1st Quarter 2019 | 1
Real Estate Market Review
Sacramento Office
1st Quarter
2019
Office property in the Sacramento market ended 1Q19 strong with leasing activity finishing 9.66% higher year-over-year. Direct vacancy rates continued to decline, ending the quarter 20 basis points lower quarter-over-quarter and 40 basis points lower year-over-year. The construction pipeline is very robust with over 2.3M s.f. still under construction by the end of the quarter. Asking lease rates are up 2.19% quarter-over-quarter and have grown roughly 14% in the last five years. While this market continues to be primarily driven by the State of California government’s demand for office space, the private sector has started to view the market very favorably with Fortune 100 companies relocating their regional headquarters to the state capital of California.
Net Absorption & Leasing Activity
Net absorption jumped drastically quarter-over-quarter as move-
ins began in earnest in 1Q19. South Sacramento led all other
submarkets, with 93,281 s.f. positively absorbed by the end of the
quarter. Downtown Sacramento had led all others in positive net
absorption in 4Q18, but many leases ended at the close of last year,
causing net absorption to dip into negative territory for 1Q19. Overall
net absorption projects to remain positive throughout the year, as the
many leases signed at the end of 2018 should begin to commence in
the coming months.
Leasing activity took a slight step back quarter-over-quarter, but
improved markedly year-over-year. Downtown Sacramento and the
Roseville/Rocklin submarkets easily led all others in leasing activity
with 198,629 s.f. and 164,241 s.f. leased, respectively. 1Q19 featured
some very notable leases, which exemplify the demand by both
government and private sector tenants. The largest lease of 1Q19
occurred along the Highway 50 Corridor, with the State of California
Continued, page 4
Market Forecast TrendsNet Absorption
The quarter ended with 182,487 s.f. of total
net absorption, which was far higher than the
negative territory 4Q 2018 ended in.
Vacancy
Direct vacancy decreased 20 basis points
from 4Q18 to 9.50%.
Rental Rates
Lease rates are nearing decade highs with
a 2.19% quarter-over-quarter increase to
$22.44 annual rent per square foot.
Construction Deliveries
Leasing activity is up 9.66% year-over-year,
which may indicate a very strong year to
come for leasing.
4Q 2018 Market Highlights
YEAR-TO-YEAR BASIS
ABSORPTION
RENTAL RATE
CONSTRUCTION DELIVERIES
VACANCY
2 | Sacramento Office Real Estate Market Review
Market Breakdown
1Q19 4Q18 1Q18 Annual % Change
Vacancy Rate 9.50% 9.70% 9.90% -4.04%
Availability Rate 11.50% 12.00% 12.40% -7.26%
Asking Lease Rate $22.44 $21.96 $21.24 5.65%
Leased SF 1,111,118 1,291,412 1,013,278 9.66%
Sold SF 513,087 1,168,215 965,798 -46.87%
Net Absorption 182,487 -77,583 372,623 N/A
Sacramento Office Charts
VACANCY, AVAILABILITY & LEASE RATE AVERAGE SALES PRICE & CAPITALIZATION RATES
NET ABSORPTION & NEW DELIVERIES SALES VOLUME VS. LEASE VOLUME
Direct Vacancy Total Available Direct Lease Rate
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD
$0
$5
$10
$15
$20
$25
0%
5%
10%
15%
20%
