MARKET DRIVERS
Sacramento’s office vacancy rate increased to 11.4%, up 30 basis points year over year from 11.1% in Q4 2024, marking a ten-year high and remaining roughly 300 basis points above pre-pandemic levels. While vacancy has risen across the market, downtown Sacramento continues to outperform many other West Coast CBDs, maintaining vacancy below 10% compared with average downtown vacancy rates exceeding 30% in other major western markets.
After peaking at a decade high last year, office availability has begun to stabilize and has declined modestly over the past several quarters. By Q4, overall availability decreased year over year from the record high of 14.5% to 14.0%. Sublease inventory has also dropped significantly, falling by nearly 50% from its 2023 peak and approaching levels not seen since before the pandemic.
Elevated concession packages have reshaped leasing dynamics, with tenants increasingly focused on deal economics as much as the space itself, extending marketing periods and negotiation timelines. As a result, rent growth is expected to remain largely flat through 2026, reflecting muted demand and elevated vacancy and availability rates. Even so, Downtown Sacramento continues to command a meaningful pricing premium relative to other submarkets, supported by its concentration of high-quality inventory and its longstanding reputation as the region’s premier office destination.
Leasing activity remained sluggish throughout 2025, with annual volume falling to a five-year low. Demand was largely driven by tenants with modest space requirements, as government users increasingly shifted toward owned properties, removing a key source of leasing activity from the market. This shift has resulted in smaller average lease sizes and a generally leaner demand profile. Leases under 5,000 square feet now account for nearly half of all leasing activity over the past four quarters, representing the highest share recorded in the past five years.
Sales volume remained consistently subdued across all quarters of 2025, reflecting a persistent slowdown in transaction activity that drove the annual total volume to a ten-year low. However, in Q4, the same downtown Sacramento office property that sold for $28M in 2016 traded again at a 14% discount, which represented the largest sale of the quarter. Despite the lower sale price, the transaction achieved the highest price per square foot in downtown Sacramento since 2022, highlighting resilience and early signs of stabilization in the market.
Construction activity in the Sacramento office market remains extremely limited, with just under 200K SF currently underway—well below the ten-year average of 1.3M SF. Looking ahead, medical office projects and new government buildings are expected to be the primary sources of near-term development. Since most upcoming projects are likely to be built-to-suit rather than speculative, additional supply-side pressure on vacancy should remain limited through 2026.
ECONOMIC REVIEW
The unemployment rate in the Sacramento MSA was 5.0% in November, up 20 bps from the year-ago estimate of 4.8%. This compares to California’s unemployment rate of 5.4% and 4.3% for the nation during the same period.
While Sacramento has historically lagged the Bay Area in attracting tech firms due to the concentration of venture capital and innovation networks elsewhere, the region’s tech sector is expanding through organic growth and in-migration of tech talent.
While the gap remains between the two regions, hybrid work adoption has lowered barriers to operating outside core tech hubs, positioning Sacramento as a cost-effective location for satellite offices and secondary operations.
NEAR-TERM OUTLOOK
Sacramento’s office market continues to work through a gradual post-pandemic adjustment, with progress occurring unevenly across submarkets. While the state’s return-to-office mandate has been delayed amid ongoing labor negotiations, modest signs of stabilization have emerged independent of a formal mandate. Leasing activity has improved selectively, vacancy growth has slowed, and some employers are incrementally increasing in-office expectations. At the same time, tenant demand remains concentrated in higher-quality, amenity-rich buildings, reinforcing a flight-to-quality dynamic. With minimal new supply and limited speculative construction, market conditions appear to be recalibrating, suggesting the office sector may be approaching a more balanced, albeit subdued, operating environment heading into 2026.
4Q 2025 Sacramento Office Market: Key Data Points
Explore our full Sacramento office market review for deeper insights into leasing trends, sale activity, and submarket performance.
- Vacancy Rate Climbs: Direct vacancy rose to 11.4%, up 30 basis points year-over-year, marking a ten-year high.
- Availability Stabilizes: Total availability declined to 14.0%, down 50 basis points from Q4 2024.
- Flat Asking Rents: Average direct asking lease rate held at $2.19 per SF per month, a slight 0.5% decrease YOY.
- Leasing Activity Slows: Quarterly leasing totaled 555K SF, contributing to a 33% annual decline from 2024.
- Negative Absorption: Net absorption registered -102K SF for the quarter, signaling continued demand weakness.
- Sales Volume Down: Q4 sales volume reached 524K SF, down 16% YOY, with pricing showing early signs of stabilization.
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