February 2014 Edition 8

Commercial Market Report

Inside This Issue

The Market Remains Stuck...

Just as the national economy goes, so goes the local commercial real estate market. Little to no growth occurred in any of the market segments with the office market rolling backwards when compared to last years performance. No new inventory was added to any of the commercial market other than the construction of the CVS Pharmacy and the additional retail built for users at Branson Hills. The balance of the construction increase was primarily due to rebuilding of several properties destroyed by the tornado such as the Auto Museum located on Hwy. 76. Overall, we would label the market as flat. After several years of flat to slightly down visitation, visitor counts and tax collections improved 2013. The majority of the Branson visitors are middle to upper middle income families who average approximately $80,000 year as the family income. This demographic was particularly hard hit by the recession, job loss and general economic unsettledness during the last five years. Because Branson is an affordable destination, Branson was able hold at least its own when compared to some of the other high flying destinations such as Las Vegas. Jerry Jeschke of Jeschke Appraisal has provided a residential summary of the market as it affects both the retail and office markets. Like the overall commercial market, the residential market remained flat when compared to the previous year, even though the $300,000 and up categories finally showed some improvement. Again, Commercial One Brokers completed another successful year, along with our sister company Maples Properties of Branson LLC. Our management company has enjoyed steady growth and now manages most of the major commercial properties in Branson having just added the Shoppes at Branson Meadows to our portfolio. We continue to add and update our commercial databases for all multi-tenant properties of five thousand square feet and above. Now in our eighth year, we are looking forward to continuing to serve our existing and new clients in 2014. As always, we would be happy to hear your comments, or questions regarding this report or issues in general.

1 Market Remains Stuck 2 Office Market 2 Retail Market 3-4 Residential Market 4 Hospitality Market 5 Industrial Market 5 Land Sales

2014 Real Estate Report Published by Commercial One Brokers LLC.

Sincerely, Stephen N. Critchfield, CCIM

Broker/Partner

Robert Huels, Jr. CCIM

Broker/Partner

500 W. Main, Suiute 302-A, Branson Financial Center Branson, MO 65616 CommercialOneBrokers.com 417-334-3149

page 2

Softens from prior year

After a positive increase in occupancies in 2012, the office market momentum was lost in 2013. The market occupancy rate lost three percent (77% to 74%) and added just over ten thousand square feet of additional vacant space equaling a negative net occupancy rate for the year. National occupancy rates are also stuck in neutral and are reported at 83%. After several years of market demand for smaller office suites of one thousand feet or less, this market segment shrunk. Several tenants did not renew leases and/or vacated their space for their home or less expensive class C retail space. The majority of the available office space is still found primarily in one building. The Manchester 5 building still remains mostly vacant with just two tenants. The available space consists of primarily three thousand square foot suites that are currently in a warm white box condition. Overall market rental rates have remained flat, but after several soft years the 2013 rates appear to have bottomed out and continue to range from $6.00PSF to $10.00PSF NNN. Common Area costs continue to increase due to commercial insurance costs, utilities and maintenance cost increases. Landlords and management companies are sensitive to these cost increases as it has a chilling effect on the landords ability to increase base rents. The traditional office seems to be a passing trend. Tenants are beginning to look for open office areas where people can collaborate. Workstation size is smaller so people can communicate more freely and tenants are able to make due with less space and lower operating overhead.

Office Market

Vacancies continue to enjoy low rates

Retail Market

The retail market continues to enjoy ninety percent occupancy levels. Off of the high vacancies of 13.63% in 2010, the retail market is now enjoying a 10.04% vacancy rate. Of course the 2012 tornado removed some inventory and helped to improve occupancies, but the retail category overall remains a positive. Over 100,000 feet was removed via the tornado. It was recently announced that the 47,000 sq. ft. CommercialOneBrokers.com 417-334-3149

Branson Mall has begun repair and remodeling and will go on the market later this year. The 54,000 sq. ft. Branson Heights shopping center remains off of the market and the site has been cleared. Nothing is anticipated to happen with this property this year. We expect at least one 20,000 sq. ft. plus strip center may well be added to the retail inventory this year in addition to the Branson Mall space.

