2019 COMMERCIAL

REAL ESTATE FORECASTEdition #13

Table of Contents 2018 Summary

Office Space Forecast

Retail Space Forecast

Lodging Forecast

Industrial Properties Forecast

Vacant Land Forecast

Opportunity Zones

2018 Wins

About Commercial One Brokers

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4, 5

6, 7

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10

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2018 SummaryCOMMERCIAL MARKET REACH 90% OCCUPANCY LEVELSOur 2018 forecast for the area’s commercial market projected that occupancy levels would remain generally flat through all market segments, but that rents would increase. As we enter 2019 and look back on 2018, actual performance was directly opposite. Occupancy levels increased while rents remained generally flat. Although improving, the industrial market was the only commercial segment that failed to reach 90% occupancy levels while office and retail have reached near full occupancy. Although rents did not increase, typical concessions did basically evaporate and thus have effectively increased net rates. Of course, the question is why hasn’t asking rents increased.

Although the final 2018 numbers are not available as of press time for this report, it appears that both visitation and sales tax collections will be up for the year, while the tourism classification categories are going to show increases in the four percent range. We expect the amusement category to show the greatest increase in tourism tax collections at the end of the year. It is anticipated that restaurants and lodging will also show decent increases over the prior year.

As was the case in 2017, a large number of lodging properties were sold again in 2018. In fact, most of the larger, more expensive properties changed owners this year. The 2017 trend continued into 2018 as the market has experienced a major turnover from primarily local ownership to many new out of area owners. Commercial One Brokers continue to believe that the market is ready for a new mid-upper scale product to be built in the market. It is our understanding that there are currently at least three market studies being conducted by prospective developers in the market today.

Of course, the national real estate market has several issues on the horizon that could affect our market area. The tight labor pool and the Fed’s focus on price stability, inflation rate and interest rates. Increased interest rates will surely have a negative effect on capitalization rates going into 2019.

Even though we have reached occupancy levels that would normally have spurred new construction, higher construction cost and financing costs are going to require a lot higher rent increases to justify new construction. We have had conversations with several cost estimators for area contractors, and they are all having a very difficult time tying down costs, particularly for steel and other derivatives.

We finished our 12th year in business, and it was our best to date. We completed our largest number of transactions and our largest volume of business, and we look forward to even better times as we start our 13th year. Thanks to all our landlords, investors and business owners who have trusted us with their real estate needs.

Sincerely,

Stephen N. Critchfield, CCIM Robert Huels, CCIM Broker/Partner Broker/Partner

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2019 Commercial Real Estate Forecast | 2018 SUMMARY

83% 87% 93%

Occupied Square Feet

Available Square Feet

Occupied Square Feet325,367

350,031

325,367

Available Square Feet350,031

Office Space ForecastHIGH NET ABSORPTION BOOST OFFICE OCCUPANCY LEVELSAfter years of slow office growth and high vacancy rates, the area market provided its best performance in many years. The office market has limped along since 2007 with occupancy rates that ranged from the ‘70s to the low 80 percent.

Improved business growth added 21, 236 sq. ft. of net absorption, which raised the occupancy rate from 87% in 2017 to 93% at the end of 2018. Although concessions such as higher infill allowances or months of free rent are quickly disappearing, the asking lease rates did not increase from the prior year, but landlords are not negotiating much today. Average rents for Class A space have firmed at $11.00 PSF NNN, Class B space remained at $10.47 PSF NNN, and Class C remained at $8.06 PSF NNN.

2018 was the third year in a row with an improved occupancy rate. A recent trend has seen more demand for larger office suites in the 3000 sq. ft. size and up in addition to the smaller suites of 1000 sq. ft. and less in prior years. Several larger users either built and or purchased their own building this year.

As projected, increased Common Area Maintenance Charges has kept the base rents for Class A office space from increasing,and occupancy levels remained static at 94%. Both Class B and Class C space increased occupancy levels to 89% for Class B and 95% for Class C. Lack of available inventory in Class B and C categories is sure to push Class A rents higher as well. Rents are still not sufficient for new construction to occur.

