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Q4 2012 | RETAIL MARKET

MARKET INDICATORS

YE 2011 YE 2012CITYWIDE NET

ABSORPTION (SF) 1.8M 1.2M

CITYWIDE AVERAGE

VACANCY 7.2% 7.0%

CITYWIDE AVERAGE

RENTAL RATE $15.13 $14.34

DELIVERIES (SF) 625K 1.1M

UNDER CONSTRUCTION

(SF) 617K 451K

1

Houston’s Retail Market Absorption Boosted byYear-end Push

Houston’s retail market posted 1.1M square feet of positive net absorption in Q4bringing the year-end 2012 total to 1.2M SF. The opening of Phase 1 of the TangerOutlet Center in Texas City as well as the opening of the new HEB in Cypresscontributed over 534,000-SF to the fourth quarters positive net absorption. Othertenants that moved during the fourth quarter include American Girl, WellborneCinema, Bone Daddy’s and Serious Cigars.

Houston’s retail vacancy rate decreased from 7.2% to 7.0% between quarters aswell as over-the-year. Due to the large amount of new inventory deliveries,Houston’s retail vacancy only decreased 2% between quarters despite thesignificant positive absorption.

The citywide average quoted rental rate for all property types is $14.34 per squarefoot; however, rental rates vary widely from $10.00 to $70.00 per square footdepending on location and property type and class.

The Houston metropolitan area added 85,000 jobs between November 2011 andNovember 2012, an annual increase of 3.1% over the years prior job growth.Further, Houston’s unemployment rate fell to 5.8% from 7.3% one year ago whichhas bolstered annual home sales in the Houston area. With continued expansion inthe energy industry and a strong housing market, Houston’s economy is expectedto remain healthy for both the near and long-term.

ABSORPTION, NEW SUPPLY & VACANCY RATES

RESEARCH & FORECAST REPORT

0%

2%

4%

6%

8%

10%

12%

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

Absorption New Supp ly Vacancy

JOB GROWTH & UNEMPLOYMENT(Not Seasonally Adjusted)

UNEMPLOYMENT 11/11 11/12

Houston 7.3% 5.8%

Texas 7.2% 5.8%

U.S. 8.2% 7.4%

JOB GROWTHANNUAL CHANGE

# OF JOBS ADDED

Houston 3.2% 85K

Texas 2.6% 274K

U.S. 1.4% 1.9M

RESEARCH & FORECAST REPORT | Q4 2012 | HOUSTON RETAIL MARKET

2

Rental Rates

The citywide average quoted rental rateincreased from $14.30 to $14.34 perSF NNN between quarters anddecreased from $15.13 over the year.

Class A in-line retail rental rates varywidely due to location and center type.Recent quoted rates for unanchoredstrip centers range from $20.00 -$35.00 per SF (Class B and below canrent for $12.00 to $20.00 per SF)while power centers with three ormore strong anchors range from$10.00 - $35.00 per SF. Lifestylecenters and newly constructed stripcenters in Class A locations such asHigh Street, Uptown Park and TheVintage range from $40.00 - $70.00per SF.

Vacancy & Availability

Houston’s retail vacancy decreasedfrom 7.2% to 7.0% in the fourthquarter. By product type on a quarterlybasis, outlet centers posted the largestvacancy rate decrease from 10.1% to7.8%, 230 basis points. Strip centers,neighborhood centers and theme/entertainment vacancy rates remainedunchanged between quarters.

Houston’s retail construction pipelinecontains 451,000 SF, of whichapproximately 31% is pre-leased.Fourth quarter deliveries totaled756,000 SF.

Absorption & DemandHouston’s retail market posted 1.1M SFof positive net absorption in the fourthquarter bringing the year-end total to1.2M SF. The opening of Phase 1 of theTanger Outlet Center in Texas City aswell as the opening of the new HEB inCypress contributed over 534,000 SFto the fourth quarters positive netabsorption.

Other notable tenants that moved intotheir space during the fourth quarterinclude: Academy Sports, Kroger, LAFitness, and Thrift Outlet as seen in thetable to the right.

HOUSTON RETAIL MARKET STATISTICAL SUMMARY

Q4 2012 ABSORPTION

Tenant SF Occupied

Tanger Outlet Center – Ph1 350,000

HEB 184,083

Academy Sports 72,979

Kroger 48,501

LA Fitness 45,000

Thrift Outlet 26,402

99¢ Store 18,119

American Girl 17,685

Wellborne Cinema 15,180

Ogle School 11,468

JB’s Multi Events 10,300

Velvet Restaurant 8,878

Bone Daddy’s 7,000

Serious Cigars 7,000

Rentable Area

Direct Vacant SF

Direct Vacancy

Rate

Sublet Vacant SF

Sublet Vacancy

Rate

Total Vacant SF

Total Vacancy

Rate

Q4 2012 Net Absorption

2012 YTD Net

Absorption

Class A Rental Rates (in-line)*

Strip Centers (unanchored) 31,381,269 3,247,523 10.3% 22,951 0.1% 3,270,474 10.4% 35,161 (89,158) $20.00-$35.00

Neighborhood Centers (one anchor) 68,820,507 7,301,626 10.6% 156,600 0.2% 7,458,226 10.8% 115,789 (335,197) $20.00-$32.00

