Midyear Report 2008

8/6/2019 Midyear Report 2008

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2008 MID YEAR REAL ESTATE REPORT

Residentia l Closings Slip 25.5% Behind Last Years Numbers

Total residential closings (single family and condo’s) for the Tri-Lakes area are down 25.5% through June 2008when compared to the same period last year.

These numbers are in line with our end of year projections that anticipated closings to be near the 2003 saleslevels. Listings are up 10.6% above last years total number year to date. The Tri-lakes market is simplyreflecting the national housing issues and we don’t see a big local problem with over building, foreclosures andhyper-price inflation that other areas have suffered. We do expect to see some pressure on developers by yearend that are holding spec homes, developed lots and or large raw land positions that must be debt servicedwith fewer sales and cash flows.

The softest sector of the market is generally in the $350,000 and above price ranges. It appears through thefirst half of the year that 73% of all sales for the entire market have occurred in the $225,000 and under pricerange. It is anticipated that this price segment will continue to be the most active through the balance of thisyear.

SOURCE: COOPER REAL ESTATE CONSULTING/TRI-LAKES MLS.

RESIDENTIAL CLOSINGS

JANUARY - JUNE 2007 VS. JANUARY - JUNE 2008

YEAR 1ST QUARTER 2ND QUARTER

TOTALS

2007 366 557 9232008 277 410 687

SOURCE: Cooper Real Est at e Consult ing & Valuat ion / T r i-Lakes MLS

TOTAL CLOSINGS BY YEAR

JANUARY - JUNE YEAR TOTAL

(Jan-June)

2003 6542004 9022005 10332006 10732007 9232008 687

The condo market is a more mixed picture. After a big drop in 2007 closings, Stone County appears to beholding steady with last year’s performance. Taney County, on the other hand, has experienced a 39%drop in closings for the first half of the year when compared to the same period in 2007.

CONDOMINIUM CLOSINGS BY YEAR

__________________________________• Residential Sales Drop Too 2003 Levels

• Under $225,000 Price Ranges StillActive

• Condo Market Also Softens

__________________________________

STONE 2005 2006 2007 2008Mid-Yr 69 91 51 56Full-Yr 143 151 103TANEY 2005 2006 2007 2008Mid-Yr 153 166 175 106

Full-Yr 323 343 341

SOURCE: Cooper Real Est at e Consult ing & Val uati on / Tr i-Lakes MLS

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2007 MID YEAR REAL ESTATE

Retail Oc cupanc ies Drop Slightly

Even with a softening of the local residential markets…the retail sector appears to be holding its own. It is clearthat the newer retail locations that have commanded higher rates are slower to rent and the older centers withlower rental rates have shown more leasing activity in the first half of the year.

Our leasing experience for 2008 thus far has been a slight slow down in the inquiries from the typical Branson “Mom& Pop” businesses and an almost abrupt halt to the franchisee and chain inquiries. Several companies are stillconsidering area locations but new inquiries do seem to be coming at a much slower pace. Still in demand aresmaller (less than 1500 sf.) spaces for start up and very specialized retailers. The older but well maintainedcenters have stabilized and have little vacancy with the rates ranging from a low of $8.00 per square foot to $13.00per square foot per year. The newer “off 76” properties are still demanding $15.00 to $18.00 per square foot peryear. The newer centers are showing slightly slower absorptions due in part to the cost of infill in our opinion.Older spaces will usually require less infill costs and lower rents, so retailers are glad to take advantage ofexpenditures made by the previous tenants.

On Highway 76 (the Strip) asking rents appear to be backing off a bit from the $21.00 a sq ft. and up for very goodlocations to $18.00 a ft for others. There is not a large supply of vacant space, but activity has slowed enough to

cause the re-evaluation of asking prices by some landlords. A few very good locations with excellent existing infilland beautiful décor are still available. Merchants report slower sales but most seem to believe in the future andare already talking about next year. In researching the market for this report we found several retailers who haverecognized a change in the spending patterns of their customers and are re-inventing their inventory and productline to accommodate these apparent changing market demands.

There is no doubt that this spring’s slow start to the year put pressure on many retail tenants. As we study themost recent state retail sales tax numbers and talk with tenants in our centers, visitors are spending less. It alsoappears that when they make a purchase they are buying something unique and may not necessarily be buying themost inexpensive items. We believe that customers are not buying as many crafts, tee shirts, quilts and othernormal tourist trinkets typically bought in the past. They are buying more expensive, higher quality consumeritems, quality art and other unique items that may not be available in their home towns. Not only will merchantshave to re-think the merchandise offered, but they will also have to spend more on training the sales staff as to

how to present a more upscale product as well.

We believe that these changing consumer attitudes are a reflection of the new demographics that are beginning tovisit Branson as well as a function of the current economic conditions. In any case, area merchants are going tohave to perhaps re-think the merchandise they offer as well as the look and quality of their store and location.

Mid-Year Retail Vacancy Rate

PERIOD VACANCY RATEDecember 31, 2007 8.59%Thru June 30 2008 10.27%

Source: Commercia l One Broker s LLC.Located in t he Branson cit y l imit s and consist ing of mult i-t enant buildings t hat ar e a minimum of 5000 sq f t

1. A total of 34,600 sq ft of additional retail space (not included are the big box, single-tenant retail built inBranson Hills) has been added to the total retail inventory during the first 6-months of this year.

