin Research & Forecast Report | Q3 2016 | Office | Colliers International

This is placeholder text. Place your text here.

Chart Title–One Line

Chart TitleSUBHEAD 1 SUBHEAD 1 SUBHEAD 1 SUBHEAD 1

Body

INVENTORY DIRECT VACANCY SUBLEASE VACANCY VACANCY VACANCY RATE (%) NET ABSORPTION

(SF)RENTAL

RATE

CLASS # OF BLDGS. TOTAL (SF) (SF) RATE

(%) (SF) RATE (%)

TOTAL (SF) Q3-2016 Q2-2016 Q3-2016 Q2-2016 AVG

($/SF)

CBD

A 28 6,983,856 484,290 6.9% 18,681 0.3% 502,971 7.2% 7.2% 166,673 -18,911 $50.90

B 34 2,806,741 166,071 5.9% 20,497 0.7% 186,568 6.6% 6.2% -12,879 -37,059 $39.51

C 10 579,084 22,976 3.8% 12,800 2.1% 35,776 5.9% 6.1% 1,447 -423 $25.50

Total 72 10,369,681 673,337 6.5% 51,978 0.5% 725,315 7.0% 6.9% 155,241 -56,393 $48.51

SUBURBAN

A 175 19,774,295 2,308,974 11.7% 374,668 1.9% 2,683,642 13.6% 13.6% 40,814 42,638 $35.20

B 323 16,513,942 2,075,629 12.6% 138,063 0.8% 2,213,692 13.4% 14.2% 152,539 14,110 $26.53

C 59 2,997,825 178,300 5.9% 1,380 0.0% 179,680 6.0% 5.2% -22,521 -16,231 $19.12

Total 557 39,286,062 4,562,903 11.6% 514,111 1.3% 5,077,014 12.9% 13.2% 170,832 40,517 $31.08

OVERALL

A 203 26,758,151 2,793,264 10.4% 393,349 1.5% 3,186,613 11.9% 11.9% 207,487 23,727 $36.68

B 357 19,320,683 2,241,700 11.6% 158,560 0.8% 2,400,260 12.4% 13.0% -37,761 -37,761 $25.91

C 69 3,576,909 201,276 5.6% 14,180 0.4% 215,456 6.0% 5.4% -15,054 -15,054 $19.54

Total 629 49,655,743 5,236,240 10.5% 566,089 1.1% 5,802,329 11.7% 11.9% 326,073 -15,876 $33.95

INVENTORY DIRECT VACANCY

SUBLEASE VACANCY VACANCY VACANCY RATE (%) NET ABSORPTION (SF) RENTAL

RATE

CLASS # OF BLDGS. TOTAL (SF) (SF) RATE

(%) (SF) RATE (%)

TOTAL (SF) Q3-2016 Q2-2016 Q3-2016 Q2-2016 AVG

($/SF)

CEDAR PARK

A 4 439,046 189,616 41.6% 6,612 1.4% 196,228 43.0% 44.4% 6,113 15,388 $26.72

B 2 112,000 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 -

Total 6 551,046 189,616 33.4% 6,612 1.2% 196,228 34.5% 35.6% 6,113 15,388 $26.72

CENTRAL

A 4 520,288 32,519 6.3% 0 0.0% 32,519 6.3% 10.8% 64,467 -5,098 $40.09

B 33 1,869,181 174,587 9.3% 11,713 0.6% 186,300 10.0% 9.4% -11,185 14,154 $25.34

C 16 939,288 13,462 1.4% 0 0.0% 13,462 1.4% 0.8% -5,703 9,460 $20.17

Total 53 3,328,757 220,568 6.6% 11,713 0.4% 232,281 7.0% 7.1% 47,579 18,516 $27.25

EAST

A 2 104,821 15,495 14.8% 0 0.0% 15,495 14.8% 4.3% -10,958 -4,537 $33.97

B 14 1,354,463 462,776 34.2% 0 0.0% 462,776 34.2% 41.7% 101,480 3,710 $32.14

C 5 202,765 29,050 14.3% 0 0.0% 29,050 14.3% 14.3% 0 0 $19.98

Total 21 1,662,049 507,321 30.5% 0 0.0% 507,321 30.5% 36.0% 90,522 -827 $31.24

FAR NORTHEAST

B 1 23,408 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 -

Total 1 23,408 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 -

FAR NORTHWEST

A 13 1,997,783 154,815 7.7% 33,147 1.7% 187,962 9.4% 9.7% 4,923 18,207 $32.85

B 9 347,418 24,724 7.1% 132 0.0% 24,874 7.2% 6.6% -1,814 -162 $26.08

C 1 21,964 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 -

Total 23 2,367,165 179,539 7.6% 33,279 1.4% 212,836 9.0% 9.1% 3,109 18,045 $31.12

