C&W Report: Sacramento Office Market Hits 1.2MM SQFT of Growth in 2019, Exceeding 2017 & 2018 Combined

SACRAMENTO, Calif., January 16, 2020 – Cushman & Wakefield Sacramento has made available its latest regional office market report, which indicates that Sacramento’s office sector maintains high levels of demand and solid fundamentals. Achieving well over 1 million square feet (msf) of net occupancy growth in 2019, overall office vacancy finished the year at 8.3%, down 110 basis points (bps) from 2018 and shedding another 10 bps from the previous quarter. The story is similar in the region’s Central Business District (CBD), where vacancy fell by 170 bps year-over-year and 30 bps quarter-over-quarter.

Will Austin, Cushman & Wakefield Senior Research Analyst in Sacramento, said, “Sacramento’s office market closed 2019 very strong with 368,000 sf of positive net absorption during the fourth quarter, or nearly one-third of our annual absorption which totaled 1.2 million msf. The elevated office growth in 2019 exceeded 2017 and 2018 combined.”

Austin added, “The CBD remains a popular destination for tenants, as net absorption reached 167,000 sf for the year, similar to the 2018 totals.”

Additional growth standouts for the year included Roseville/Rocklin which achieved nearly 400,000 sf of positive net absorption in 2019, North Natomas with 155,000 sf, and South Sacramento with 123,000 sf.

Cushman & Wakefield’s Ron Thomas, Executive Director and Managing Principal of the Sacramento Region, said, “We maintain a positive outlook heading into 2020, with continued job growth and as real estate demand remains strong throughout Sacramento, still with 2.1 msf of tenants currently seeking space, exceeding our historical average of 1.9 msf. However, while interest in the market is robust, net absorption could be hindered in the coming year by a lack of supply, particularly large blocks which are increasingly sparse throughout the region. That said, a lack of speculative construction also helps protect the market from exposure to oversupply.”

Driven by demand and supply, office lease rates continue to tick up as the market average reached $1.92 per square foot per month on a full services gross basis (FSG), up $0.01 quarter-over-quarter (QOQ) and hovering the all-time market record of $1.93 FSG set during the second quarter of 2019. Downtown continues to record ever higher rents, with an all-time high of $2.65 FSG, while Class A rents reached $3.27 FSG. All product classes recorded increases in lease rates during the period.

Thomas noted, “Interestingly, Downtown’s Class B average asking rate of $2.63 FSG has surpassed the Class A asking rate from the first quarter of 2015, which was then $2.61 FSG.”

Office sales played a major role in market activity during the fourth quarter, as 400 Capitol Mall sold for $199 million to Manulife, the second highest price ever paid for an office building in Sacramento.

Austin said, “The impact of the Golden 1 Center is also becoming ever clearer, especially when reviewing office property values. Sacramento has had only eight building sales of $100 million or more in its history, four of which have transpired since the Golden 1 Center opened in September 2016, a point also considered to really have started the urbanization of Sacramento. Also benefiting values of course is the fact current market conditions are unprecedently strong in the CBD.”

Thomas concluded, “Sacramento’s ongoing economic growth can be seen throughout the office market fundamentals. The increasing willingness to invest large sums in the city’s urban core, record low vacancy rates, record high lease rates and the largest urban infill project in the nation, The Railyards, combine to create a vibrant and dynamic office landscape.”

About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries. In 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. 

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