YEARLY OFFICE OCCUPANCY RATES

Source: Commercial One Brokers, LLC

Source: C1B Office Database, current as of January 1, 2019.

2016 2017 2018

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2019 Commercial Real Estate Forecast | OFFICE SPACE FORECAST

Commercial One continues to offer its My Branson Office at the Castle Rock Office park as a co-working office environment for businesses that need access to an office on a part time basis. The office offers, two equipped conference rooms, seating and working areas as well as a coffee bar and copy and scanning equipment. The space is available for a monthly subscription rate of $150 per month.

ACTIVITYSeveral new office buildings were occupied in 2018 that included the Schenewerk & Finkenbinder Attorneys at Law office building in Branson Hills as well as the purchase of the vacant office building owned by Pat Joyce by Derek Bell for his State Farm Agency. The Branson Lakes Chamber of Commerce and CVB began construction of their new offices in Branson Meadows in 2018 with planned occupancy for April 2019.

2019 OUTLOOK Absorption, Rents and Occupancy Rates will slowly improve over the year. The office market will still lag behind the retail market.

Office Space Forecast, continued

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2019 Commercial Real Estate Forecast | OFFICE SPACE FORECAST

Retail Space ForecastRETAIL SPACE NEARS FULL OCCUPANCYBoosted by big increases in the historic old downtown Branson occupancy levels, Branson retail has reached the 93.1% occupancy level citywide. However, when the nearly empty interior Mall, Branson Mall’s 40,000+ sq. ft. is removed from the vacant inventory, the overall Branson retail market jumps to 95%. Net retail absorption totaled 29,574 SF for the year. Many downtown businesses suffered through the prolonged construction of downtown streets, sewer, and water reconstruction in 2016 and 2017. These vacant stores filled up in 2018 as occupancy rates increased from 72% in 2017 to 97% in 2018.

Properties on Hwy 76 maintained an 89% rate while those properties located off the strip improved to 93% from the 2017 rate of 91%. Again, if Branson Mall vacant inventory is removed, the occupancy rate on Hwy. 76 jumps to 97%. The nearly vacant Branson Mall was the primary reason that kept the occupancy level for properties on Hwy 76 from going over 90%. The Branson Landing district maintained its 93% level, which equaled 2017 numbers. Branson Landing has completed the remixing of the center after the 10-year leases began expiring. More restaurants and attractions have been added along with some new retail tenants. The Lakeside center has shown more activity at the end of the year and is expected to be leased up by the end of the year. We believe that rental rates have to increase this year due to the tight market. Perhaps a limited amount of new retail inventory may be added, but it must be in a great location that can generate the markets highest rents and occupancies.

The Restaurant segment of the retail market continued to perform. This segment of the market reported a 4.7% increase in tourism tax collections for the city of Branson. The top ten performing restaurants in the market averaged $4,161,057 per property in reported sales for the year.

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2019 Commercial Real Estate Forecast | RETAIL SPACE FORECAST

89%OCCUPANCY

14 total properties

511,562 leasible sq. ft.

454,250 occupied sq. ft.

ON HIGHWAY 76

93%OCCUPANCY

15 total properties

1,194,206 leasible sq. ft.

1,115,367 occupied sq. ft.

OFF HIGHWAY 76

93%OCCUPANCY

2 total properties

459,600 leasible sq. ft.

429,274 occupied sq. ft.

LANDING DISTRICT HISTORIC DOWNTOWN

97%OCCUPANCY

58 total properties

451,098 leasible sq. ft.

437,311 occupied sq. ft.

2018 RETAIL OCCUPANCY LEVELS*

2019 OUTLOOK Retail Absorption and Occupancy Rates will remain steady however

rental rates in class B and C space will increase more than cost of living.

