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Sacramento Office Market Report

2nd Quarter 2022

Posted In — Market Research | Market Report

MARKET DRIVERS

OFFICE DIRECT ASKING LEASE RATES INCREASED 3.49% year-over-year (YOY) from $2.08/SF FS in 2Q21 to $2.15/SF FS in 2Q22. Direct asking lease rates increased quarter-over-quarter from $2.12/SF FS in 1Q22 to $2.15/SF FS in 2Q22.

AVAILABILITY RATES INCREASED 6.07% YOY from 13.5% in 2Q21 to 14.3% in 2Q22.

LEASING ACTIVITY DECREASED 28.26% YOY from 753,290 SF in 2Q21 to 540,401 SF in 2Q22.

SINCE 1Q21, leasing activity has decreased 2.35% from 517,648 SF in the 1Q21 to 505,496 SF in 1Q22. The most active submarkets of 1Q22 were Highway 50 Corridor with 124,901 SF leased and Roseville/Rockling with 121,681 SF leased. In 4Q21, the Downtown submarket was the most active for the quarter with 569,299 SF leased.

THE SALES VOLUME DECREASED by 13.44% YOY from 699,533 SF in 2Q21 to 605,549 SF in 2Q22.

VACANCY RATES INCREASED 3.95% YOY from 10% in 2Q21 to 10.4% in 2Q22.

DIRECT NET ABSORPTION FELL 74.7% YOY from 4,610 SF in 2Q21 to negative 339,627 SF in 2Q22 and YTD direct net absorption is positive 290,949 SF.

ECONOMIC OVERVIEW

PANDEMIC RECOVERY continues in the Sacramento-Roseville-Arden-Arcade area with unemployment rates decreasing quarter-to-quarter from 4.6% in the first quarter of 2022 to about 3.2% in the second quarter of 2022.

THE NUMBER OF EMPLOYMENT POSITIONS in Trade, Transportation, and Utilities and Education and Health Services have increased by 38.2% (550 jobs) and 26.5% (3,400 jobs), respectively, from the previous quarter.

CONSTRUCTION AND MANUFACTURING have shown signs of decreasing 16.7% and 35.6% in 2Q22. In addition, Professional and Business Services and Government have also trended downwards by 3.2% and 16.7%, respectively.

SUBLEASE AVAILABILITY rates have risen as tenants look to unload the extra space that resulted from the pandemic.

THE BUDGET PROPOSAL for The State of California is anticipated to save $84.7 million per year by reducing leased office space by 20%.

NEAR-TERM OUTLOOK

LARGE COMPANIES are bringing their employees back into the office; however, many employees prefer to work from home. Thus, large companies are competing with companies offering work from home positions that offer comparable wages and help employees avoid the high cost of gas and commutes among other draw backs to in-office work.

MORE INVESTORS and users are leaning towards converting office space to have applications for life science, multifamily, and industrial.

INDUSTRY PROFESSIONALS foresee growth in subleasing activity, vacancy rates, and consolidation as more companies decide to stay remote.

 
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