Q4 2022 Office Space Report: Sacramento, CA
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Sacramento is famous for its cobbled streets lined with majestic trees, home to the sets of numerous movies and television shows. It also houses major companies such as Hewlett-Packard, Intel, Sutter Health, and Blue Diamond Growers.
The city’s unemployment remained at 3.3% from Q3 to Q4 2022, lower than the national average of 3.5% at that time.
Its metro population increased 1.44% in 2022 to around 2.19 million.
Overall, Sacramento’s office space market in Q4 2022 saw rents unchanged, increased vacancies, and negative absorption.
General Area Overview & Demographics
Sacramento, CA’s population is estimated to be around 525,398, making it the 35th most populous city in the United States. The city’s racial composition is 41.6% White, 28.7% Hispanic or Latino, 14.0% Black or African American, 19.2% Asian, and 5.6% two or more races.
Sacramento, CA Median Household Income & Population
US Census Bureau estimated the median household income in Sacramento to be around $71,355 in 2020, which is slightly lower than the median household income for California as a whole ($75,235).
The median age in Sacramento is 35.2 years old, slightly lower than California’s median age (37.3 years old). The city also has a relatively young population, around 25% of residents under 18. Females comprise about 50.8% of the population, and males around 49.2%.
Some notable higher education institutions in the city include California State University, Sacramento (CSUS), American River College, Sacramento City College, and Cosumnes River College. In addition, the University of California, Davis, is located just 20 miles from Sacramento.
Popular attractions include the California State Capitol Museum and the Crocker Art Museum, one of the oldest art museums in the West. Other well-known destinations include the Old Sacramento Waterfront, the Sacramento Zoo, and the American River Bike Trail.
The average high temperature in Sacramento during the summer months is around 90°F, while the average high temperature in winter is around 55°F. The city receives the most rainfall between November and April, with dry and sunny conditions prevailing throughout the year.
Summary of Sacramento Office Space Performance in Q4 2022
Overall vacancy for Sacramento’s office space in Q4 2022 was 18.8%, a 1.1% increase from Q3’s 17.7%.
Vacancies were slightly higher in Downtown (19.5%) than in Suburban submarkets (18.7%).
Highway 50 East saw the highgest vacancy at 31.4%, the only submarket across all of Sacramento above 30%.
East Sacramento had the lowest rate at 3.6%.
Additionally, Auburn/Lincoln (5.9%), West Sacramento (7.4%), and Elk Grove (6.4%) were the only other submarkets to record vacancy rates below 10%.
Quarterly absorption for Sacramento office space was -683,500 square feet in Q4 2022, lower than Q3’s -646,000. This brings the annual total for 2022 to around -1.39 million.
Suburban submarkets accounted for -594,000 quarterly absorption and an annual -1.27 million, with CBD making up the rest.
What are office space rents like in Sacramento?
Average rent for Sacramento office space was $2.16 per square foot in Q4, the same as in Q3.
Downtown had an average of $3.06, while Suburban was $1.97.
Across all submarkets, Class A rates were $2.59, Class B $1.96, and Class C $1.66.
Purchase & Leasing Activity
Sales volume was around $52 million for office space, bringing the annual total to over $480 million.
Average sales price was $140 per square foot.
Leasing activity totaled 2.3 million square feet in 2022. Class A leasing increased over 30% year-over-year as Class B declined almost 50%.
Notable Office Space Deals in Sacramento in Q4 2022
There were several notable deals that took place for Sacramento office space in Q4 2022:
- California Northstate University purchased 125,000 square feet for $12.8 million.
- Lakhbir Singh purchased 30,500 square feet for $4.6 million.
- Marshall Medical leased 42,000 square feet.
- Zurich Insurance leased 27,430 square feet.
These are select examples among other activity.
New Office Space Development Activity in Sacramento in Q4 2022
Sacramento’s office space had no new deliveries in all of 2022.
At the end of 2022, 20,000 square feet of product were under construction.
North Natomas accounts for all of that new construction.
Market Forecast for Sacramento’s Office Space Market
Office space activity continues to slow in 2023 due to increasing interest rates and ongoing economic uncertainty.
Among various property types, office values will decline more significantly as rent growth may not be able to keep up with rising cap rates.
Furthermore, elevated vacancy and negative demand for office space should continue throughout 2023.
Takeaways for Office Space Real Estate Investors
Overall, investors should be cautious before investing in office space in Sacramento, especially in submarkets with high vacancy rates.
Keep an eye on rental rates and consider the potential impact of rising interest rates and economic uncertainty on the market.
Do your research, stay diligent, and happy investing.
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