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On average, Sacramento’s office market is showing signs of improvement. But the region is divided, with some areas rebounding to pre-pandemic levels, while other corridors show slower signs of recovery, research from commercial real estate firm Newmark showed.
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Areas like Roseville and Folsom have fared especially well, with vacancy rates well below the regional average. Downtown, Rancho Cordova, Natomas and the eastern Highway 50 corridor, meanwhile, are stabilizing or improving slightly, said Zac Collie, managing director at Newmark.
“It’s going to take them a longer period to get back to where they were,” Collie said.
Just before the pandemic hit, the region’s office vacancy rate dropped as low as 9.8% in 2020, Newmark estimated. The rate peaked in 2023 at 16.5%, and has fallen slightly since then to 15.7%, Newmark’s quarterly market report said.
Office tenants absorbed nearly 224,000 square feet in the second quarter of the year, suggesting the market is settling into a “more balanced trajectory,” the report said.
Even after the onset of the pandemic, Sacramento’s office vacancies never neared the levels seen in the wake of the Great Recession: The rate climbed to 32.2% in 2011. Still, the data hints at the extent to which the pandemic and the rise of telework reshaped the region’s office market.
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A majority of companies here, Collie said, are now using hybrid work, and telework has become somewhat of a mandate from prospective hires. To coax workers back to the office, companies are gravitating toward lush offices with common spaces and amenities.
“Executives are looking at… ‘How do I bring my employee back, and, essentially, not have them complain or wish they were back home?’” Collie said. “So the amenity-rich type of buildings — with the gyms and the lounges, or near kind of cool common areas — those are the buildings that are winning out.”
Sacramento’s industrial real estate market, by contrast, was catapulted into high gear during the pandemic, as Americans embraced e-commerce and companies expanded warehousing and distribution, said Mike Smith, senior managing director at Newmark.
The market has remained relatively steady, at 7% in the second quarter, not far off the 15-year average of 8.4%, even though a large number of new industrial buildings hit the market in 2021 and 2022, growing the region’s inventory. Many of the newer builds have had more energy-efficient designs, which has helped attract major tenants, Smith said.
“With all the building out there, you would expect that vacancy to spike,” Smith said. “But the fact that we’re still at 7%, after all of that momentum on the construction side, shows that the tenant demand is there and warehousing in Sacramento is still vibrant.”
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