Real estate forecast spotlights uneven recovery

Optimism sounded from every corner of Bakersfield’s real estate industry at an annual outlook event Tuesday, though some sectors were giddier than others as the pandemic has uneven effects on different kinds of local property. Bullishness led among housing specialists — both multifamily rental and single-family — followed by industrial property, the long-time local favorite. The office market came off as weaker than the rest but, like retail, may have fared better than had been expected. At heart an economic update, the Institute of Real Estate Management’s 10th annual forecast breakfast focused on popular concerns such as rising inflation, interest rates and construction costs. Speakers pointed to continuing challenges such as supply chain problems, but most characterized local and national business activity as having rebounded from the economic wreckage of 2020 and in some respects surpassed 2019’s peak.

Among the biggest news of the day was word that institutional investors have entered the local rental housing market after historically ignoring the Central Valley. Multifamily real estate specialist Marc Thurston with ASU Commercial said during the event, and elaborated by phone afterward, that two of three buyers who recently came in on private jets have since secured property locally. But because they couldn’t find any built units for sale, he added, both plan to develop new projects. He declined to identify the investors, saying only they were attracted to the fact that some apartment rents in Bakersfield recently topped $2,000 per month, and that they were impressed by the relative openness of the local economy. With the citywide occupancy hovering at historic lows, he said there will be unmet demand even if each project totals as many as 1,000 new rental units. “It doesn’t begin to address the shortage that we have here,” he said.

A similar imbalance is at play in the single-family market, where new President Anna Albiar of the Bakersfield Association of Realtors noted a shortage of inventory has coincided with strong demand — “the recipe for increasing prices,” she said. Kern’s housing affordability, defined as the capacity of a local resident of average income to afford a home selling at the area’s median price, is 45 percent. Albiar pointed out that compares favorably with the statewide rate of 24 percent. Albiar dismissed comparisons to the 2006-07 housing bust, saying buyers back then had far less “skin in the game” when borrowing. New homeowners these days put more money down and so “it’s harder for them to walk away and leave that investment,” she said. Albiar added that although interest rates are expected to rise, they remain historically low.

President and CEO A.J. Antongiovanni of Mission Bank, delivering the event’s highest-level economic overview, said the national economy is exceptional and that spending is exceeding 2019 levels. He called the pandemic so far a “bump in the road,” though he observed that prices and wages are up “and I don’t think that’s temporary.”

Industrial property specialist Oscar Baltazar with Colliers International delivered an upbeat market assessment, saying demand is strong lately and predicting more investors will come north from Southern California. The metro area’s industrial property vacancy rate fell from 4.9 percent in 2020 to 3.2 percent in 2021, he said, as the market expanded more than 3 percent to 63 million square feet. He listed new projects including a 3-acre meat processing facility coming to southeast Bakersfield and a new transmission manufacturing plant. “I believe that rents will continue to go up, construction will go up,” Baltazar said.

Office specialist Matthew Starr with ASU Commercial challenged the notion office space “is dead” in the face of the mass migration to work-from-home arrangements. While there’s likely to be a combination of remote work and in-person labor, he said, company culture is generally created in the office, and work-life balance suffers when business is done from the kitchen. He added that employers appear to be reversing the trend of dedicating less office space per employee. Demand is steadily recovering, Starr said, and there’s no sign of a flood of vacancies ahead. Although oil industry tenants may pull back because of state regulation, he said demand has diversified among users like health care, government, financial services and agriculture. Starr predicted high construction costs will limit the pipeline of new projects and the local vacancy rate is unlikely to top 12 percent, having recently surpassed 11 percent.

Retail broker Vince Roche at Cushman & Wakefield highlighted bright spots like greater integration of food in shopping centers, a dip in online shopping in 2021 and recent local investments by big national retailers like Dutch Bros., Aldi and Raising Cane’s. He acknowledged challenges to tenants like movie theaters, health clubs and museums but pointed to promising adaptive reuse projects like the new Amazon distribution hub at the former Kmart on Wilson Road. Another focus was the Westside Parkway, which he said may have the largest benefit of any local public works project in decades in the way it allows shoppers to get to goods and services much more quickly and efficiently.

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