Retail Space Forecast, continued

2019 Commercial Real Estate Forecast | RETAIL SPACE FORECAST

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Lodging Forecast LODGING CONTINUES SOLID PERFORMANCEThe lodging market brokerage business remained very active in 2018 after a number of properties changed hands. We have identified at least a dozen properties that have been sold during the year. In the two year period of 2017 and 2018 we estimate that a total of at least nineteen sales occurred. Some additional sales probably occurred that were self-financed. Last year was the year that the larger, more expensive major properties sold. There remains a strong buyer demand for well-located and operated Branson properties.

According to the STR Destination Report room occupancy rates softened slightly year over year. However, this also occurred in most of the other Missouri destinations from Kansas City to St. Louis and Lake of the Ozarks. Branson occupancies dropped from 52.5% in 2017 to 50.5% in 2018. Average Daily Rates increased, however, from $103.00 to $105.28 in 2018. It’s important to know that those properties that report to STR are predominately the larger flagged properties and only account for approximately 35% of the total number of available rooms. A review of the citywide Tourism Tax Receipts reports a 2.9% increase in lodging collections over 2017. We believe this number better reflects the total market as all properties must collect and remit this tax. The slight softening of the lodging market in 2017 was the end of four years of large increases in the lodging business as both occupancy, ADR and Rev Par numbers made some of their largest jumps in many years during that period.

We are aware of at least three market studies currently being conducted for the Lodging market. The last new hotels to be built were the two Hiltons at Branson Landing in 2005 and 2006 and a new Hampton in 2008 in Branson Hills. The La Quinta Inn and Suites built two years ago at the Hollister interchange in Hollister continued to perform at high levels and well above Branson properties in both occupancy and Average Daily Rates. We continue to believe that the market is near or has reached the point that a new property could be built. Of course, land values, construction, and labor costs may negatively affect this growing market segment.

2019 FORECAST

We believe interest will remain strong for area properties, however those remaining for sale will be challenged to receive their asking prices.

2019 Commercial Real Estate Forecast | LODGING FORECAST

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Industrial Properties ForecastINDUSTRIAL PROPERTIES JOIN IN THE MARKET IMPROVEMENTDemand for industrial properties has improved greatly from prior years. The available inventory remains a major impediment to the markets full growth as available properties typically don’t offer the features required by today’s office warehouse and warehouse users. Demand remains for higher ceiling clearances, better, more efficient lighting, dock high doors and truck court depths and turning radiuses large enough for today’s users.

Gross rents have jumped from the mid $4.00 and $5.00 PSQF to the upper $5’s and low $6’s. In addition to smaller user demand, requests for 10,000 and 15,000 ft spaces are now occurring. The market at this time has little to no available inventory in those sizes. Estimated occupancy has improved from the low 80’s to nearly 90% today.

2019 FORECAST

Demand for office warehouse and industrial properties will continue to increase however the available inventory does not fit many of today’s users therefore larger users will either buy and or build their own building and or

perhaps find property that fits their needs in Ozark and or Springfield.

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2019 Commercial Real Estate Forecast | INDUSTRIAL PROPERTIES FORECAST

Vacant Land Forecast LIMITED INVENTORIES ARE DRIVING INTEREST IN VACANT LANDAlthough commercial land sales could not be considered robust, it did improve during 2018. Predominantly, interest has been generally along Hwy 76 and the Hwy 248 corridors. The two highest profile properties to sell on Hwy 76 was the purchase and removal of the Baldknobbers Theater. This will be the new home of the Wonderworks Museum. Although the building wasn’t purchased, the Starlite Theater has a long term lease and is being remodeled as the new National Inquirer Attraction. Two smaller parcels of what was known as the Shoji Tabuchi land located on Hwy 248 just west of Branson Bank have been put under contract and are scheduled to close in the first quarter. We can disclose one of the users is Natures Wonder from Harrison Arkansas who is expanding with a second location in Branson.

2019 OUTLOOK We project demand for commercial parcels will continue to slowly increase

due to the lack of available existing buildings sufficient for re-purposing.

