MARKET DRIVERS
The vacancy rate has gradually increased over the last several years and surpassed the 5% threshold for the first time in 8 years. The direct vacancy rate increased to 6.1% in the third quarter, up 60 basis points (bps) year-over-year (YOY). The South Sacramento Submarket had the highest direct vacancy rate at 25.8%, while the East Sacramento submarket posted the lowest direct vacancy rate of 0.6%.
Similar to vacancies, market wide availability reached its highest rate since 2017, an increase of 160 bps YOY posting 9.3% at the end of Q3. The Natomas/Northgate and Elk Grove/Laguna submarkets maintained its position as having the highest availability rate at 13.8%, while East Sacramento recorded the lowest rate at 3.1%.
The average asking lease rate dropped YOY to $0.81 PSF but unchanged from last quarter. While current rents are still near the 2023 peak of $0.83 PSF NNN, growth has slowed noticeably, representing one of the slowest periods of rent gains in the last decade. While the market experienced an uptick in leasing volume last quarter, total leasing activity fell to 1.35M SF, a 26% decrease QOQ. Although demand has cooled in the last year, interest from large users has been on the rise, and there were several large deals and expansions over 100K SF over the last couple quarters.
Similar to leasing, sales activity rebounded in Q2 but fell notably in Q3, recording approximately 572K SF in volume, a 67% increase QOQ. Investor sentiment remains cautiously optimistic, with most buyers holding back until financing conditions improve, vacancy levels stabilize, and stronger commitments from major occupiers emerge.
ECONOMIC REVIEW
The unemployment rate in the Sacramento MSA was 5.4% in August, down 20 bps from the month prior, and an increase from the year-ago estimate of 5.1%. This compares to California’s unemployment rate of 5.5% and 4.5% for the nation during the same period.
The Sacramento industrial market benefits from a diverse economic base spanning agribusiness, manufacturing, logistics, and emerging technology, which provides stability amid national uncertainty. The region’s affordability and well-connected location along major distribution routes continue to attract users seeking cost-effective alternatives to Bay Area markets.
Although the Construction sector recorded a loss of an estimated 300 jobs from July to August, manufacturing reported gains of 300 jobs over the same period.
NEAR-TERM OUTLOOK
There is an overall sentiment that Sacramento’s industrial market, like many other major industrial markets, is going through a period of transition. Transaction volume has slowed, and pricing expectations between buyers and sellers remain wide as higher interest rates continue to weigh on deal activity. However, most of this softness appears cyclical rather than structural. The region’s strong logistics position, proximity to major Northern California population centers, and growing base of distribution and manufacturing users continue to support long-term fundamentals. As financing conditions stabilize and vacancy levels begin to normalize, investor confidence is expected to gradually return, positioning the market for a more balanced recovery in sales activity over the next 12 to 18 months.
Although rent growth has fallen below the long-term average, stronger leasing activity—particularly in newly delivered projects—and renewed confidence among larger corporate occupiers are expected to support improvement through 2026. As larger requirements return to the market, demand for big-block space could strengthen, helping to stabilize vacancy and gradually lift rent growth toward historical norms.
3Q 2025 Sacramento Industrial Market: Key Data Points
Explore our full Sacramento industrial market review for deeper insights into leasing trends, sale activity, and submarket performance.
- Vacancy Rate Rises Slightly: Direct vacancy increased to 6.1%, up 60 bps year-over-year.
- Asking Rents Hold Steady: Average asking lease rate remained unchanged from last quarter at $0.81 PSF NNN.
- Net Absorption Positive: Sacramento posted 74K SF of net absorption in Q3, reversing earlier declines.
- Leasing Activity Slows: Quarterly leasing volume reached 1.35M SF, down 27.2% year-over-year.
- Sales Volume Declines: Industrial sales totaled 572K SF in Q3, a 17.4% decrease YOY.
- Construction Pipeline Active: 416K SF of new deliveries were completed in Q3, with several large projects underway.
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