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Sacramento Office Market Report

1st Quarter 2022

Posted In — Market Research | Market Report

MARKET DRIVERS

DIRECT lease rates grew 2.4% year-over-year in 1Q22 to $2.13/SF. 1Q22 demonstrated the highest lease rate for the area in the last decade. However, the rate of change for the 1Q22 compared to the 2021 average rates demonstrate a steadier change compared to previous years.

SUBLEASE ACTIVITY seems to be trending down from 33,242 SF in 4Q21 to 22,463 SF in 1Q22.

THE DIRECT NET ABSORPTION for the 1Q22 was 47,175 SF.

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 for the Sacramento region was markedly up by 86.82% with 866,004 SF sold in 1Q22 compared to 463,538 SF sold in 1Q21.

THE VACANCY RATE GREW 2.9% from 10% in 1Q21 to 10.3% in 1Q22.

ECONOMIC OVERVIEW

RECOVERY FROM THE PANDEMIC’S scourge can be seen in in the Sacramento-Roseville-Arden-Arcade area’s employment rates. As the job market recovers, fewer Americans are filing for unemployment benefits. While the employment rate is not yet back to pre-pandemic levels, it has demonstrated marked improvement with an 8% unemployment rate in the first quarter of 2021 compared to a 5.0% unemployment rate in the first quarter of 2022.

EMPLOYMENT POSITIONS in education and health services have demonstrated a consistent increase both quarterly (up 2,400 jobs) and year-over-year (up 6,100 jobs). Jobs in retail trade, wholesale trade, and transportation / warehousing / utilities have also increased year-over-year (by 2,200, 400, and 3,200 jobs, respectively) in the Sacramento-Roseville-Arden Arcade.

ON PAR WITH RECOVERING from the pandemic, the average household income in the Sacramento MSA has increased 4.3% since the first quarter of 2021, but the increase isn’t keeping up with inflation.

TENANTS don’t seem to be downsizing as much as previously recorded but some are still subleasing or trying to sell their buildings.

AS INTEREST rates go up, cap rates are softening.

NEAR-TERM OUTLOOK

FOR 1Q22, brokers are seeing consolidation into high rise buildings and a slight increase in vacancies. They expect that as the consequences of COVID subside, people will return to the office for work.

AS ENGINEERING and financial institutions grow, more workable space is needed.

THE AMOUNT OF AVAILABLE LAND is not proportional to the increased demand by the engineering and financial institutions that are looking to expand.

STATE OF CALIFORNIA government tenants are looking at hybrid work schedules which may lead to reduced need for space.

 
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