Branson Commercial Real Estate Report 2012 Mid Year

Commercial One Brokers LLC. 500 W. Main St. 302 Branson, MO. 65616 1

MID YEAR MARKET UPDATE

Commercial Real Estate News In The Branson/Hollister Market

Individual Member

PUBLISHED

JULY 2012

Branson Financial

Center

500 West Main St.

302

Branson, MO.

65616

It has been a traumatic year so far to say the least. It all began with

unseasonably warm winter temperatures that helped to increase early visitation

and high hopes for a strong spring break. Early retail sales for many of our tenants

were ahead of last year’s numbers. Our office tenants were beginning to talk

about larger spaces due to a slight increase in their business and anticipated

hiring’s. Certainly leasing activity had picked up for both retail and office. Then

the freak leap day tornado that nobody expected to see. Thank God no one lost

their life to this storm.

The storm did contribute to a sharp increase in short term leasing activity

as several businesses had to relocate and required new office and/or retail

locations. Warehouse space in particular was in great demand all of a sudden.

Many businesses had to store inventory for a time as they cleaned up and or

repaired their buildings. Even though several of our warehouse property owners

had empty space that they had recently reduced asking prices None of these

owners took advantage of the situation and all accepted not only short term leases

but also at the previously reduced rents. Even though these owners don’t live in

Branson, they showed a lot of Ozarks good will. We are proud to represent all of

our owners who allowed us to do what it took to help our neighbors.

Retail was already witnessing an upswing in occupancy and with the short

and long lasting effect of this late winter storm, combined with other outside

factors, the choices for high traffic retail locations has dwindled to nearly zero.

Available retail space is limited on “the strip” and becoming harder to find off

“the strip” as well.

Even though the national commercial real estate market is showing some

limited renewed life, Branson and the middle of the country normally lags behind

the markets on each coast. So far our management activities have easily

overshadowed our sales and even our leasing activities. Of course a good amount

of our time has been dealing with insurance and construction people as well as

showing buyers and tenants much more than in 2011. Just a quick word about

insurance… We now know more about casualty insurance than we ever thought

we would and frankly ever hoped we would. Now it's time to dwell on the

numbers...

Robert R. Huels, CCIMRobert R. Huels, CCIMRobert R. Huels, CCIMRobert R. Huels, CCIM Stephen N. Critchfield, CCIMStephen N. Critchfield, CCIMStephen N. Critchfield, CCIMStephen N. Critchfield, CCIM Broker/PartnerBroker/PartnerBroker/PartnerBroker/Partner Broker/PartnerBroker/PartnerBroker/PartnerBroker/Partner


LOW VACANCY RATES FOR THE UNSETTLED RETAIL MARKET

At the midway point in the year, it is safe to say that the Branson retail market has experienced major changes. The February 29th storm along with the City’s decision to terminate the "Red Roof Mall" land lease and close the center has reduced overall retail space in town significantly. In order to give the most clarity in this report we removed both The Red Roof Mall and the Branson Heights Shopping

Center that was destroyed in the February Tornado from the available inventory. These two properties along with the Branson Mill that is offered only for sale at this time has reduced the available retail space nearly 380,000 sq. ft. or about 15% of the total market at the start of the year. Of course the future retail inventory will be greatly affected by how these properties re-enter the market, or if they do. At this time we expect that the Red Roof will be “re-purposed” into a non-retail use. As for the Branson Heights center it is unknown at this time if it will be rebuilt by the current owners, or if the land will be put on the market for sale. Post tornado leasing activity was understandably brisk. Vacant space on Hwy 76 was leased very quickly and only a few sparse square feet remain available today. Off Highway 76 spaces also filled up quickly as demonstrated by the reduction in overall vacancy rates. Market wide occupancy has broken thru the 90% mark with an actual vacancy rate of only 9.65%. One shopping center has been temporarily removed from the available list and we expect it to be listed for sale only. It is 100% vacant and