Overall Rental rates have remained steady. The leading retail locations such as Branson Landing, The Grand Village, Branson Hills and Tanger Outlet all demand the highest rents. Rental rates rage in the $20s plus per sq. ft. NNN. Other locations on the strip will range from $12 to $17 PSF NNN. The remaining locations such as Hwy 248 and downtown will generate rents in the $9 to $10 PSF NNN.

page 3

Maintains its footing and performs much like 2013

Residential Market

The residential markets in Stone and Taney Counties remained virtually unchanged in 2013. Total sales volume, including detached and attached units was virtually unchanged in 2013 with a total of 1,565 sales transactions versus 1,563 in 2012. The majority of the sales in the market transpired with prices below $200,000. Sales of properties with prices that were between $0 and $200,000 made up 79% of the sales in the market in 2013 down 1% over 2012. Most of the categories have remained fairly similar over the past 3 or 4 years, but in 2013 the distribution changed slightly. There were about 10% fewer sales in the under $50,000 category and significant gains in the $300,000 to $350,000 and $350,000 to $400,000 categories. Those two categories increased sales volume 17.7% and 24.0% respectively. There was less than a 10% change in sales volume in all other categories. Short- and foreclosed sales volumes deCommercialOneBrokers.com 417-334-3149

clined substantially in 2013. The total number of foreclosed and short sales made up just 18.9% of the total sales volume. That number is down from 2012 when foreclosures and short sales were 27% of all sales in the market. Sales with prices between $0 and $50,000 had the highest percentage of foreclosed/short sales at just under 36% of the annual sales volume in that category. The number gradually declines through $350,000. Sales in the $350,000 to $400,000 range increase to 6.5% of sales in that category and 10.0% in the over $450,000 category. There were no foreclosed or short sales in the $400,000 to $450,000 category. The sales data is summarized on the chart below.

The number of foreclosed or short sales properties listed in 2013 continued to decline. We observed a high of 473 short sale/foreclosed properties listed in 2010. That number has steadily declined, 451 in 2011, 387 in 2012 and 226 in 2013. Banks and other lenders are becoming more savvy about holding short and foreclosed properties rather than attempting to sell them quickly. Banks with larger portfolios are strategizing to obtain the highest price by holding or renting some of the properties rather than liquidating them. Some lenders are limiting buyers to end users for the first 10 to 30 days of the exposure period in an attempt to limit the inventory available to house flippers. Sales prices of residential property remained stable in 2013 and we are observing signs that indicate potential increases in prices in the near future. Traditional economic theory suggests that as demand increases and supply decreases prices should increase. Over the past year there has been a slight increase in listing activity (3,472 properties in 2013 versus 3,431 in 2012) but the number of properties sold increased only 5 sales. Nationally economists tend to evaluate the single family housing by reporting the supply in the number of months. Typically, the national market is

page 4 considered to be in balance when there is a 6-month supply of housing for sale. The Tri-Lakes market has an absorption rate that is increasing and a supply that is slightly increasing. If the market was considered to be in balance in 2007, it should be nearing a balanced market since the supply of property for sale is currently nearly equal to 2007 (21.86 months in 2007 versus 26.62 months in 2013). Other signs that prices should be rising include builders constructing speculative houses in the market. In 2013, we began to observe more developers and builders entering the market and constructing new single family dwelling units. Although profit margins continue to remain fairly small, new sales of property constructed in 2012 or 2013 sold in an average of 113 days versus the market average that was 189 days and the sale prices are 10- to 20% higher than those constructed in 2006 or 2007. Although labor and material prices continue to rise, land values remain very low allowing builders to assemble new property with a very slim profit. There was almost no new residential construction between 2008 and 2011. The limited amount of new housing construction has held down demand for vacant lots. Although the supply of vacant lots is not increasing, demand continues to be low but is rising. It appears that the value of vacant lots may have reached a minimum. Condominium sales in the market are beginning to show a substantial increase. Although there continue to be some financing issues since it is not possible to obtain a 30 year fixed mortgage on a unit in a development that offers nightly rental, buyers are accepting the secondary market financing with higher down payments and adjustable rate loans. The total number of condominium sales reported in the market has increased each year since it reached a low in 2009. The number of sales in 2013 reached a number that is just 4 sales short of the top of the market in 2007. The supply of condominiums (new listings) rose between 2006 and 2008 reaching a peak of 1,140 units listed in 2008. The number of properties listed each year declined to 853 in 2012 and increased slightly in 2013 to 926. Developers and selling agents are reporting increased requests for new units and we are aware of at least 2 projects that have either begun new buildings or begun the process of completing existing partially complete buildings. Most of the segments of the Tri-Lakes Market remained substantially unchanged in 2012. The supply of foreclosed and short sale properties is declining and new construction is exhibiting prices that are substantially higher than existing homes. New construction is increasing in the single family and condominium segments of the market but we have not observed substantial increases in selling prices in the existing inventory. We expect the medical industry in the market to continue to expand which should drive demand for housing. Based on the trends we are observing and we expect that the number of transactions in the market should remain stable. The limited amount of new construction and decrease in the supply of short sale and foreclosed property for sale may result in minor price increases. In our opinion, substantial changes in market values are unlikely without a decrease in supply or an increase in demand. There are no indicators that are likely to cause either to change and we would expect the market to change little in 2014.
The author of this article owns and operates J. Jeschke Appraisal. His firm has been operating in the Tri-Lakes Market since 1982 providing data, consulting and valuation services to a multitude of clients with appraisal and consulting needs for commercial, residential and vacant land properties.

