Prepared BY; Commercial One Brokers LLC
500 West Main, Suite 302-A, Branson Financial Center
Branson, MO. 65616
wwwCommercialOneBrokers.com 417-334-3149
On behalf of The Commercial One Brokers team, we are happy to present the 2009 Commercial Real Estate Forecast for the Branson/Hollister market. Needless to say, 2008 was a difficult year for anyone in either the commercial or residential real estate business.
Commercial One Brokers continues to collect and report vacancy and absorption rates in the various commercial market sectors in order to provide assistance to you in making lending, investment or leasing decisions. We also attempt to collect information on all new up-coming commercial projects in order to project growth or contraction of the various commercial market sectors. We now track nearly three million total square feet of office and retail space in our data base. No other commercial real estate firm can provide you this local insight and this degree of detail.
Branson began to feel the negative effects of the national economy mid-year 2008. In addition to the weather catastrophes that plagued our area in the first half of the year along with the high gas prices, it is rather amazing that our market has held up as well as it has. By and large we are not significantly over-built in any commercial category other than Class A office. When the market does return, Branson will show positive absorption and price appreciation much faster than those high-flying markets that must first absorb large amounts of un-sold and vacant inventory.
We believe that this area currently offers some great buying and leasing opportunities that have not been available for several years. As the leading source for commercial real estate in the Branson / Hollister markets we are excited to work with all of you in the coming year. Commercial One Brokers is your source for local commercial real estate knowledge…that is all we sell.
Sincerely,
Stephen N. Critchfield Robert Huels, Jr. CCIM Doug Edens
Broker/Partner Broker/Partner Broker/Salesperson
Hospitality
© Commercial One Brokers LLC
Because much of the commercial business is affected by household growth, we also watch the area’s housing market. As reflected in the chart to the left, residential sales peaked in 2005 and have slowly dropped each year since.
The slow down in area sales have been created by the slow down in the national economy and the inability of those relocating to the Tri-Lakes area to sell existing homes in other parts of the country.
Based on sales information collected from The Tri-Lakes Multiple Listing Service by Cooper Real Estate Consulting the number of closings in the Tri- Lakes area dropped a total of 26% from 2007 sales. In addition, Cooper projects that the total number oflistings dropped by 89 units from last years numbers…although nearly an all time record number (see chart to the left).
The bottom of the chart reflects the number of listings in 2003 and the top line are the listings for 2009. During the past five years, there have been on average of 1,500 to 1,900 homes listed an on the market in the MLS. As of December 31, 2008 … 2,447 homes were listed in the system.
Our 2008 report projected that sales volumes would drop to the levels produced in 2003 of 1350 to 1400 units. The final closing numbers reported at the end of 2008 totaled 1320 units. It is generally agreed, that the local market is approximately 6-12 months behind the national market and we will continue to see slowing sales even as the national sales begin to stabilize. The good news is the area is not markedly over-built and this market should easily rebound when the national market does.
The average sales price as reported by the MLS is down just 3.9% when compared to last years sales. Other more detailed analysis argues that most of the sales price drops were in the over $350,000 and up price ranges with the average prices of homes sold in the $250,000 and under range could have shown no decrease in prices or even some small appreciation. Of course the foreclosure sales, although small also would affect the overall numbers.
The “hottest” segments of the market as reported by Cooper were generally $175,000 and under in both Stone and Taney counties. This segment of the market continues to have the highest number of overall sales since it
attracts the largest number of prospective buyers. Cooper reports that “56% of the Stone County market is under $175,000 while 71% of the Taney County market is under $175,000. Overall, 77% of the entire Tri-lakes market appears to be in the under $225,000 price range.
Sales and listing activity seem to confirm the fact that the lower to mid- priced homes are still in balance to perhaps in short supply and the homes…certainly over the $500,000 price range are over-supplied and will take some time to get supply back into balance.
Again, the Midwest and the Tri-Lakes area has not seen the severe market drops than many of the “high-flying” parts of the country have.
Residential Sales Drop 26% In 2008
2004 1982
2005 2203
2006 2126
2007 1774
2008 1320
© Commercial One Brokers LLC
OFFICE MARKET CONTINUES TO BE OVER-BUILT
Vacancy rates have reached 36% as the local office market suddenly softened in the last quarter of 2008. After improving to less than 20% during mid year last year, the national financial issues have hit the local real estate, mortgage brokers, construction and title companies who have either moved to smaller less expensive offices or have gone out of business.
In addition to the sudden increase in vacancies, a new 36,000 sq. ft. speculative “Class A” building has been put on the market and is nearing completion. Several 9000 to 10000 sq ft. buildings are also being built in Branson Hills. Two of the buildings are pre-leased however; some additional space the market.
Average Leasing Rates
$12.69 per sq ft per yr. NNN
Rental Rates Range From $8.00 to $16.00 per sq ft. per year NNN
36% Vacancy Rate
Source: Commercial One Brokers LLC. Data Base. Includes all multi-tenant properties of 5000 sq ft. located in the
city limits.