25%
Average Sales Price / SF Cap Rate
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD$0
$50
$100
$150
$200
$250
4%
5%
6%
7%
8%
9%
Net Absorption (SF) New Deliveries (SF)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD-500K
0
500K
1M
1.5M
2M
2.5M
Sales Volume (SF) Lease Volume (SF)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD0
1M
2M
3M
4M
5M
6M
7M
8M
1st Quarter 2019 | 3kiddermathews.com
Submarket Statistics
SubmarketTotal
InventoryConstruction
Deliveries
Direct Vacancy
Rate
Total Vacancy
Rate
Total Available
Rate
1Q Overall Net Absorption
2018 Overall Net Absorption
1Q Leasing Activity
2018 Leasing Activity
Avg Rental Rate
Downtown 20,556,019 - 7.7% 7.8% 6.8% -21,992 115,591 198,629 182,168 $32.16
Auburn / Lincoln 1,701,458 - 4.3% 4.3% 4.3% 7,899 955 7,778 2,173 $20.52
Campus Commons 1,482,234 - 14.3% 14.6% 13.4% -5,613 11,782 20,180 47,942 $26.04
Carmichael / Fair Oaks 1,559,946 - 14.7% 14.7% 12.2% 27,463 -41,047 3,674 56,337 $16.08
Citrus Heights / Orangevale 1,873,060 - 8.6% 8.6% 8.3% 38,908 39,160 39,944 24,337 $18.24
Davis / Woodland 2,604,332 - 5.5% 5.7% 5.5% -8,892 -26,882 14,191 29,382 $23.52
East Sacramento 2,479,963 - 1.7% 1.7% 1.7% 5,879 5,476 3,221 2,476 $31.08
El Dorado 2,112,370 30,216 12.6% 12.8% 12.2% -1,770 25,615 28,518 25,225 $22.56
Elk Grove 2,040,604 - 8.2% 8.2% 7.0% -16,300 4,795 25,839 5,464 $27.24
Folsom 5,179,593 - 6.0% 6.3% 5.8% 5,539 -48,251 41,433 25,324 $24.24
Highway 50 Corridor 17,906,171 - 10.9% 11.3% 9.9% 15,632 29,784 345,137 175,004 $20.28
Howe Avenue / Fulton Avenue 2,724,094 - 15.8% 15.8% 14.7% 48,945 38,732 24,571 48,106 $19.44
Midtown 4,340,946 - 8.90% 9.10% 7.5% -10,198 -13,770 22,900 95,204 $27.48
North Natomas 3,177,468 - 14.8% 14.9% 10.0% 9,101 -11,214 23,774 93,459 $20.52
Point West 2,916,250 - 12.7% 13.3% 13.1% 34,475 -3,630 18,488 103,942 $22.68
Rio Linda / N Highlands 1,144,998 - 24.8% 24.8% 20.6% 2,132 - 27,869 - $20.40
Roseville / Rocklin 12,212,627 - 10.7% 11.0% 8.6% -7,939 -215,411 164,241 311,936 $23.28
South Natomas 3,626,808 - 7.0% 7.8% 7.5% 3,984 -29,206 32,019 29,094 $26.40
South Sacramento 3,551,763 - 7.0% 7.0% 6.1% 93,281 4,035 9,967 17,521 $19.20
Watt Avenue 2,668,863 - 9.2% 9.5% 9.0% -21,321 17,843 23,656 9,791 $19.68
West Sacramento 2,145,085 - 7.2% 7.2% 6.0% 4,532 -4,656 35,089 6,527 $21.12
Sacramento Total 98,004,652 30,216 9.5% 9.7% 11.5% 203,745 -100,299 1,111,118 1,291,412 $22.44
Class A 26,755,594 - 8.5% 8.8% 10.2% 22,419 69,245 385,641 493,615 $27.60
Class B 45,372,022 30,216 10.6% 10.9% 12.8% 130,744 -182,980 596,937 644,923 $21.72
Class C 25,877,036 - 8.6% 8.6% 10.6% 50,582 13,436 128,540 152,874 $18.00
Notable Lease Transactions
WEWORK
400 Capitol Mall, Ste 900 Sacramento
47,316 s.f.
Notable Sale Transactions
ROCKY RIDGE LIVINGSTON, LLC
Stone Point Plaza I - Opus Corporate Center Roseville
96,337 s.f. $6.7M or $69.77/s.f.
STATE OF CALIFORNIA DEPT OF JUSTICE
3068 Kilgor Rd, Ste 1 & 2 Rancho Cordova
104,042 s.f.
LANCE-KASHIAN & CO.
8745 Folsom Blvd Sacramento
83,750 s.f. $8.1M or $96.72/s.f.
UNDISCLOSED TENANT
400 R St, Ste 200 Sacramento
42,304 s.f.
LEELAND AUBURN LLC
Oak Point Office Park Sacramento
33,170 s.f. $5.7M or $174/s.f.
