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Q4 2012 | RETAIL MARKET

RESEARCH & FORECAST REPORT

Houstons Retail Market Absorption Boosted by Year-End Push


Houstons retail market posted 1.1M square feet of positive net absorption in Q4, bringing the year-end 2012 total to 1.2M SF. The opening of Phase 1 of the Tanger Outlet Center in Texas City, as well as the opening of the new HEB in Cypress, contributed over 534,000 SF to the fourth quarters positive net absorption. Other tenants that moved during the fourth quarter include American Girl, Wellborne Cinema, Bone Daddys and Serious Cigars. Houstons retail vacancy rate decreased from 7.2% to 7.0% between quarters as well as over-the-year. Due to the large amount of new inventory deliveries, Houstons retail vacancy only decreased 2% between quarters, despite the significant positive absorption. The citywide average quoted rental rate for all property types is $14.34 per square foot; however, rental rates vary widely from $10.00 to $70.00 per square foot depending on location and property type and class. The Houston metropolitan area added 85,000 jobs between November 2011 and November 2012, an annual increase of 3.1% over the years prior job growth. Further, Houstons unemployment rate fell to 5.8% from 7.3% one year ago which has bolstered annual home sales in the Houston area. With continued expansion in the energy industry and a strong housing market, Houstons economy is expected to remain healthy for both the near and long-term.

MARKET INDICATORS
YE 2011
CITYWIDE NET ABSORPTION (SF)

YE 2012 1.2M

1.8M

CITYWIDE AVERAGE VACANCY

7.2%

7.0%

CITYWIDE AVERAGE RENTAL RATE

$15.13 625K

$14.34 1.1M

DELIVERIES (SF)

UNDER CONSTRUCTION (SF)

617K

451K

JOB GROWTH & UNEMPLOYMENT


(Not Seasonally Adjusted)

ABSORPTION, NEW SUPPLY & VACANCY RATES


UNEMPLOYMENT Houston Texas U.S. 11/11 7.3% 7.2% 8.2% 11/12 5.8% 5.8% 7.4% # OF JOBS ADDED 85K 274K 1.9M

2,000,000 1,500,000 1,000,000 500,000 0 -500,000

12% 10% 8% 6%

JOB GROWTH Houston Texas U.S.

ANNUAL CHANGE 3.2% 2.6% 1.4%

4% 2% 0%

Absorption

New Supp ly

Vacancy
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RESEARCH & FORECAST REPORT | Q4 2012 | HOUSTON RETAIL MARKET

Rental Rates
The citywide average quoted rental rate increased from $14.30 to $14.34 per SF NNN between quarters and decreased from $15.13 over the year. Class A in-line retail rental rates vary widely due to location and center type. Recent quoted rates for unanchored strip centers range from $20.00 $35.00 per SF (Class B and below can rent for $12.00 to $20.00 per SF) while power centers with three or more strong anchors range from $10.00 - $35.00 per SF. Lifestyle centers and newly constructed strip centers in Class A locations such as High Street, Uptown Park and The Vintage range from $40.00 - $70.00 per SF.

Houstons retail construction pipeline contains 451,000 SF, of which approximately 31% is pre-leased. Fourth quarter deliveries totaled 756,000 SF.

Q4 2012 ABSORPTION
Tenant Tanger Outlet Center Ph1 HEB Academy Sports Kroger LA Fitness Thrift Outlet 99 Store American Girl Wellborne Cinema Ogle School JBs Multi Events Velvet Restaurant Bone Daddys Serious Cigars SF Occupied 350,000 184,083 72,979 48,501 45,000 26,402 18,119 17,685 15,180 11,468 10,300 8,878 7,000 7,000

Absorption & Demand


Houstons retail market posted 1.1M SF of positive net absorption in the fourth quarter bringing the year-end total to 1.2M SF. The opening of Phase 1 of the Tanger Outlet Center in Texas City as well as the opening of the new HEB in Cypress contributed over 534,000 SF to the fourth quarters positive net absorption. Other notable tenants that moved into their space during the fourth quarter include: Academy Sports, Kroger, LA Fitness, and Thrift Outlet as seen in the table to the right.

Vacancy & Availability


Houstons retail vacancy decreased from 7.2% to 7.0% in the fourth quarter. By product type on a quarterly basis, outlet centers posted the largest vacancy rate decrease from 10.1% to 7.8%, 230 basis points. Strip centers, neighborhood centers and theme/ entertainment vacancy rates remained unchanged between quarters.

HOUSTON RETAIL MARKET STATISTICAL SUMMARY


Rentable Area
Strip Centers (unanchored) Neighborhood Centers (one anchor) Community Centers (two anchors) Power Centers (3 or more anchors) Lifestyle Centers Outlet Centers Theme/Entertainment Single-Tenant Malls Greater Houston 31,381,269 68,820,507 40,772,147 20,297,712 4,618,124 1,573,627 653,840 63,079,142 29,487,935 260,684,303

Direct Vacant SF
3,247,523 7,301,626 2,548,743 874,797 275,217 122,006 224,804 1,491,177 1,770,164 17,856,057

