Property specialists at an outlook conference Wednesday in Bakersfield presented a generally pessimistic view of the coming year in local real estate, one they predicted will stall, or in some cases reverse, what has been a solid recovery from the high vacancies and low prices of the recession.
Speakers worried about low oil prices, California’s drought and China’s slowing economy forecast declines in the housing, industrial and office markets. There was, however, some optimism for the local retail sector, as well as petroleum production itself.
One of the event’s highlights, a sometimes bawdy presentation by commercial real estate broker Duane Keathley, closed with observations that two national entertainment companies — Cinemark Theatres and Harkins Theatres — are scouting locations in Bakersfield, as are restaurant chains Café Rio Mexican Grill, Yard House and Five Guys Burgers and Fries.
More than 300 business people endured three hours of charts and numbers-heavy slideshows at the Institute of Real Estate Management’s fourth annual forecast breakfast at the DoubleTree by Hilton Bakersfield. In exchange, they were treated to one of Kern County’s most comprehensive views of local economic activity.
After an overall positive assessment of the national economy by Mission Bank President and CEO A.J. Antongiovanni, multifamily housing specialist Marc A. Thurston said exceptionally strong local conditions in recent years appear headed for a decline.
Thurston, senior vice president at Newmark Grubb ASU & Associates, said many oil field workers will be downsizing their apartments or moving outside the area to look for work, contributing to weaker rental volume in the second half of this year and a 3 percent to 5 percent decline in the sales price of multifamily units.
Bakersfield Association of Realtors 2016 President Bill Redmond also cited the slowdown in local oil production as a factor limiting local home sales this year. Although he did not offer hard numbers for Bakersfield’s market performance in 2016, he said it will be a time of greater negotiation, buyer incentives and investors selling their local holdings.
Touching on what became something of a theme Wednesday, Redmond said the market is largely waiting for the generation known as millennials to move out of their parents’ house and buy their first home.
“We gotta do something about it,” he said. “Kick ’em out.”
Even the star of local real estate during the Great Recession, industrial property, showed weakness at the event.
Despite support from the e-commerce retail trend and speculative building, the Bakersfield area’s industrial real estate market is “now entering the bear market,” meaning falling valuations, broker John Ritchie told the audience.
He pointed to many of the factors other speakers did: an increasingly sluggish global economy, the international oil surplus, instability in the Middle East and unfavorable currency rates. He said local conditions probably won’t change for the better until 2019.
Bakersfield’s office market will suffer from the plunge in oil, too, but “it’s not as bad as everyone is thinking,” said David Williams, senior vice president and principal at Colliers International.
He pointed to a number of projects set to begin construction locally, as well as recent leasing transactions involving large health-care companies gearing up for changes brought on by Obamacare.
But because large oil producers represent such a large chunk of one of what has been the city’s strongest local office market, the area around Cal State Bakersfield, vacancies there will double or triple during the next few years from the existing 2.7 percent rate.
Nor was the ag sector immune. While ag real estate specialist Kevin Palla was mainly upbeat about local farmland, especially wherever almonds grow, he emphasized that “it’s all about the water.”
Properties with good soil, adequate groundwater supplies and a dependable source of surface water will continue to increase in value this year, he said. Those without sufficient surface water will see stable prices in 2016, he said, and farmland with a more limited water supply will suffer a slight devaluation.
One of the more notable sparks of hope came from local refinery executive Majid Mojibi. He said industrial growth in developing countries will push oil prices in the third quarter of this year to $55 to $65 per barrel, or more than double the current level. Once there, prices will hold steady “for several years,” he predicted.
Mojibi closed on a topic that got no other mention at the conference. Referring to a legal dispute between local oil producers and “split estate” farmers who don’t own the mineral rights under their land, he called for creation of a commission to work out a compromise that would bury the legal hatchet and bring peace.
“We can sit down across the table and resolve our problems, rather than going to a court of law and spending millions of dollars,” he said.