Report: Branson commercial market down, not out

Market indicators show a significant contraction in Branson-area commercial real estate from its peak in 2006, but Stephen Critchfield believes the decline has slowed and the market has hit bottom.

Critchfield is a broker and partner with Commercial One Brokers LLC, which released its 2010 Commercial Real Estate Forecast in February.

According to forecast data, 36,000 square feet of multiuse office space was added within Branson city limits during 2009, with 284,213 square feet available in the city of Branson as of Dec. 31.

According to the report, occupancy rates were at 64 percent in 2009. The 36 percent vacancy rate is relatively flat compared with 2008, but up from the 23 percent vacancy rate in 2006, when 86,000 square feet of office space was added to the market.

Critchfield attributes current vacancy rates to companies that are downsizing to smaller space or going out of business altogether.

Still, Duane Gerken, a broker and partner with Gerken & Associates Inc., sees a light at the end of the tunnel in terms of vacancy rates.

“I think that in 2011 to 2012 we should be back to a more reasonable vacancy,” he said. “There was so much building that went on during (2006, and) it just takes awhile to fill it.”

Opportunities for growth
Vacancy also is affected by newer, large properties, such as the Manchester 5 office building, with an abundance of available space. Manchester 5, located on Highway 248, about a half-mile from Highway 65, is only one-third sold or leased, with about 29,000 square feet available, said Critchfield, whose company lists the space.

Branson Commerce Park, a BCP Land Co. development managed by Commercial One, is just now entering the market, with parcel prices ranging from $2.50 to $3 a square foot and aiming to attract manufacturing, office, warehouse and high-tech tenants.

Critchfield and Garrett Anderson, economic development director for the city of Branson, said conversations are under way with a local software company to lease a 15,000-square-foot building at Branson Commerce Park.

Anderson said high-tech businesses could mean growth for Branson.

“The kind of businesses we’re looking at for long-term employment are more high-technology that are not going to be impacting the environment in a negative way,” he said.

Retail and hospitality
Within the retail sector, the vacancy rate grew to 16.3 percent in 2009, up from 12.5 percent in 2008 and a far cry from 2006, when retail vacancies were between 4 percent and 5 percent, the report said.

Also of note for retail, rental rates along Highway 76 declined during 2009, the first drop in several years.  

“In 2008 you were still having to pay $20 to $21 a square foot for retail on the strip. Now, you’re probably in the $12 to $15 range,” Critchfield said, noting that one exception was Grand Village Shops, where occupancy and rents have held steady.

The forecast predicts that the retail market also has likely hit bottom, and occupancy rates should be flat in 2010.

Sales of hospitality properties also have slowed, the report said, with just four in 2009 compared to 15 in 2007. Sold properties ranged in value from $15,000 to $20,000 per room in 2009, and the report indicated that more-expensive properties may not sell in the immediate future, as buyers will have to be prepared to increase invested equity to at least 40 percent of the purchase price and demonstrate a strong track record in hospitality in order to obtain financing.

Though city figures show that the tourism tax dropped 8 percent in 2009 to $11.3 million, Commercial One leaders say visitor figures from the Branson Lakes Area Chamber of Commerce are reason for optimism. The city had 7.2 million visitors in 2009. While that’s down from 7.5 million in 2008, it’s not far from the 7.9 million in 2006.

“With the projections that we’re seeing in our tenants and hotels and attractions that are doing pre-booking right now, we’re kind of thinking we’re going to be flat to maybe up 2 percent this year,” Critchfield said of visitor expectations in 2010.

Plus, he noted, Branson might be an attractive, closer-to-home option for tourists amid economic ups and downs.

“We’re going to get, probably, people who would have gone to Hawaii or Florida or done something else that are coming to Branson again,” he added.

Gerken said he expects Branson Airport, which opened in May 2009 to bring younger visitors and more international travelers.

Causes for concern
While there are signs of improvement in some commercial sectors, there’s not a lot of optimism for new commercial development, Critchfield said.

“Until there’s more demand and the prices start to rise, you won’t get anything new,” he said. “If they’re not buying anything new, then land is not being sold in any amount at all. And that’s the case today.”  

The Commercial Report also cites planning and zoning regulations in the city of Branson as an issue for developers. Specifically, the report notes concerns that sustainability efforts in the city will translate into more restrictions aimed at hampering development.

But Branson Senior Planner Joel Hornickel stressed that while the city wants to be cautious about maintaining development that is appropriate for Branson’s unique character, it will work with permit applicants.  

“By no means do we want to turn somebody away,” he said.

And, Critchfield said, there’s also the financing factor, which isn’t just a challenge in the hospitality sector.

“There’s some good projects that probably could be successful that are not getting financed right now,” he said.

The biggest change for lenders has been a return to the basics, said Craig Kesner, commercial market manager for Great Southern Bank in Branson.

“I’ve got to answer two questions to make you a loan,” he said. “How are you going to pay me back, and what can I do about it if you don’t?”[[In-content Ad]]