Real estate column: Commercial market soft
| Saturday, Aug 29 2009 12:52 PM
Last Updated Saturday, Aug 29 2009 12:52 PM
Loading Stories
Advertisement
Images:
Courtenay Edelhart
For more than a year now, real estate watchers have been predicting commercial real estate is the next shoe to drop in the economic crisis.
Now that the residential market is staggering back to its feet, I thought I’d check out the office and retail landscape.
The consensus of local real estate professionals is that commercial is soft, but not as bad as it could have been because Bakersfield didn’t overbuild as much as other areas of the state.
Bakersfield’s office vacancy rate was about 10 percent at the end of the second quarter, said Martin Starr, senior vice president with Grubb & Ellis, ASU and Associates.
“It’s increased steadily, but it’s fairly strong compared with other markets,” Starr said.
The bulk of our office space is either government or energy, both of which have weathered the recession reasonably well.
“They’re not adding space, but they’re not giving any back to reduce their footprint, either,” Starr said.
Bakersfield’s average retail vacancy rate was 11.1 percent at the end of last year, according the most recent data available from CB Richard Ellis. That’s not counting Valley Plaza Mall, downtown and most retail centers under 10,000 square feet.
A precipitous drop in consumer spending has taken its toll on mom-and-pops and big box retailers alike.
Notable casualties include Circuit City, Gottschalks, Linens ’N Things and Mervyns, whose carcasses are still largely unoccupied.
“We’re in dire times,” said Chad Brock, senior associate at NAI Capital. “It’s a tenant’s market.”
Local retail lease rates have dropped from a quarter to as much as half since the onset of the recession, which has emboldened lease holders to negotiate new terms even before their contracts expire.
“The larger stores that have always paid their rent on time have more leverage to get workouts from their landlords,” Brock said.
In some cases, owners have the unhappy choice between lowering a troubled tenant’s rent or having no rent at all when the store goes under, said Ron Sprague, an agent with Watson Touchstone and chairman of the Kern County Planning Commission.
“Some are just converting to month-to-month agreements and hoping things get better,” he said.
One ominous sign, Sprague said, is an uptick in calls to the county to request smaller trash bins. He interprets that to mean stores reducing staff and merchandise are generating less waste and cutting costs everywhere they can.
All neighborhood vacancy rates are not equal, of course.
The office market in the northwest has a glut because developers there built speculative projects. But near Cal State Bakersfield in the southwest, where builders mostly restrained themselves to building with deals in hand, the vacancy rate is lower.
On the retail side, older units in and near downtown are picking up tenants because they’re less expensive.
The big question is whether any of this will translate into the same kind of foreclosure catastrophe that nearly crippled the housing market.
Some landlords inevitably won’t be able to make loan payments, and they’re facing the same credit crunch and equity problems as homeowners when they try to refinance.
Only a sharp increase in consumer spending and some unemployment relief will avert that disaster, but few are betting that will turn around any time soon.
