|
|
7/16/26
|
This report provided by real estate services firm Kidder Matthews
Market Highlights
• Direct vacancy rates decreased slightly QOQ to 11.1%
• Availability rates also decreased YOY to 13.6%
• Asking lease rates fell YOY and QOQ to $2.14/sf
• Sales volume increased to 928k sf
Market Drivers
• Sacramento’s office market showed modest improvement during Q2, with direct vacancy declining to 11.1%, marking a potential shift from the steady and continual increases experienced in recent years, potential showing early signs of stabilization.
• Overall availability decreased to 13.6% and remained below year-ago levels, indicating a continued tightening in market conditions driven by reduced sublease inventory and limited additions of large available blocks.
• Leasing activity remained positive but relatively subdued through the first half of 2026, with demand primarily driven by smaller tenants. Recent government leasing transactions also suggest a renewed source of demand from the public sector.
• Market conditions continue to favor tenants, as asking rents softened year-over-year, while landlords remain flexible with concessions and lease structures to secure occupancy. Despite this, well-located, high-quality assets, particularly in Downtown Sacramento, continue to achieve rent premiums and attract stronger demand.
• Both investment activity and new development activity remain limited as buyers and developers continue to be cautious and selective. However, the constrained supply pipeline may help support longer-term market stabilization and strengthen fundamentals as leasing demand gradually improves.
Economic Review
• The unemployment rate in the Sacramento-Roseville-Folsom MSA was 4.2% in May 2026, down from 4.7% in March 2026 and above the year-ago estimate of 4.4%. This compares to 5.3% for the state of California and 4.2% 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 rates leveling off and available space gradually declining. While tenant demand remains subdued compared to historical averages, solid leasing activity during the first half of the year indicates improving conditions and a modest increase in market momentum. Conditions are expected to remain favorable for tenants in the near term, as landlords continue to rely on concessions and flexible lease structures to drive transactions. However, limited new construction and a shrinking inventory of available space may help support a more balanced market over time. Looking ahead, recovery is expected to be gradual, with performance continuing to differ by asset quality and location. Well-located properties with modern amenities are likely to attract the strongest demand, while older or less competitive buildings may continue to face leasing challenges and longer absorption timelines.
The information in this report was composed by the Kidder Mathews Research Group and provided by Kidder Mathews Vice President of Research Gary Baragona
Data source: CoStar, data.bls.gov, bizjournals.com
|
|
 Return to the previous page
|
|
|
|
|
Printer-friendly Version
Email an Associate