2. There was a total of 4.406 less sq ft of total retail space occupied mid-year when compared to the end oflast year.

Commercial One Brokers LLC



2008 MID YEAR REAL ESTATE REPORT

Office Occupancy Rates Continue to Improve

The area’s office market showed good improvement thanks to the recent commitment by the VeteransAdministration to lease nearly twenty-four thousand square feet of The Executive Center for the VA’s newBranson clinic.

The Veterans lease accounted for nearly all of the net positive office absorption for the first half of the year. Theoverall occupancy rate has now improved to 81% and when the Veterans move in, area-wide occupancy shouldexceed 90%. We doubt that these occupancy rates will last due to the start of construction of a new 32,000 sq ftspeculative office located on Hwy. 248 in Manchester Village. We believe that this new building will find amarket over the next twelve to eighteen months from the ever expanding medical community. It is becomingapparent that the Hwy 248 corridor is slowly becoming the new “medical mile” in Branson.

Rental rates are expected to remain steady at approximately $14 - $16 a sq ft NNN for new, well locatedspace…but landlords will be forced to offer move in concessions to good tenants such as periods of free rent andor generous tenant finish allowances during the initial lease-up.

It is our belief that a market exists for a well located condominium office product consisting of smallspaces…1200 to 2500 sq ft that business owners could park directly at their front door while building equity. Thetighter financing market however will make a development of this type extremely hard to finance without somesignificant pre-sales.

Hospitality Market Show Mixed ResultsHotel sales nationally and locally in 2008 are well off their strong 2007 sales pace. Several of the largest nationalhotel brokers report that property sales for 2008 will be 60-70% off those recorded in 2007. The local year-to-date sales pace has also shown similar softening. Commercial One Brokers project a 40-50% drop in the numberof local hotel sales in 2008 …better than the national performance, but still far below 2007 figures. There aretwo primary reasons we believe for the slow down… tighter credit markets and buyers second guessing themarket to decide if this is the right time to make an investment.

Occupancy for the local hospitality market continues to remain steady despite the pressures of weathercatastrophes this spring and high gas prices. The total tourist tax collections for the local hospitality market inthe first six months of the year report only a 1.89% decrease from last years record pace.

When we analyze the local occupancy rates more closely, it appears that the market is 4-7% below last year’snumbers for flag hotels and even greater vacancies for non-flag properties with some exceptions. Even withlower occupancy rates, the Average Daily Rates (ADR) continues to increase for many properties. Normallyduring market slow downs the ADR’s would drop as well. It appears with the addition of the Hilton properties;the Branson customers are selecting nicer rooms and paying for them. This is resulting in an over-all increasedmarket ADR for the area in our opinion.

With increased room rates and revenues per room, investors are more willing to pay higher prices to purchase

those properties. The documented hotel sales for 2007/2008 tend to support our analysis. Of the last 18documented hotel sales, the non-flag properties (excluding one high-quality property that will be flagged) areselling for an average of $16,400 per door key. This is only 57% of the $28,229 average reported for flaggedproperty sales. This large price discrepancy is in direct correlation to the lower revenue per room of the non-flagged properties.

It is accepted that flagged properties benefit from national marketing exposure, but it has recently come to ourattention an extensive remodel on a non-flag interior corridor hotel in a 2nd tier location is also paying largereturns for the new owner. The result from this extensive remodel was immediate additional market acceptance.This 81 unit hotel opened with a strong six-figure month supporting our “quality sells” opinion.

Commercial One Brokers LL



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2007 MID YEAR REAL ESTATE

Miscellaneous Thou hts O inions & Observations

• Branson and Taney County both need an Economic Development Director as soon as possible. It is obviousto many that you can’t just stop….”or take a breath” without falling behind. It’s easy to want to take a

breath when times are good, but many times that is the exact time to be even more aggressive with plannedquality growth. Invested capital seeks its own level and will go to places where reasonable returns can beachieved. If we are going to over regulate and create large bureaucracies, investment will go elsewhere nomatter how good the opportunities might be.

• After twenty months of effort, Commercial One Brokers is happy to announce that the VeteransAdministr at ion has select ed The Execut ive Center at t he intersecti on of Hwy 248 and Gret na Rd., as the new Veterans Clinic. Commercial One Brokers was happy to represent the Landlord in this transaction.We believe that this will be a major addition to the Branson market and will help to interest other veteransin making their home in the Branson area. The VA estimates that they will see over 8000 patients at thisclinic within three years. A temporary office is currently being finished that will allow Veterans to startgetting treatments before the end of September. The final 24,000 sq ft facility will be completed by yearsend.

• A trend seems to be developing both with the retail sector as well as the hospitality market. Many of the

new visitors to the Branson area are buying more expensive items and are staying at more expensive, higher-quality hotel properties or condominiums. The time of the $29.95 a night room and the craft store and quiltshop are quickly ending. Many long-time businesses that have had success in the past are going to have tomake some changes in order to attract new customers. Many of our visitors aren’t going to two or threeshows a day and eating a couple of buffets. Instead, they may go only to one or two shows during their entirestay and eat a couple of meals at a fine dining restaurant. It appears, if this visitor is going to go on avacation, they are going to make it a special experience…or they won’t go until they can afford it.

Dave Schaf f er Broker/Salesperson

Hospitality Consultant

Doug Edens

Salesperson Hospitality ROBERT R. HUELS CCIMBroker/Partner Stephen CritchfieldBroker/Partner

417-334-3149 500 West Main Street Suite 302 Branson, MO. 6516

www.CommercialOneBrokers.com Commercial One Brokers LLC

Midyear Report 2008

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