1st Quarter 2019 | 1 Real Estate Market Review Sacramento Office 1 st 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 Trends Net 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
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Real Estate Market Review Sacramento Office · 2019-05-06 · Opus Corporate Center Roseville 96,337 s.f. $6.7M or $69.77/s.f. STATE OF CALIFORNIA DEPT OF JUSTICE 3068 Kilgor Rd,
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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
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
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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