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2019 Commercial Real Estate Forecast | VACANT LAND FORECAST

7676

76

376

265

265

265

165

165

65

265

165

248

Table Rock Lake

College of the Ozarks

Branson

Indian Point

Hollister

Coney Island

Kimberling City

65

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Opportunity Zones OPPORTUNITY ZONES TO STIMULATE INVESTMENTThe Tax Cuts and Jobs Act of 2017 included a provision that, until recently, has garnered little attention. Commonly referred to as the federal opportunity zone program, this program, still in its infancy, provides tax benefits to those who invest in qualified opportunity zones - low-income Census tracts nominated by each state.

OPPORTUNITY ZONE INCENTIVESOpportunity zones were created to stimulate economic development and job creation in distressed communities. The program provides three federal tax incentives to encourage investment in these areas:

1. Gains reinvested directly in an opportunity zone, or through an investment vehicle known as a qualified opportunity fund, are deferred until the earlier of either the sale of the investment or Dec. 31, 2026.

2. The basis of any investment in a qualified opportunity fund held for at least five years is increased by an amount equal to 10 percent of the amount of gain deferred under the opportunity zone program. If the investment is held for at least seven years, there is an additional 5 percent basis increase.

3. If a qualifying investment is held for at least 10 years, any built-in appreciation during the life of the qualifying investment is excluded from income.

To be eligible for the benefits associated with investing in qualified opportunity zones, gains from prior investments must be rolled directly into a qualified opportunity zone or qualified opportunity fund within 180 days of realization. Given its potentially significant tax benefits, those with recent substantial gains may want to consider participating in the opportunity zone program.

A portion of Hwy 76 and Taney County qualifies as an opportunity zone generally located From Hwy 65 on the east and south of Hwy 76 to the county line on the west.

OPPORTUNITY ZONE PORTION OF TANEY COUNTY & HWY 76

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2019 Commercial Real Estate Forecast | OPPORTUNITY ZONES

500

20011998 2004 2006 2009 2012 2014 2017

1000

1500

2000

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YEAR

Land Sales

Home Sales

2018 WinsA YEAR OF RECORD RESIDENTIAL SALES By J. Jeschke Appraisal

THE TRI-LAKES residential markets generated a brisk rate of sale and increasing sale prices in 2018. Total sale volume continued its upward trend from 2017 and generated the most residential sales since we began tracking the data in 2000. The Tri-Lakes Board of Realtors reported an increase in total residential sales of 8.7% in 2018 with volume totaling 2,383 units. Prior peaks in residential sales occurred in 2017 at 2,195 units and 2,161 in 2005. These numbers indicate that the market has finally topped the sales volume records set in the 2005 to 2008 boom.

Demand continues to outpace supply, especially in the new housing markets. Although 2018 saw an increase in new listings of 5.2%, increasing demand more than offset the new inventory leaving an overall shortage in supply. Total sales volume by dollar in Stone and Taney Counties reflected the increased with total sales rising from $340 million in 2017 to $414 million in 2018, an increase of nearly 22%. Residential sales prices continued an upward trend in 2018 with median and average sale prices increasing by 8.2% and 11.8% respectively. Asking prices also increased in 2018 with the list price to sale price ratio remaining stable at about 96%. All these statistics support increasing improved residential property values. There is no indication that the market is slowing despite rising interest rates. The gradual rise in interest rates has had no effect on market demand that we believe remain strong in 2019.

Residential real estate agents continue to report shortages of inventory to sell despite an increase in new construction residential listings. There are few developers in the market building speculative housing, and most of the new construction listings are proposed construction. Agents also report that market participants find the existing inventory overpriced and existing units tend to remain on the market for a longer periods of time suggesting buyers are looking

longer to find suitable housing at an acceptable price. Although improved residential sales have been brisk and supply

is tight, residential building lot sales have only marginally increased. The oversupply of lots has continued to suppress lot values in the market. Typically the sales volume of residential lots rises and falls at a rate that is similar to the improved residential market. However, increased building costs caused by rising material costs and labor shortages have given market participants sticker-shock that is limiting their consumption of existing lots. In 2018 residential lot sales were only 21% of improved residential properties which is about half that generated between 2004 and 2007 where residential lots sales were between 30% and 45% of improved residential property sales. Building costs moderated in 2018 and there appears to be an uptick in new construction, but there are no developers building wholesale numbers of new houses as they were in 2006 or 2007.

