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WHAT'S NEW
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Sacramento Office CRE Market Update 3rd Qtr. 2022

10/04/22

This update was provided by real estate services firm Kidder Mathews


"Sacramento Office Employers Get Creative with Reduced Space"

Market Highlights

Asking lease rates have increased to $2.15/SF.
Direct net absorption increased to 23.k sf QOQ.
Vacancy rates have increased to 10.6% YOY.
Availability rates have increased to 3.9% YOY.

Market Drivers

Office vacancy rates increased 5.02% Year-Over-Year (YOY) from 10.1% in 3Q21 to 10.6% in 3Q22, but it remained steady at 10.6% throughout 2Q22 and 3Q22.
Asking lease rates rose 1.9% YOY from $2.11 in 3Q21 to $2.15 in 3Q22 with only a .4% increase Quarter-Over-Quarter (QOQ).
Availability rates increased 3.9% from 14.1% in 3Q21 to 14.7% in 3Q22.
The leasing activity decreased by 33% YOY from 912.8k sf in 3Q21 to 611.3k sf in 3Q22. Similarly, sublease activity has decreased from 46.7k sf to 25.9k sf.
The sales activity decreased by 27.3% YOY from 1.2 msf in 3Q21 to 902k sf in 3Q22 suggesting buyer caution in the current economy.
Direct Net Absorption reduced from 216k sf in 3Q21 to 23k sf in 3Q22 as lessors decreased their office space usage.

Economic Review

Sacramento-Roseville-Arden-Arcade area unemployment rates slightly increased (QOQ) from 3.2% in 2Q22 to 3.4% in 3Q22 and decreased YOY from 6.3% in 3Q21 to 3.4% in 3Q22.
State government jobs are responsible for occupying about 32 buildings in Sacramento and the Sacramento region has seen an increase of 29,000 jobs YOY with government jobs up 2,600 QOQ and up 3,400 jobs YOY.
Even though there has been a 3.6% increase in average weekly wages for individuals living in the Sacramento area, the wage gap has been unable to close with price increases caused by inflation, now over 9%.
In the Sacramento region, the State of California employer is looking for short-term leases in anticipation of economic changes expected to result from the pandemic. The state plans to reduce its office footprint by 20% over the next three years.

Near-Term Outlook

In line with adjusting to the changing needs of the office workforce, employers are finding that satellite offices with less SF and that are closer to employee homes are beneficial. Plus, some employers are seeking collaborative workspaces with the intention of achieving the benefits of in-office work and in-home work combined to optimize employee and employer satisfaction.
Some companies have officially decided on their office usage plan, but most employers are making their decisions gradually along with the ebb-and -flow of the market.
Buyers and lessors would rather spend more to get into newer, class A Office buildings with updated features then save on less-expensive, more-obsolete structures.
Although there has been an increase both YOY and QOQ in government jobs, the number of available jobs in the region has not kept pace with the migration of people to the Sacramento area.

Sources: labormarketinfo.edd.ca.gov, dgc.ca.gov, natlawreview.com, greatersacramento.com, bizjournals.com

Report provided by Kidder Mathews Director of Research Gary Baragona






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