MARKET DRIVERS
Sacramento’s office vacancy rate remained unchanged from year end 2025, at 11.2% in Q1, suggesting a pause in the upward trend observed over the past several years. While vacancy remains elevated relative to pre-pandemic levels, the recent plateau may suggest early signs of stabilization after a prolonged period of softening.
Overall availability increased slightly to 13.7% from last quarter but remained below the year-ago level. Despite the quarterly uptick, availability has generally trended lower over the past year, supported in part by declining sublease inventory and limited additions of large blocks of space.
Leasing activity remained relatively subdued, though Q1 saw improved momentum YOY. Demand continues to be driven by smaller tenants, while recent government leasing activity signals a re-emergence of public sector demand. Notably, the Sacramento District Attorney’s Office signed a 15-year, 121,074 SF lease at 980 Ninth St., reinforcing long-term institutional commitment to downtown and supporting occupancy stability at a time when many private tenants are favoring shorter-term flexibility.
Pricing conditions remain competitive, with asking rents trending downward year-over-year as landlords continue to offer concessions and flexible deal structures to attract tenants. While effective rents are under pressure, well-located, higher-quality assets—particularly in Downtown Sacramento—continue to command a premium relative to the broader market.
Investment activity remains muted, while development continues to be extremely limited, reflecting cautious capital deployment. However, constrained new supply may help support longer-term market stabilization as conditions improve.
ECONOMIC REVIEW
The unemployment rate in the Sacramento-Roseville-Folsom MSA was 5.2% in January 2026, up from a revised 4.8% in December 2025 and above the year-ago estimate of 5.0%. This compares to 5.5% for the state of California and 4.7% nationally during the same period.
Sacramento continues to benefit from its relative affordability compared to coastal California markets, supporting steady population trends and business migration. While the region still trails major tech hubs in scale, hybrid work dynamics continue to support its role as a cost effective alternative for satellite offices and back-office operations.
NEAR-TERM OUTLOOK
Sacramento’s office market is showing early signs of stabilization, with vacancy leveling off and availability gradually declining. While demand remains measured, the rebound in leasing activity during Q1 is an encouraging sign that tenant engagement is improving. Market conditions are expected to remain tenant-favorable, with continued pressure on rents and ongoing use of concessions to complete deals. However, limited new supply and a shrinking pool of available space could begin to support greater balance over time.
Looking ahead, recovery is expected to be gradual and uneven, with performance continuing to vary by asset quality and location. Well-amenitized, centrally located properties are likely to outperform, while older or less competitive buildings may face prolonged lease-up challenges.
1Q 2026 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 Holds Steady: Sacramento’s direct office vacancy rate remained flat at 11.2%, unchanged quarter-over-quarter, signaling a pause in the market’s multi-year vacancy climb.
- Availability Trends Lower Year-Over-Year: Total availability declined to 13.7%, down from 13.8% a year ago, supported by reduced sublease inventory and minimal new space additions.
- Asking Rents Continue to Adjust: Average asking rents fell to $2.17 PSF per month, reflecting a 1.9% year-over-year decline as landlords remain competitive and offer concessions.
- Leasing Activity Improves Modestly: Office leasing totaled 643,747 SF in 1Q 2026, a 4.2% increase year-over-year, led primarily by smaller tenants and renewed public-sector demand.
- Net Absorption Remains Slightly Negative: Net absorption posted -25,948 SF, improving from the prior quarter but underscoring ongoing space right-sizing across the market.
- Sales Activity Ticks Higher: Office sales volume reached 367,299 SF, up 6.9% year-over-year, driven by select owner-user and value-oriented acquisitions.
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