Rental property managers and owners are reporting high occupancy with low frictional vacancy. Some of the more desirable complexes are reporting waiting lists. Rents continued to increase in 2018 and will likely continue on an upward trend as demand remains strong. Rents in the market have historically been limited by the income of the potential tenant pool that consists primarily of hourly wage workers. Unless wages rise substantially, rents cannot rise without affecting occupancy since many potential tenants may not be able to afford the rent. Factors that are reported to have had a significant impact on rental property demand include an increasing transient worker market and the advent of additional Millennials entering the market. Although a good portion of the lower end of the rental market is supplied by weekly rental motels, occupants in that housing type typically cannot afford the deposits related to monthly rental and only marginally compete in the monthly rental market.

J. Jeschke Appraisal is a real estate valuation and consulting firm that has been operating in the Tri Lakes market since 1982.

ANNUAL HOME & LAND SALES VOLUME IN STONE & TANEY COUNTIES

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2019 Commercial Real Estate Forecast | 2018 WINS

About Commercial One BrokersCOMPREHENSIVE RESEARCH ON MARKET THROUGHOUT THE BRANSON AREACommercial One provide trends and forecasts of rent, vacancy, and inventory for office, retail and industrial properties. We also follow the lodging and land markets as well. Because overall averages often don’t adequately reflect the market accurately due to the significant variations in location and classification of this markets assets. We have collected and built our real-time databases since our company’s inception, nearly 13 years ago. Due to the smaller size of this market, national reporting services, brokers and other reports don’t accurately report this market fully.

ACCURATE, UP-TO-DATE INFORMATIONWe provide our clients, area lenders, and others, reliable historical trends and forecasts for the Branson market. Our metrics include market composition, asking rents, vacancy absorption, inventory levels, and new construction.

Commercial One Brokers are the area’s largest full service commercial real estate firm in Branson. Commercial One Brokers are led by Robert Huels, CCIM and Steve Critchfield, CCIM along with our partner in our management company, Christine Maples, CCIM, based in Springfield. This veteran management team has more than 85 years of combined commercial real estate experience. As a CCIM (Certified Commercial Investment Member), this management team is a recognized expert in the commercial and investment real estate industry. The CCIM lapel pin is earned after successfully completing a designation process that ensures CCIMs are proficient not only in theory but also in practice. This elite corps of CCIMs includes brokers, leasing professionals, investment counselors, asset managers, appraisers, corporate real estate executives, property managers, developers, institutional investors, commercial lenders, attorneys, bankers, and other allied professionals.

A CCIM is part of a global commercial real estate network with members across North America and more than 30 countries. This professional network has enabled CCIM members to close thousands of transactions annually, representing more than $200 billion in value. CCIMs have completed a designated curriculum that covers essential CCIM skill sets including ethics, interest-based negotiation, financial analysis, market analysis, user decision analysis, and investment analysis for commercial investment real estate. CCIMs have completed a portfolio demonstrating the depth of their commercial real estate experience. Finally, they have demonstrated their proficiency in the CCIM skill sets by successfully completing a comprehensive examination. Only then is a designation candidate awarded the coveted CCIM pin, joining the ranks of highly skilled commercial and investment real estate experts.

Over 13,000 commercial real estate professionals have earned the designation. Currently, 5,500 professionals are pursuing their CCIM designation, and the three principles of Commercial 1 Brokers and Maples Properties of Branson are the only such companies in Branson.

500 West Main Street, Suite 205Branson, Missouri 65616

Tel: 417.334.3149Fax: 417.335.5152

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2019 Commercial Real Estate Forecast | ABOUT COMMERCIAL ONE BROKERS