2018 Q3 Sacramento Industrial Report
Author: Bob Shanahan
Date Published: 10/18/2018
INDUSTRIAL MARKET FUNDAMENTALS SPUR A SPIKE IN SPEC DEVELOPMENT Warehouse vacancy in Sacramento has hit a record low of 3.9 percent, a drop of 510 basis points over the last three years. However, new construction has been notably subdued since mid-2015. In other Northern California logistics hubs like the East Bay and Central Valley, construction has spiked with the infusion of e-commerce and growth from third party logistics companies. The Sacramento market has seen approximately 3 million square feet of new industrial product in the last three years and almost a third of that was Amazon's Metro Air Park fulfillment center. With Sacramento's historic low market vacancy rate coupled with substantial rent increases, we are now seeing a sizable uptick in speculative development. After more than 8.8 million square feet of industrial space was absorbed in the last two years, developers today are moving ahead with new construction in a market desperately in need of more space. There were only two developments under construction last quarter totaling 116,456 square feet. This quarter, two more projects broke ground, bringing the under construction total to 950,000 square feet. The rising amount of speculative construction across Sacramento demonstrates the strength of the market. But with multiple large industrial users searching for big box space and nowhere to go but new construction, there might not be enough new space to bring adequate relief to the market.