if that property is removed from our calculations the vacancy level reaches 8.42% which is about equal to our January 2008 levels. The "On Strip" retail properties we track have done very well. Many are now 100% occupied. Our current vacancy rate for all retail properties on Highway 76 is 5.91% which is well below the January 2012 figure of 11.42%. Our firm had completed several new leases prior to the tornado. Most damaged properties on Highway 76 saw their valued customers move off the strip or close all together. Rental rates have stabilized and are expected to increases slightly. No rent concessions are currently being offered. While economics will direct the planning of any future retail space in Branson, we do see opportunity in well located on and off Highway 76 locations. The final design and building characteristic of future space should be well researched. We have seen many changes in the types of space most sought after. Smaller and more boutique seems to be the most desirable in many cases. Clearly our most requested size is less than 1500 square feet. This has been a common trait for years but seems to have really risen lately. As we review individual vacant spaces both on and off Highway 76, we see the larger spaces in each center tend to be the vacant spaces. Remodeling with separation of larger spaces has become a common requirement in filling those last remaining vacancies. Future centers will need to keep the flexibility of size in mind when design work commences. Warning: a bit of a sales pitch ahead.....


If your shopping center is not full or near full please contact us about helping. Nearly all centers we represent are at very high occupancy levels and we need inventory. Call Commercial One Brokers today!

OFFICE MARKET SHOWS SOME LIFE

Those of you who are our readers know that the Branson office market has been over-built for nearly five years. Vacancy rates have bounced around the 35-38% range and rental rates have generally been stable after major drops from 2009 and 2010. Finally a little light at the end of a long tunnel is in sight. Today vacancy rates are below the 30% level for the first time in a long time. While very little tornado damage occurred to office buildings, the effect was still significant. One mixed use property was damaged significantly and several small office users housed in retail spaces used this opportunity to move into a more office environment. This fact along with a few additions from the medical community has helped to boost office occupancy to about 72%. An additional 5% of the total available space has been removed, due to a lender foreclosure, from the market at least temporarily, so today's overall vacancy rate has dropped to 22%. Typically, we see that foreclosed properties often are put back on the market for sale but not for lease. Since this condition appears to be a persistent one, we have elected to hold these types of properties off our active list which of course affects the overall vacancy rates. Interestingly enough, the bulk of vacant office space remaining is unfinished space of a medium size or larger suites. Small finished office space is in short supply. A cursory look at the various suites

available in town would show only a very small handful of spaces less than 1500 square feet that are finished and ready for occupancy. Nearly 70% of the vacant office space currently available for lease is in excess of 2,500 square feet and most of that space is unfinished. Re-configuration of vacant suites is advisable if it is at all possible. Smaller generically finished spaces are more in demand in this economic environment. Tenant infill costs and time to complete the finish are a major factor in the decision process now. Four major properties A. Two of which are lender owned have been the most active in the

market during the last two quarters. Castle Rock Office Park, Manchester 5, The Branson Financial Center and the Executive Center/VA Clinic have been the most active in the market. The Financial Center is now 83% occupied, Castle Rock is 100% leased and The Executive Center is now 82% occupied. The Manchester 5 building has just been put on the market for lease.


