Report: Sacramento Office, Industrial Markets Contend with Post-Pandemic Effects

Kidder Mathews, Sacramento, Amazon
Photo by Stephen Leonardi on Unsplash

By Kate Snyder

As workforce needs continue to change, the office market in Sacramento is seeing employers looking to reap the benefits of both remote and in-person labor by getting creative with reduced space. Additionally, in some cases employers are leaning toward a focus on smaller satellite offices and collaborative workspaces, according to Kidder Mathews’ Sacramento Office CRE Market Update for the third quarter of 2022.

Kevin Sheehan, managing partner at Kidder Mathews’ Sacramento office, said it’s been an unusual time because of the pandemic allowing remote work to become as prominent, or even more so in some cases, as in-person work. According to the report, state government jobs are responsible for occupying about 32 buildings in Sacramento, but Sheehan noted that currently the state of California has no official policy regarding working remotely. The state at this point is looking for short-term leases in anticipation of economic changes expected to result from the pandemic and plans to reduce its office footprint by 20 percent over the next three years.

“For our market, this is very much a wait-and-see time right now,” Sheehan said. “I think things could go in many different directions over the next 12 months.”

Though Sacramento office vacancy rates increased from 10.1 percent in last year’s third quarter to 10.6 percent in the third quarter of 2022, according to the report, vacancy rates remained steady from this year’s quarter two to quarter three. Asking rates increased 1.9 percent year-over-year with just a 0.4 percent increase quarter-over-quarter, and availability rates increased 3.9 percent from 14.1 percent last year to 14.7 percent at the same time this year. Leasing activity saw a decrease by 33 percent year-over-year from 912,823 square feet last year to 611,325 square feet this year. Sublease activity marked a similar decrease from 46,696 square feet to 25,945 square feet.

“Everyone’s kind of trying to figure it out right now,” Sheehan said. “It is just a very unusual time in the office market.”

Kidder Mathews also released its Sacramento Industrial CRE Market Update for the third quarter of 2022, and that report shows that the “Sacramento industrial market remains in strong standing,” with the city’s manufacturing sector gaining 400 jobs quarter-over-quarter and 700 jobs year-over-year. Though the construction industry had a loss of 700 jobs quarter-over-quarter, it too saw an increase year-over-year with a gain of 2,000 jobs.

The city’s direct vacancy rates for industrial buildings decreased 8.1 percent from 4.2 percent last year to 3.9 percent at the same time this year, according to the report. The highest direct vacancy rate was recorded in the South Sacramento submarket at 21.9 percent and the lowest was in Davis/Woodland at 1.2 percent. At the same time, the total availability rate grew 14.5 percent from 5.9 percent last year to 6.8 percent this year, with the highest total availability rate at 12.2 percent in the Natomas/Northgate submarket and the lowest at 2.1 percent in the South Sacramento submarket.

“The industrial market remains strong with increased deliveries for the quarter; however, lease and sale slowing are anticipated as Amazon pulls back across the region and interest rates exceed cap rates,” the report stated. “The Sacramento region has some of the most economically robust industrial lease and vacancy rates country wide. Plus, the region is offering a bounty of incentives to reduce operating costs for businesses.”

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