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KERN BUSINESS JOURNAL

December 2014 / January 2015

Bakersfield office market remains tight, but where is new demand? By Martin J. Starr

T

he Bakersfield office market has maintained a vacancy rate under 10 percent for the last 11 quarters. That is nearly three straight years of what is considered a stabilized market while the economy has experienced only moderate growth. The third quarter of 2014 brought an increase of 10 basis points to the vacancy rate, which now sits at 9.11 percent for all submarkets and all classes of buildings within the Bakersfield office submarket. While activity remained marginal, more space was leased in the third quarter compared to the entire first half of 2014; the net absorption topped out just under 65,000 square feet for the quarter. The University Centre submarket vacancy is almost nonexistent with less than 12,000 square feet of vacant office space available in a submarket of 1.75 million

square feet. The suburban submarkets in the southwest and northwest remain under 10 percent vacant, continuing the threeyear trend of stability. Only the central submarket has shown increasing vacancy as activity and interest remains slow. But where is the new demand for growth in the office sector? The boomand-bust cycle in the first decade of the 2000s was primarily fueled by the financial services demand related to the explosion of the residential real estate industry bubble. Bakersfield’s office market is driven mostly by two dominant sectors: government and energy. While the rest of the nation’s office markets were experiencing ballooning vacancy rates that in some cases reached as high as 30 percent during the peak, Bakersfield’s oil and energy focus kept our peak vacancy just under 12 percent. However, good news may be on the way. The U.S. Bureau of Labor Statistics

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reported that the labor market has expanded at a moderate pace in October, posting its ninth consecutive monthly gain above 200,000 new jobs. According to Newmark Grubb Knight Frank’s economic research department, the demand for new office space signaled by new construction of office buildings and the positive net absorption of space is outpacing the demand realized in 2013 by more than double the amount of space. Locally, we have been slow to realize the growth, but when it becomes a reality, developers will be ready to meet the need for more office buildings. There are new developments planned in the University Centre submarket, located south of the Kern River and primarily west of Gosford Road, that can accommodate more than 800,000 square feet of office space. That figure does not include the Bakersfield Commons development at Coffee and Brimhall roads, and barely scratches the surface of what can be developed within the

Seven Oaks Business Park. The 265-acre business park development has been kickstarted with sales of nearly 30 acres of land that will represent more than 220,000 square feet of development in just the last 18 months. Seven Oaks Business Park is the only major development in the University Centre submarket that is actively selling land to users, and a new speculative 27,000-square-foot Class “A” office building on Bolthouse Drive has just been announced that will be completed in the second half of 2015. The scope of the Seven Oaks Business Park development is similar in size to the total acreage of the California Avenue office corridor that was constructed in the 1980s. When, not if, the demand comes, Bakersfield will experience exciting new architecture and construction that will provide innovative and efficient workspace for years to come. Martin J. Starr is a principal at Newmark Grubb ASU & Associates.

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Kern Business Journal Dec. 2014-Jan. 2015  

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