IS NOW THE TIME TO LEASE VS OWN YOUR OFFICE

Is it time to consider owning your office vs. continuing to rent? As you make your decision I suggest reviewing some of the following considerations. Recession Stage In Cycle As with all business, real estate always follows a cycle. In fact each segment of the commercial market typically follows the same cycle. Like the stock market, it is almost impossible to time the market and buy when the market is at its lowest. In a real estate cycle there are at least some hints that will help you decide where the market is and where it is likely to go in the future. 1. RECOVERY 2. EXPANSION 3. HYPERSUPPLY 4. RECESSION I think it is fair to say that the local office market would have to be classified in the recession cycle. Based on information from our proprietary data base, the local office market showed a positive absorption for the first time in over two years. It appears to us that perhaps the office market has begun to improve as we have seen an uptick in office leasing activity in the last 45 days. We have leased over 36,000 sq. ft. of office space since the first of the year. One of two “lender owned” office buildings will probably be fully occupied this month. The second building has just gone on the market for lease. No New Construction Due to the recession in the office market and the lender foreclosures, properties are now available below replacements costs. No new office buildings have been built for lease since 2008. No new buildings are in the planning stage as of this date. Until the rents increase, we believe no new inventory will be added to the market for at least the next year. Financing Is Available For Office Buyers The Small Business Administration currently has financing available to those companies who will occupy a minimum of 51% of a building. Low interest, fixed rate, 20 year terms loans are now available through the SBA and all it takes is some time to fill out some forms and make application with your banker. In addition to SBA financing, local banks are flush with deposits and normally would love to loan good customer’s money for an owner occupied office building. With historically low interest rates being paid on savings, perhaps a trusted friend or investor would want to be your partner and buy an office building with you that your business would occupy all or in part. Additional Questions To Ask Yourself Of course as a business owner, you must first make the decision that your business will likely continue to be successful. If so, are rents likely to go down, stay the same or go up in the future? Office rents dropped over 30% over the last four years. In our opinion the likelihood that rents will fall much, if any more is becoming unlikely. As the economy improves, jobs are added and no new inventory is built it is normal for rents to begin increasing in the years to come. It is typically as rents increase, the value of the buildings also increases. If owning your building is more attainable, more buildings will be purchased lowering inventory and pushing up prices.


Final Suggestion Of course do your homework. Get a list of available properties that can be purchased that fit your company’s needsA both today and for tomorrow. Consult with your bank and accountant as to your financial abilities. Finally, if you decide to buy it is recommended that you do not buy the property in your operating company, but in another entity, controlled by you who will be the landlord for your company. Your accountant and lawyer will discuss the pros and cons with you and make recommendations as to the entities that should be involved in the purchase. If you have more questions, or are interested in pursuing a possible purchase of your office Bob and I would be privileged to work with you and become part of your team.

MISCELLANEOUS THOUGHTS AND NEWS

COMMERCIAL ONE BROKERS ATTENDS PLANNING SESSION FOR COUNTY

BUSINESS DEVELOPMENT PARTNERSHIP

The two principals of Commercial One Brokers LLC recently attended a day-long planning session for the Taney County Business Development Partnership. The facilitator for the thirteen private sector members and representatives of all of the county municipalities was The University of Northern Iowa’s Institute For Decision Making. This session began the process of preparing a “blue print” of a plan to attract and retain businesses that will add and retain high quality jobs to the county. Research will be conducted as well as community survey’s that will be used to identify specific types of businesses that will fit with the local community and how those businesses can be attracted. Additional study will be conducted to identify those local businesses and what they need to help them grow their business. Site selection criteria were matched with local characteristics in order to see what strengths and weakness must be addressed by the community. Bob and I are proud to have made the time and financial contribution required to be a part of this important effort.

RECENT TRANSACTIONS

TRANSACTION TYPE LOCATION

SOLD 12000 Office Bldg. Branson Hills Office Park

LEASE 2589 SQ FT. Branson Financial Center

LEASE 12000 SQ. Ft. Office

LEASE 3000 SQ. Ft. Restaurant

LEASE 1462 SQ. Ft. Branson Financial Center

LEASE 1749 SQ. Ft. Grand Village

LEASE 128 SQ. Ft. Grand Village

LEASE 1500 SQ. Ft. Vista Plaza


LEASE 7000 SQ. Ft. Manchester 5

LEASE 2335 SQ. Ft. Castle Rock Office Park

LEASE 7000 SQ. FT. Hollister Industrial Park

LEASE 2750 Hollister Industrial Park



LEASE 2347 SQ. Ft. Branson Executive Center

SOLD 2363 SQ. Ft. Branson Financial Center

LEASE 1532 SQ. Ft. Green Mt. Plaza

LEASE 3200 SQ. Ft. Restaurant

Documents

Branson Commercial Real Estate Report 2012 Mid Year