The sale of lender owned properties should near the end this year. Of the seven recorded lodging sales that occurred in 2013, five were lender owned. Of the seven properties listed below, only two could be labeled under duress. Sale prices typically equated to approximately $6500 to a high of $15,000 per room. With anticipated PIPs or remodeling costs, the investor appeared to limit their total per door investment to about $10,000 to $13,000. The largest number of rooms continues to be concentrated in ownership of three to four operators. Investor demand remains for interior
CommercialOneBrokers.com 417-334-3149

Nears end of lender owned property sales

corridor properties over the older exterior designs. Pressure continues for owners of older properties to update and refresh their rooms in order to compete for a more demanding customer. If the property does not have a flag, the owner must be more aggressive and creative with their marketing efforts in order to intercept the visitor who arrives with no prior reservations. According to Smith Travel, both ADRs and Room Revenues showed increases in the seven to eight percent range over last years performance in addition to small increases

Hospitality Market

(less than one percent) in both occupancy and demand numbers.

Available Lodging Properties For Sale

page 5

Industrial Market
Occupancies fall

Still little to no land sales activities

It was our belief that 2013 would see patient capital beginning to invest in land. Unfortunately that hasnt happened other than the large acquisition, Johnny Morris of Brass Pro has completed at Branson Creek. Mr. Morris purchased both The Branson Creek Golf Course and the Murder Rock course as well as some of the surrounding land. Both projects are currently being remodeled and are expected to open this season. Few users have been active in the market other than buying existing buildings below replacement costs that are able to be remodeled for their use. During the final quarter of the year, more land users did begin to inquire about available sites.

The occupancy rate for industrial property dropped from 74.22% last year to a current rate of 67.63%. The majority of the vacancies occurred due to warehouse space vacated by businesses who lost buildings during the 2012 tornado. Several buildings that were destroyed have now been rebuilt allowing those business to vacate several leased properties in the area. Our data base includes nineteen properties totally 418,129 sq. ft. The market suffered a negative absorption of approximately 32,000 sq ft. for the year. 2013 INDUSTRIAL SALES Lease rates range from a low of $3.25 NNN to modified gross lease rates of $4.00 to $6.86 PSF. Most offer drive-in doors, few have docks and currently there are no drive-throughs. We were only able to identify two recorded sales of industrial properties during the year.

2013 INDUSTRIAL BUILDING SALES Note To Bldg 1 Bank Owned Property in the country Note to Bldg 2 was not offered for sale and the sellers didnt want to sell it.
SOURCE: Commercial One Brokers LLC.

2 0 1 3

C O M P A N Y

H I G H L I G H T S

Number of Transactions 68 Gross Leasing and Sales Volume $25,997,709.08 Transaction Size from $7,200 to $5,300,000 Leasing Volume. 47,187 sq. ft. Management Portfolio reached 835,000 sq. ft.
CommercialOneBrokers.com 417-334-3149

Transactions

Property Management