MANCHESTER 5 OFFICE BUILDING
HWY 248
Commercial One Brokers recently completed a lease with The Veterans Administration for over 25,000 sq. ft. in the Executive Center at Gretna and Hwy 248. It is expected that the VA will be able to occupy this space by late April. The VA clinic will employ approximately 80 professionals and are expected to see over 8000 patients a year at this new facility.
Effective rental rates have remained at an average of $12.69 per sq ft. market wide, but concessions are now being offered either through a rate ramp up, increased tenant improvement allowances or free rent for a period of time in return for a 3 to 5-year lease term. Market wide rental rates range from approximately $8 a sq. ft. to just over $16.00 per sq ft NNN depending upon location and quality of facility. Due to downsizing, demand for smaller suites (1000 sq ft or less) have increased noticeably.
RETAIL SECTOR HOLDS ITS OWN
A market-wide negative absorption rate that totaled over 43,000 sq ft has increased the retail vacancy rates from 8.59% in mid 2008 to 12.57% by December 31, 2008.
The Branson area retail market has remained remarkably stable. The retail sector was stronger in the first half of 2008 then softened the second half. Some store closings have occurred, however, much less then the national or even the state markets have experienced. Until recently, Branson has not been high on the list for expansion of most national retailers until the opening of Branson Landing and the Branson Hills development.
Most of the drastic downsizing and outright closings have been these national retailers…some of who were located at The Landing. Regional and local retailers have always come and gone, and the frequency of closings does not seem to have increased dramatically as yet. Additional square footage has been added to the market and was the major contributing factor for reduction of the overall occupancy rates last year.
We at Commercial One Brokers have been busy with new tenants looking at the availability as well as, yes, some upgrading in local as well as increased space for several retailers in the area. While nationally the retail sector has seen numerous closings of larger retailers, Branson had several coming on-line in late 08 and early 09. New smaller regional stores are looking to our market for expansion and the much smaller “Mom & Pop” start ups are still springing up throughout the area. Within the last few weeks however, we have been advised by several of the regional retailers that they are putting their expansion projects on hold until more is settled with the national economy.
Over all, our company’s leasing activity has shown major increases for the first quarter of 2009 over last years activities for the same period. Upon analysis…the leasing activity has been either at the high end of the rate scale and or at the lowest end of the scale. The mid-range ($14 to $15 per sq ft. NNN) has seen the softest demand.
In our communications with local banks and regional financial institutions, we are not currently seeing a large amount of default issues in this sector, but do concur that the possibility is very strong for some failures to occur. Credit is going to be hard to come by and retailers will be under the gun, pinched by contracting consumer spending.
Communication and negotiations will be the key to evading future vacancies. It is important that landlords or landlord management representative know when tenants are in trouble and stay ahead of the curve when a vacancy is inevitable. Re-leasing the space will take time and the sooner the problem is identified the better. Several of the late 2008 vacancies have been filled due to advanced knowledge of the tenant’s financial situation.
The Commercial One Brokers team are first and foremost salespeople and inherently optimistic. The numbers we are tracking do show a decrease in occupancy and a definite slow down in leasing activity during the last half of 2008. As with previous forecasts, we believe the properties that are well located and that are well maintained will retain stronger occupancies and will be more stable, while those built in lesser locations and are poorly designed and managed, will suffer more transience and lower rental rates.
HOSPITALITY MARKET
REFLECTS NATIONAL MARKET CONDITIONS
OPERATING PERFORMANCE
After several years of strong growth, the local hospitality market began to reflect the national market conditions. Again, this area performed at levels equal to our typical competitors and much better than the other “hot” national markets.
The results also reflect the areas drop in total visitation (- 3.7% ) and the fact that more visitors came from closer-in (100 -300 miles) and stayed a shorter amount of time (4.25 nights). We suspect that these numbers also were affected by a slow down in timeshare sales and mini-vacs during the last half of the year. The slow down in the timeshare industry will greatly affect the local occupancy and room revenues in 2009.
YEAR OCCUPANCY ROOM
RATE ROOM
SUPPLY ROOM
DEMAND ROOM
REVENUE
2007
47.3% $70.17
5,520,883
2,610.043
183,133,919
2008
% CHG
43.1
-8.8%
$73.19
+4.3%
5,583,126
+1.1%
2,407,658
-7.8%
176,210,090
-3.8%
SOURCE: Smith Travel Research: EOY Performance Comparison
Visitor Numbers: Branson Lakes Area Chamber and CVB
RESALE MARKET
Presently sixteen area motel properties are offered for sale. Three properties were reported sold in 2008 or a total of 212 rooms. This reflects a major slow down in hospitality sales…again a fact that is occurring nationwide. All three of the sold properties were flagged properties and sold for an average of $26,924. per room. It appears that selling cap rates ranged between 11 and 12%.
Tighter financing requirements will severely limit the number of motels sold in 2009. Not only will buyers be required to make a much bigger equity investment (40% to 50%) and they must also show a successful operating track record.
