By every appearance, retail and commercial trade in Bakersfield is thriving. Drive past areas in the southwest and northwest of the city on your daily commute and you see new retail shopping centers opening, new office spaces being advertised and a variety of economic development occurring. But do these observations match the data and what is actually occurring?
One of the best ways to measure the growth in the retail sector is to look at employment. Employment measures current and future economic conditions. Growth in employment in the retail sector would hint that, even though labor incomes have fallen in Kern County by about $62 per resident, current economic activity has not been depressed. It is also the hope that the large growth in GDP for the U.S. in the second quarter of 2017 will be matched by growth in real personal incomes at the local level.
The data matches our observations. Between the first quarter of 2017 and the second quarter of 2017, there were 367 more retail trade employees hired. In the second quarter of 2017, 32,933 workers were employed in retail trade (33,300 in July 2017, hinting that growth will continue).
In fact, 8.6 percent of the civilian labor force is employed in retail trade, which is one of the highest values ever found in the city of Bakersfield since January 2000. What speaks to the growth of the retail sector is the fraction of jobs available for retail trade.
At the height of economic growth, in 2006, 9.1 percent of all jobs in Bakersfield were in retail trade. After the tremendous collapse in oil prices — and thus the subsequent declines in a significant portion of both business and labor revenues tied to the oil extraction market — 9.5 percent of all jobs in July 2017 are now tied to retail trade. This indicates that even though oil and gas drive Kern County and Bakersfield, we are diversifying away from these fundamentals. It also hints that entrepreneurs and businesses anticipate that demand for their retail goods will remain high in the future.
This is important; we are facing a time when labor incomes, in the second quarter of 2017, have fallen for the second consecutive month and shown general stagnation or decreases. If businesses are anticipating that, regardless of these trends, economic growth in the economy as a whole will outweigh the local impacts of low oil prices.
Retail and Commercial Rents
Since the beginning of 2014, the asking prices for office sales has been increasing in the Bakersfield. In 2014, the average office space sold for $120 per square foot; by the middle of 2016, the average asking price was $131.77, a year-on-year increase of 0.5 percent. Though this does not seem like a lot, with commercial and retail development occurring in the city at a rapid pace, this means that the increases in demand for this pace is far outstripping the increases in supply.
During the same time, the asking rent for office property has been increasing. In the beginning of January 2014, it was slightly under $18 per square foot per year in rent. By the middle of 2016, it was $18.33 per square foot per year, a year-on-year increase of 3.6 percent.
These differential price increases in rent and purchasing habits hint at the expectations for the use of these spaces. They hint that individuals are more willing to purchase buildings than to rent them, implying that they anticipate being in business over a very long period of time. Purchasing office space comes with a tremendous long-run commitment, so that these indicators play a vital role in telling us what will happen.
Overall, the observations made on a daily basis, as well as the data, tell us that retail and commercial spaces are thriving in Bakersfield. This is in contrast with national trends where large-scale shopping centers and big-box stores are reducing their footprints in response to online traffic and reduced shopping patterns by consumers. In an era where consumers are averse to using large scale credit devices after the most recent recession, and where personal savings rates have been higher than average recently, these trends present important implications for the future of retail and commercial in Kern County.
Specifically, the employment and rent trends that we are seeing highlight the fact that even though we are seeing reductions in personal incomes, the growth in employment, reductions in the unemployment rate, and increases in personal spending trends locally are creating an environment that is amenable for future growth.
Richard Gearhart is an assistant professor of economics at California State University, Bakersfield.