Community Centers (two anchors) 40,772,147 2,548,743 6.3% 128,071 0.3% 2,676,814 6.6% 125,930 212,540 $15.00-$30.00

Power Centers (3 or more anchors) 20,297,712 874,797 4.3% 71,190 0.4% 945,987 4.7% 93,299 361,102 $10.00-$35.00

Lifestyle Centers 4,618,124 275,217 6.0% - 0.0% 275,217 6.0% 9,509 44,237 $40.00-$70.00

Outlet Centers 1,573,627 122,006 7.8% - 0.0% 122,006 7.8% 351,610 353,673 N/A

Theme/Entertainment 653,840 224,804 34.4% - 0.0% 224,804 34.4% - - $25.00-$35.00

Single-Tenant 63,079,142 1,491,177 2.4% 33,660 0.1% 1,524,837 2.4% 364,472 444,792 N/A

Malls 29,487,935 1,770,164 6.0% 58,539 0.2% 1,828,703 6.2% 31,304 164,400 N/A

Greater Houston 260,684,303 17,856,057 6.8% 471,011 0.2% 18,327,068 7.0% 1,127,074 1,156,389

RESEARCH & FORECAST REPORT | Q4 2012 | HOUSTON RETAIL MARKET

SALES ACTIVITY

Houston retail investment sales activityincluded 72 recorded transactions witha total dollar volume of approximately$115.4M, averaging $116 per SF withan average capitalization rate of 8.7%.

Some of the more significanttransactions that closed during thefourth quarter include:

Becar Venture purchased the 68,780-SF West Loop Plaza from Cathay Bankin December for $9.9M. Theneighborhood center located in theInner Loop River Oaks submarket was100% leased at the time of sale andwas purchased as an investment.Golfsmith and Mattress Giant are thecenters anchor tenants.

RioCan REIT purchased the 180,000-SFLouetta Central Shopping Centerlocated in the North/Spring Creeksubmarket from URDANG & RCGVentures in November for $26M. Majortenants in the center include Michaels,Famous Footwear, and Kohl’s.

First Washington Realty purchased the125,200-SF Woodlands CrossingShopping Center from Realm Realty inDecember for $43.2M. Theneighborhood center located in The

Woodlands and Montgomery Countysubmarket was purchased as aninvestment. Some of the centers majortenants include Trader Joe’s, AceHardware, 24 Hour Fitness, andPETCO.

West Houston Retail LLC purchased a4-property portfolio from Satya, Inc. forapproximately $15.8M in November.The portfolio included four strip centerstotaling 71,374-SF and were located inRichmond, Cypress and Houston, TX.The portfolio was purchased as aninvestment. Some of the tenants in thecenters include Quick Weight Loss,Subway, New York Pizzeria, and StateFarm.

LEASING ACTIVITY

Houston retail leasing activity for fourthquarter 2012 totaled 841,061-SF in 323transactions compared to 346transactions totaling 866,000-SF oneyear ago. Overall, transactions under10,000 SF comprised the largest groupof retail leases, with the marketrecording only nine leases over 10,000-SF and two over 20,000-SF in thefourth quarter.

3

RETAIL SALE TRANSACTIONS

West Loop Plaza1

3005-3115 West Loop South, Houston, TXInner Loop River Oaks Ret Submarket

RBA: 68,780 SFBuilt: 2006

Buyer: Becar VentureSeller: Cathay Bank

Sale Date: December 5, 2012Sales Price: $9.9M

Sales Price PSF: $144

Woodlands Crossing10864-10868 Kuykendahl Rd., The Woodlands, TXMontgomery County Ret Submarket

RBA: 125,200 SFBuilt: 2012

Buyer: First Washington RealtySeller: Realm Realty

Sale Date: December 19, 2012Sales Price: $43.2M

Sales Price PSF: $345

1Colliers International Transaction

Building name/address Submarket Tenant Lease date

Point Nasa Shopping Center NASA/Clear Lake 47,900 Conn's Oct-12

Cypress Landing Shopping Center NorthBelt/Greensoint 28,193 Gold's Gym Dec-12

Pasadena Town Plaza Near Southeast 20,558 Goodwill Nov-12

Fondren Southwest Village Southwest 16,579 Palais Royal Oct-12

Westheimer Commons West/Far West 14,500 Shoe Carnival Oct-12

Meadow Park Shopping Center Southeast Outlier 14,000 Family Dollar Oct-12

Cypress Station Square Far North 13,400 Davita Dialysis Nov-12

Pasadena Town Plaza Near Southeast 8,702 Anna's Linens Nov-12

Cypress Station Shopping Center North FM 1960/I-45 7,344 The Pour House Oct-12

Village Green Shopping Center West/Far West 5,900 Snooker 147 Oct-12

908 Congress CBD 5,400 Batanga Restaurant Oct-12

West Loop Market Center Inner Loop/River Oaks 4,700 S Factor Oct-12

River Oaks Shopping Center Inner Loop/River Oaks 4,375 J. Jill Oct-12

SF

Q4 2012 Top Retail Leases

RESEARCH & FORECAST REPORT | Q4 2012 | HOUSTON RETAIL MARKET

Accelerating success.

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LISA R. BRIDGESDirector of Market Research HoustonDirect +1 713 830 2125Fax +1 713 830 2118lisa.bridges@colliers.com