Austin Suburban Office Market Summary

Austin Office Market Summary (CBD, Suburban, & Overall)

5 Austin Research & Forecast Report | Q3 2016 | Office | Colliers International

Austin Suburban Office Market Summary - Continued

INVENTORY DIRECT VACANCY SUBLEASE VACANCY VACANCY VACANCY RATE (%) NET ABSORPTION

(SF)RENTAL

RATE

CLASS # OF BLDGS. TOTAL (SF) (SF) RATE

(%) (SF) RATE (%)

TOTAL (SF) Q3-2016 Q2-2016 Q3-2016 Q2-2016 AVG

($/SF)

NORTH/DOMAINA 14 1,955,758 406,746 20.8% 8,424 0.4% 415,170 21.2% 17.4% -74,434 -37,288 $37.03B 30 1,712,880 120,159 7.0% 22,538 1.3% 142,697 8.3% 7.3% -16,884 20,658 $26.61C 1 24,759 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 -Total 45 3,693,397 526,905 14.3% 30,962 0.8% 557,867 15.1% 12.6% -91,318 -16,628 $32.63NORTHEASTA 5 414,546 117,340 28.3% 0 0.0% 117,340 28.3% 27.0% -5,566 36,518 $24.56B 19 1,347,629 60,155 4.5% 14,167 1.1% 74,322 5.5% 10.9% 72,055 -12,193 $20.75C 7 214,114 58,220 27.2% 0 0.0% 58,220 27.2% 27.2% 0 0 $15.34Total 31 1,976,289 235,715 11.9% 14,167 0.7% 249,882 12.6% 16.0% 66,489 24,325 $20.66NORTHWESTA 73 6,964,561 531,937 7.7% 56,495 0.8% 588,432 8.5% 10.5% 142,178 -47,301 $35.03B 96 4,211,972 469,480 11.1% 45,164 1.1% 514,644 12.2% 10.9% -57,092 33,385 $28.25C 5 428,563 4,817 1.1% 0 0.0% 4,817 1.1% 0.4% -3,217 -1,214 $25.73Total 174 11,590,316 1,006,234 8.7% 101,659 0.9% 1,107,893 9.6% 10.3% 81,869 -15,130 $31.98ROUND ROCKA 2 282,721 25,574 9.0% 0 0.0% 25,574 9.0% 10.1% 3,108 -596 $30.13B 12 428,289 44,947 10.5% 2,743 0.6% 47,690 11.1% 31.0% 108,157 -2,191 $28.41C 3 147,466 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 -Total 17 858,476 70,521 8.2% 2,743 0.3% 73,264 8.5% 18.3% 111,265 -2,787 $28.55SOUTHA 5 395,493 31,457 8.0% 8,929 2.3% 40,386 10.2% 5.8% -17,517 -8,440 $34.46B 23 1,131,499 86,182 7.6% 0 0.0% 86,182 7.6% 4.4% -36,216 -2,982 $25.58C 13 712,703 48,377 6.8% 1,380 0.2% 49,757 7.0% 3.9% -22,315 -4,530 $24.48Total 41 2,239,695 166,016 7.4% 10,309 0.5% 176,325 7.9% 4.5% -76,048 -15,952 $27.02SOUTHEAST

B 10 1,177,037 433,342 36.8% 0 0.0% 433,342 36.8% 37.0% 1,720 -6,400 $23.13C 4 161,933 3,629 2.2% 0 0.0% 3,629 2.2% 3.1% 1,371 0 $20.00Total 14 1,338,970 436,971 32.6% 0 0.0% 436,971 32.6% 32.9% 3,091 -6,400 $23.02SOUTHWESTA 49 6,176,028 782,099 12.7% 261,061 4.2% 1,043,160 16.9% 15.3% -101,088 -860 $37.43B 70 2,615,466 188,713 7.2% 39,511 1.5% 228,224 8.7% 8.5% -6,705 -33,469 $28.77C 3 94,138 20,745 22.0% 0 0.0% 20,745 22.0% 21.9% -90 -15,222 $32.98Total 122 8,885,632 991,557 11.2% 300,572 3.4% 1,292,129 14.5% 13.3% -107,883 -49,551 $35.59WEST CENTRALA 4 538,030 21,376 4.0% 0 0.0% 21,376 4.0% 9.5% 29,588 76,643 $40.18B 4 182,700 10,546 5.8% 2095 1.1% 12,641 6.9% 6.4% -977 -400 $29.61C 1 50,132 0 0.0% 0 0.0% 0 0.0% 14.8% 7,433 -4,725 -Total 9 770,862 31,922 4.1% 2,095 0.3% 34,017 4.4% 9.1% 36,044 71,518 $37.98

6 Austin Research & Forecast Report | Q3 2016 | Office | Colliers International

Office Development Pipeline2,729,585 square feet of office space was under construction during Q3 2016. Three buildings totaling 259,480 square feet delivered in Q3 including 411 W Main St, a 33,634 square foot building in the Round Rock submarket. Sixteen proposed buildings were given the green light to begin construction this quarter.

