Sacramento Commercial Real Estate

March 18, 2015

With so much buzz around San Francisco and Los Angeles it’s easy to overlook the Sacramento commercial real estate market, but there’s nothing small about the growth and development happening in the Sacramento commercial real estate landscape right now. Vacancies have dramatically decreased, net absorption has increased quarterly by over 100,000 sqft, and private sector job growth is on track to have one of the strongest years since 1999. This week’s spotlight delves into Sacramento’s burgeoning commercial market.

Up until 2014, most of the Sacramento commercial real estate development had been limited to multi-family and mixed-use redevelopments in the Downtown and Midtown areas. Expect to see residential and multifamily property-types continue to dominate, but when it comes to new construction, retail development is showing a significant increase in the number of buildings currently underway. Two noteworthy tenants—The Container Store and Bass Pro Shops—will be setting up shop along side new retail concepts like fitness centers, doughnut stores, and casual pizza chains.

For the first time since the post-recession, 2014 also saw a reemergence of speculative construction within the industrial sector. There are six industrial projects under construction in the region totaling 1.3 million square feet. This speaks volumes considering the dramatic halt in new development on all property-types that during the recession.

The office sector is still lagging behind, and developers are hesitant to take risks when it comes to new office projects. We can expect to see mixed-use developments on the horizon in the Downtown sector as construction on the new arena gets under way. The uptick in construction has spurred interest from outside investors eager to be a part of the future focal point of Sacramento. The purchase of a vacant office building across the street from the arena by Kaiser has led to speculation regarding a possible new hospital at the rail-yard site.

Other notable proposed projects:
+ More than $1 billion in public and private investments were made over the past decade in Downtown. The future growth of Sacramento, however, will not be limited to Downtown. This epicenter still commands the highest rent per square foot at $2.12, but expect to see private sector companies focusing on other submarkets when it comes to rental space. The average asking rents in outlying submarkets are within the $1.60 per square foot range, while Class A space is around $1.80 per square foot. And until the new arena is completed, tenants will continue to focus on the outlying regions to place their businesses.

+ The Bridge District is slated to be one of West Sacramento’s prime addresses, a project partly funded by a $52 million voter-approved state bond measure. Upon completion the Bridge District could have 5 million square feet of commercial space, 500,000 square feet of retail space, and 4,000 residential units with 9,300 residents.

+ The Riverfront Reconnection Project will link Downtown with the Old Sacramento riverfront south of Capitol Mall and the Tower Bridge. Completion date is late 2016.

+ A new development in East Sacramento comprised of 336 homes and a 4,200-square-foot recreation center on nearly 49 vacant acres has been approved. Construction is expected to commence during the summer of 2015 at a cost of $130 million.

by Jeff Glenn, Managing Director