VISITOR NUMBERS
VISITOR TRENDS
• Total Visitation down approximately -3.7% (Note: This number reflects region not Branson proper)
• More First Time Visitors and slightly fewer repeat visitors
• On-line bookings continue to increase
• Increase in number of visitors renting Condominiums during their stay
• Of those who flew to Branson only 56.4% flew through the Springfield/Branson airport
• Average amount spent per visitor increased to $881.11 from $826.83
Source: Branson Lakes Area Chamber of Commerce and CVB
7,214
7,330
7,984
8,398
8,089
6,600
6,800
7,000
7,200
7,400
7,600
7,800
8,000
8,200
8,400
8,600
PROFESSIONAL PROPERTY MANAGEMENT
BECOMES MORE IMPORTANT
Last annual report Commercial One Brokers announced we were creating a new property management company by partnering with Maples Properties in Springfield. The new company, Maples Properties of Branson, LLC, is proud to announce that we are now involved in the management of approximately 420,000 square feet of retail and office space in the Branson and Hollister area.
Our services range from total operations to maintenance only to short term REO rehab and staging. We have enlisted a strong team of professionals and are capable of handling all aspects of a property from conception to occupancy stabilization thru leasing or disposition. Our team will oversee planning and construction, budgeting and accounting, maintenance and repairs as well as infill oversight. We have legal representation available for collections and evictions if necessary and sub-let legal reviews for mitigations. This in conjunction with our leasing and sales efforts, allow a property owner to be as involved or uninvolved in the operations as they desire.
We believe that Tenants have more appreciation for the properties as they see professional teams of workers actively on site working on issues immediately. Landlords experience savings of time and money due to our extensive contacts and multi property contracts with service suppliers and vendors.
With the possible increase in foreclosures, we have added a new list of available services to our property management program. Lenders can have our team take foreclosed properties from possession day conditions to fully market ready condition and maintained at that level until sale. We offer the services of a full REO department to out of town and local lenders.
PARTIAL CLIENT LIST - Leasing and Total Management
Branson Vista Plaza, LP., Houston TX.
Vista Plaza Hwy 76
GCP Grand Village, LLC. Green Courte Partners. Lake Forest, Illinois
The Grand Village Hwy 76
Branson Executive Center L.P. Houston TX.
VA Medical Clinic Gretna Rd and Hwy 248
Branson Gretna Plaza, L.P. Houston TX.
Gretna Plaza Hwy 248 at Gretna Rd.
JW Franklin Co. Warrensburg, MO.
The Falls Shopping Center Hwy 165
Mercury , LLC. Las Vegas, NV
Dixie Station Hwy 76
First aircraft to land at the
new Branson Airport.
Opening May 11, 2009
OUR THOUGHTS AND OPINIONS
Many of our clients ask us about what we think is going to happen with this market. Of course we don’t have any better idea than anyone else, but that doesn’t stop us from sharing our opinions. So here are just a few of our random thoughts and opinions as we believe it will affect the area’s commercial real estate market…for what it is worth.
1. Markets are moving from Greed to Fear….Locally most sellers haven’t really re-priced their property and or they simply are going to set on the side lines and wait for the prices to rise, if they don’t have to sell. Cap rates have probably risen by 75 to 125 basis points for top properties and more than 200 basis points on lesser quality properties.
a. There is a lot of 'hold' and 'wait and see' going on now because absent real transaction volume, many owners have the attitude that until trades start clearing the market, they don't know what the real values are. Appraisers are having a very
difficult time valuing properties.
2. Property owners will be walking a tight rope in 2009 with lenders pulling one end and tenants on the other looking for better deals.
a. Building Owners will be getting financing pressure to make sure their buildings are occupied. The dilemma will be…if I lower my rents and give a concession, then I don’t get the revenue I’ve had. The lender then will say our deal isn’t worth as
much and will either try to call my loan or ask for more equity to be pumped into the deal.
3. Inflation is coming….it has to with this much money being pumped into the economy. The money supply is increasing at never before seen rates. Some of us remember…to much money chasing too few products. Then high interest rates follow. We are going to see this again.
4. Through a combination of the tough financial markets and the “limited-growth” attitude fostered by some area politicians, those who own properties are going to find that they will be worth a whole lot more when the market does return to something called normal.
5. As is usually the case, those with cash are going to be able to take advantage and receive big returns in the future and those who aren’t afraid to lock in good long-term lease terms will surely benefit.
6. A lot of money is setting on the sidelines waiting on a better deal, some confidence or both.
Five Stages Of The Market After A Slow Down
a. Owners think property is worth more than we are telling them.
b. Ok…I’m not selling unless you get me more than it is worth.
c. I have to sell…what do we have to do in order to sell?
d. I don’t think we will see another good market again…
e. This is the bottom and the best time to buy.
If you have interest in talking further about the area’s commercial real estate market…we would like to talk with you.
417-334-3149 500 West Main Street Suite 302 Branson, MO. 65616
www.CommercialOneBrokers.com
© Commercial One Brokers LLC