BUILDING NAME ADDRESS SUBMARKET SF PRE-LEASED DEVELOPER EST.

DELIVERY

Presidio I 11900 W Parmer Ln Round Rock 25,409 49.9% Riverside Resources Oct-16

3114 S Congress Ave 3114 S Congress Ave South 32,000 100.0% Unknown Oct-16

9811 Vikki 9811 Vikki Ter Southwest 22,000 64.10% Unknown Nov-16

Diamond Building Aldrich St & Simond Ave East 57,761 35.6% Catellus Development Corporation

Dec-16

Parmer Sector 3 Bldg 1 Parmer 3.1 Northeast 189,000 100.0% Trammel Crow Co Dec-16

Building 1 7601 Southwest Pky Southwest 87,500 100.0% Lincoln Property Company Jan-17

Building 2 7601 Southwest Pky Southwest 87,500 100.0% Lincoln Property Company Jan-17

500 W 2nd St 500 W 2nd St CBD 500,512 55.3% Trammel Crow Co Jan-17

Domain 8 11601 Alterra Parkway North/Domain 291,058 82.1% Endeavor Real Estate Group Feb-17

uShip 205 E Riverside Dr South 39,600 100.0% Chioco Designs Mar-17

2301 E Riverside Dr 2301 E Riverside Dr Southeast 29,205 0.0% Unknown Apr-17

Galleria Oaks I 3297 Ranch Road 620 S Southwest 74,532 51.4% Unknown May-17

Galleria Oaks II 3297 Ranch Road 620 S Southwest 74,532 51.4% Unknown May-17

Overlook at Barton Creek 317 Grace Ln Southwest 53,091 0.0% Harren Interests Jul-17

University of Texas Systems 702 Colorado St CBD 342,000 100.0% Unknown Jul-17

Shoal Creek Walk 835 W 6th St CBD 218,180 38.9% Schlosser Development Jul-17

Building 2 5100 W US HWY 290 SVRD WB

Southwest 27,199 43.7% Unknown Aug-17

Paloma Ridge Building C 13620 Ranch Road 620 N Cedar Park 112,500 0.0% Unknown Oct-17

The Reserve at Oak Hill 6804 Old Bee Caves Rd Southwest 38,448 0.0% Unknown Dec-17

QUOTED GROSS RENTAL RATES FOR EXISTING TOP PERFORMING OFFICE BUILDINGS

BUILDING NAME ADDRESS SUBMARKET RBA (SF) YEAR BUILT % LEASED AVAIL.

SFRENT ($/

SF) OWNER

Frost Bank Tower 401 Congress Ave CBD 535,078 2003 96.20% 37,299 $63.75 CalSTRS

One Eleven 111 Congress Ave CBD 518,385 1985 94.30% 67,851 $42.00 Cousins Properties Inc

One American Center 600 Congress Ave CBD 503,951 1984 98.10% 10,047 $39.61 CalSTRS

300 West Sixth 300 W 6th St CBD 454,225 2001 93.10% 40,756 $60.00 CalSTRS

301 Congress 301 Congress Ave CBD 446,839 1985 83.60% 90,026 $54.55 PGIM Real Estate

100 Congress 100 Congress Ave CBD 411,536 1985 95.10% 45,454 $52.61 Metlife, Inc.

7700 W Parmer Ln - Bldg. B 7700 W Parmer Ln - Bldg.B Far Northwest 335,138 1999 90.60% 31,500 $34.98 Accesso Partners, LLC

7700 W. Parmer Ln - Bldg. C 7700 W Parmer Ln - Bldg.C Far Northwest 287,948 1999 96.00% 11,540 $34.57 Accesso Partners, LLC

Two Barton Skyway 1601 S MoPac Southwest 195,639 2000 92.40% 24,337 $42.02 Brandywine Realty Trust

Note: Avail. SF includes direct and sublet space as well as any future available space listed. Source: CoStar Property

7 <<region>> Research & Forecast Report | Quarter Year or Date | <<Location / Sector>> | Colliers International7 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International

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

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

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

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

Colliers International | Austin111 Congress Avenue, Suite 750 Austin, Texas 78701+1 512 539 3000colliers.com/texas/austin

FOR MORE INFORMATIONKaitlin HolmResearch and Marketing Coordinator | Austin+1 512 539 3021kaitlin.holm@colliers.com

Q3 2016 Office Highlights