4 | Sacramento Office Real Estate Market Review
Kidder Mathews is the largest, independent commercial real estate firm on the West Coast, with more than 750 real estate professionals and staff in 21 offices in Washington, Oregon, California, Nevada, and Arizona. We offer a complete range of brokerage, appraisal, property management, consulting, project and construction management, and debt equity finance services for all property types.
ASSIGNMENTS ANNUALLY
TOTAL # APPRAISERS/MAI’S
MANAGEMENT PORTFOLIO
51M+ 1,600+
PROPERTY MANAGEMENT VALUATION ADVISORY
37/23
ANNUAL TRANSACTION
VOLUME
$9B
ANNUAL LEASING SF
40M
ANNUAL SALES SF
20M
COMMERCIAL BROKERAGE
# BROKERS
380+
Contact
The information in this report was composed
by the Kidder Mathews Research Group.
Jerry Holdner
Director of Research 949.557.5050 [email protected]
Eric Luhrs
Regional President, Brokerage Northern California / Nevada 916.970.9700 [email protected]
Designated Broker
Mark Read | LIC # 00572743
kiddermathews.com
This information supplied herein is from sources we deem reliable. It is provided without any representation, warranty or guarantee, expressed or implied as to its accuracy. Prospective Buyer or Tenant should conduct an independent investigation and verification of all matters deemed to be material, including, but not limited to, statements of income and expenses. CONSULT YOUR ATTORNEY, ACCOUNTANT, OR OTHER PROFESSIONAL ADVISOR.
Department of Justice taking the entirety of 3068 Kilgor Rd. in the
Prospect Park office building park. Co-working giant WeWork made
a big splash in the state capital with their lease of floors 8 and 9 in
the Wells Fargo Center in Downtown Sacramento. Finally, CIM group
leased out 42,304 s.f. of space in their Downtown office building at
400 R St. to an undisclosed tenant in February.
Rental Rates
The market continues to push higher as it nears levels not seen since
before the Great Recession. Direct lease rates market-wide ended
the quarter at $22.44 p.s.f. annually, which is close to its ten year
peak of 22.92 at the end of 2009. Class B and C buildings saw the
highest quarter-over-quarter rental rate growth, increasing 2.84%
and 2.04%, respectively. Although Downtown Sacramento still leads
all other submarkets by a comfortable margin, the Rio Linda/North
Highlands submarket led all others in quarter-over-quarter rental rate
growth, jumping 37.1% to $20.40 p.s.f. annually. The upward trend
on rents is expected to continue throughout this year, which could
mean market-wide average rental rates not seen in roughly a decade.
Sales
The office market in Sacramento saw a down quarter in sales, as
building square feet sold, dollar volume, total transactions, and
average price per building square foot fell precipitously quarter-
over-quarter. While this is a bit concerning, the delivery of over 2.3M
s.f. in office space will almost certainly put a lot more high quality
office product on the market that should fetch far higher sales
prices. Despite the down quarter, there were some notable sales
for the quarter that are worth highlighting. 8745 Folsom fetched the
highest sales price, as Lance-Kashian & Co. paid Stephen Endsley
$8,100,000 ($96.72 p.s.f.) for the Highway 50 Corridor office property.
The 96,377 s.f. Stone Pointe Plaza 1 in the Opus Corporate Center in
Roseville was bought by Rocky Ridge Livingston LLC for $6,724,000
($69.77 p.s.f.), which was the largest property sold in 1Q19. The
office building at 4420 Auburn Blvd. in the Oak Point Office Park
was sold by Salama Ibrahim to Leeland Auburn LLC in March for
$5,771,500 ($174.00 p.s.f.), which was the highest per square foot
sale of 1Q19.
Construction
There were no new deliveries in 1Q19 in Sacramento, but that
is expected to change as just under half the space still being
constructed is expected to deliver at some point this year. 51.55%
of the office space under construction is pre-leased and will be used
by the State of California in 2022, while the rest is expected to be
delivered this year and will be available to the private sector. The
top six properties under construction are 100% pre-leased, which
indicates that much of the demand is focused on newer and higher
quality space. Despite a slow start in sales, all other indicators point
to 2019 being a strong year for office property in the Sacramento
market.
Source: CoStar