Sacramento Office Market Report

MARKET DRIVERS

Sacramento’s office vacancy rate increased to 11.3%, a 30-basis points (bps) rise year-over-year (YOY) from 11% in Q3 of 2024. Vacancies have reached a 10-year historic high and still remain approximately 300 basis points above pre-pandemic levels. However, unlike many markets across the west that have the highest vacancies in the downtown region, downtown Sacramento has been able to maintain a vacancy under 10% while most other downtown regions sit at over 30% vacant on average.

After reaching a 10-year record high in availabilities last year, the rate has somewhat stabilized and even shrank in the past few quarters. Q3 2025 experienced a decrease in overall availability rates YOY from a high of 14.7% to 14.2%. Sublease space has fallen by almost 50% since the peak in 2023, sitting at its lowest level since pre-pandemic.

The average asking lease rate declined for the first time in two years, dropping 0.5% YOY to $2.19 PSF in 3Q. Rent growth has decelerated in recent years, driven by persistently high vacancy and availability rates across the market. With landlords continuing to offer generous concessions to attract and retain tenants, meaningful upward movement in rents is unlikely in the near term. Despite these headwinds, Downtown Sacramento continues to command a significant pricing premium compared to other submarkets, supported by its concentration of high-quality inventory and longstanding reputation as the region’s premier office destination.

Leasing activity totaled just over 478K SF in Q3, marking one of the lowest quarterly volumes in the past two decades. While demand has cooled in recent quarters due to rising relocation costs and a trend toward smaller space footprints, this slowdown reflects broader market adjustments as tenants reassess their long-term space needs. Though a near-term rebound is unlikely, this period of transition may create opportunities for tenants to secure favorable terms and for landlords to reposition assets to better align with evolving workplace preferences.

Sales activity rose both YOY and QOQ to 611K SF in Q3, reflecting a modest uptick in investor engagement. However, following a 13-year low in Q1, the market remains on pace to post its lowest annual sales volume in a decade. Distress-driven transactions are expected to persist, particularly among owners of underperforming assets facing limited leasing momentum. Still, these conditions may present strategic acquisition opportunities for investors seeking value in a market undergoing structural transition.

The office development pipeline remains limited, with just 158K SF currently under construction, reflecting several years of minimal new project starts. This restrained supply environment may help position the Sacramento office market for a more efficient recovery compared to the post–Great Recession cycle. With fewer new deliveries on the horizon, well-located existing assets may be better positioned to capture demand once leasing activity begins to improve.

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.

Historically, Sacramento has struggled to attract tech companies from the Bay Area, as many have prioritized remaining close to venture capital networks, top-tier engineering programs, and the region’s established innovation culture.

However, this dynamic may be gradually shifting – with decentralized workforces becoming the norm, some companies are exploring the option of positioning satellite offices in more affordable markets like Sacramento to stay connected to dispersed talent while
controlling costs.

NEAR-TERM OUTLOOK

The state’s return-to-office mandate, originally set for July 1 of this year, was widely expected to boost foot traffic and local economic activity, but has since been delayed another year due to ongoing labor negotiations. However, even without the formal mandate in place, there are signs of modest improvement in the local office market. Leasing activity has picked up in select submarkets, vacancy rates have started to stabilize, and some employers are organically increasing in-office expectations. This gradual return, paired with increased tenant interest in high-quality, amenity-rich office space, suggests that the market may be beginning to find a new post-pandemic equilibrium.

3Q 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 Rises to 10-Year High: Direct vacancy increased to 11.3%, up 30 bps year-over-year.
• Availability Rate Declines: Total availability fell to 14.2%, down 50 bps YOY from last year’s peak.
• Asking Rents Dip Slightly: Average asking lease rate declined 0.5% YOY to $2.19 PSF Full Service.
• Leasing Activity Slows Sharply: Q3 leasing volume totaled 479K SF, down 34.5% YOY.
• Sales Volume Increases: Office sales reached 611K SF in Q3, up 3.5% YOY.
• No New Deliveries: The development pipeline remains limited, with no new deliveries in Q3.