Direct Vacancy Rate


10.3% 10.6% 6.3% 4.3% 6.0% 7.8% 34.4% 2.4% 6.0% 6.8%

Sublet Vacant SF
22,951 156,600 128,071 71,190 33,660 58,539 471,011

Sublet Vacancy Rate


0.1% 0.2% 0.3% 0.4% 0.0% 0.0% 0.0% 0.1% 0.2% 0.2%

Total Vacant SF
3,270,474 7,458,226 2,676,814 945,987 275,217 122,006 224,804 1,524,837 1,828,703 18,327,068

Total Vacancy Rate


10.4% 10.8% 6.6% 4.7% 6.0% 7.8% 34.4% 2.4% 6.2% 7.0%

Q4 2012 Net Absorption


35,161 115,789 125,930 93,299 9,509 351,610 364,472 31,304 1,127,074

2012 YTD Net Absorption


(89,158) (335,197) 212,540 361,102 44,237 353,673 444,792 164,400 1,156,389

Class A Rental Rates (in-line)*


$20.00-$35.00 $20.00-$32.00 $15.00-$30.00 $10.00-$35.00 $40.00-$70.00 N/A $25.00-$35.00 N/A N/A

RESEARCH & FORECAST REPORT | Q4 2012 | HOUSTON RETAIL MARKET

RETAIL SALE TRANSACTIONS

SALES ACTIVITY Houston retail investment sales activity included 72 recorded transactions, with a total dollar volume of approximately $115.4M, averaging $116 per SF with an average capitalization rate of 8.7%.

Woodlands and Montgomery County submarket, was purchased as an investment. Some of the centers major tenants include Trader Joes, Ace Hardware, 24-Hour Fitness, and PETCO. West Houston Retail LLC purchased a four-property portfolio from Satya, Inc. for approximately $15.8M in November. The portfolio included four strip centers totaling 71,374 SF and were located in Richmond, Cypress and Houston, TX. The portfolio was purchased as an investment. Some of the tenants in the centers include Quick Weight Loss, Subway, New York Pizzeria, and State Farm. LEASING ACTIVITY Houston retail leasing activity for fourth quarter 2012 totaled 841,061 SF in 323 transactions, compared to 346 transactions totaling 866,000 SF one year ago. Overall, transactions under 10,000 SF comprised the largest group of retail leases, with the market recording only nine leases over 10,000 SF and two over 20,000 SF in the fourth quarter.

West Loop Plaza1 3005-3115 West Loop South, Houston, TX Inner Loop River Oaks Ret Submarket
RBA: Built: Buyer: Seller: Sale Date: Sales Price: Sales Price PSF: 68,780 SF 2006 Becar Venture Cathay Bank December 5, 2012 $9.9M $144

Some of the more significant transactions that closed during the fourth quarter include: Becar Venture purchased the 68,780SF West Loop Plaza from Cathay Bank in December for $9.9M. The neighborhood center, located in the Inner Loop River Oaks submarket, was 100% leased at the time of sale and was purchased as an investment. Golfsmith and Mattress Giant are the centers anchor tenants. RioCan REIT purchased the 180,000-SF Louetta Central Shopping Center, located in the North/Spring Creek submarket, from URDANG & RCG Ventures in November for $26M. Major tenants in the center include Michaels, Famous Footwear, and Kohls. First Washington Realty purchased the 125,200-SF Woodlands Crossing Shopping Center from Realm Realty in December for $43.2M. The neighborhood center, located in The

Woodlands Crossing 10864-10868 Kuykendahl Rd., The Woodlands, TX Montgomery County Ret Submarket
RBA: Built: Buyer: Seller: Sale Date: Sales Price: Sales Price PSF:
1Colliers

125,200 SF 2012 First Washington Realty Realm Realty December 19, 2012 $43.2M $345

International Transaction

Q4 2012 Top Retail Leases


Building name/address Point Nasa Shopping Center Cypress Landing Shopping Center Pasadena Town Plaza Fondren Southwest Village Westheimer Commons Meadow Park Shopping Center Cypress Station Square Pasadena Town Plaza Cypress Station Shopping Center Village Green Shopping Center 908 Congress West Loop Market Center River Oaks Shopping Center Submarket NASA/Clear Lake NorthBelt/Greenspoint Near Southeast Southwest West/Far West Southeast Outlier Far North Near Southeast North FM 1960/I-45 West/Far West CBD Inner Loop/River Oaks Inner Loop/River Oaks SF 47,900 28,193 20,558 16,579 14,500 14,000 13,400 8,702 7,344 5,900 5,400 4,700 4,375 Conn's Gold's Gym Goodwill Palais Royal Shoe Carnival Family Dollar Davita Dialysis Anna's Linens The Pour House Snooker 147 Batanga Restaurant S Factor J. Jill Tenant Lease date Oct-12 Dec-12 Nov-12 Oct-12 Oct-12 Oct-12 Nov-12 Nov-12 Oct-12 Oct-12 Oct-12 Oct-12 Oct-12
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RESEARCH & FORECAST REPORT | Q4 2012 | HOUSTON RETAIL MARKET

LISA R. BRIDGES Director of Market Research Houston Direct +1 713 830 2125 Fax +1 713 830 2118 lisa.bridges@colliers.com

COLLIERS INTERNATIONAL | HOUSTON 1300 Post Oak Boulevard Suite 200 Houston, Texas 77056 Main +1 713 222 2111

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