2018 Q3 Sacramento Office Report
Author: Bob Shanahan
Date Published: 10/16/2018
A REGION ON THE RISE: SACRAMENTO IS ON THE MAP Sacramento is a city on the rise. For the first time since 2014, regional net absorption surpassed one million square feet in the first three quarters of the year. Significant demand from the state government, healthcare, and education sectors has helped drop market vacancy to a more than 16-year low. A case can be made for more speculative development in high-demand submarkets after the success Heller Pacific is having at the Ice Blocks in Midtown, which is reportedly all spoken for with three new tenant leases for a total of approximately 67,000 square feet. However, with an overwhelming combination of rising construction and land costs, developers are hesitant to move forward with new speculative office projects. On the build-to-suit side, companies located outside of the region continue to be attracted to the lower cost of living, collaborative business culture, and thriving labor pool in Sacramento. Hines finally confirmed that Centene will eventually occupy a 1.25 million square foot office campus in North Natomas after the developer acquired 68 acres in mid-September. Construction on the first 540,000 square foot phase should start next quarter. Looking forward, healthy tenant demand, declining vacancy, and lack of new construction will lead to landlords raising rents and offering fewer concessions.