The brokerage firm is predicting that overall retail vacancy in Sacramento will drop by 40 basis points during the year, from 7.7% at the end of 2003 to 7.3% by the end of 2004. Vacancy in the Downtown/South Sacramento submarket rose to 7.1% in 2003 due to new construction and government job cuts, but is expected to drop back to 5.8% in 2004 due to stable retail demand and decreased construction, according to the report. Concurrent with the overall decrease in rents, the average asking rent in Sacramento is forecast to rise to $20.43 per sf during 2004, up from $19.74 at the end of 2003.
Approximately 1.4 million sf of retail space is expected to come on line in 2004, a 30% decrease from 2003, when 2 million sf came on line. Most of last year's completions occurred in the Rancho Cordova/Highway 50/Folsom sub market, but activity will decrease there this year, according to the report. The new favorite for 2004 will be the Citrus Heights/Orangevale/Natomas sub market, which is expected to see 1 million sf of completed by the end of 2004. In the Downtown/South Sacramento sub market, developers are expected to deliver 150,000 sf, largely to serve new housing that is under construction.
On the investment side, the report predicts that demand will remain strong for single-tenant net-lease properties in the region. The sales volume in 2003 for such properties was below that of 2003, but the median price per sf for single-tenant properties rose to $181, a 22% increase, according to the report, which attributes the boost to low interest rates and ample investor demand.
A similar scenario may play itself out with regard to multi-tenant properties. Sales velocity in 2003 fell short of 2002's level, but the median price per sf of $124 surpassed the previous year's mark, according to the report. Due primarily to an extensive inventory, strip centers traded at a median price of $136 per sf and were the favorite multi-tenant investment last year. Geographically speaking, more than 50% of all multi-tenant properties sold last year are located in the Citrus Heights/Orangevale/Natomas sub market, which suggests investors are bullish on southern Placer County.
The positive news for the retail sector is in part due to what will be positive news for all commercial real estate sectors: job growth and positive migration. The report predicts that Sacramento will gain 11,250 jobs in 2004 despite government budget cuts. The job growth will be led by the financial services sector, which is expected to add 3,000 positions, while the professional/business services and education/health services sectors are forecast to gain 3,000 and 2,000 jobs, respectively.
As well, the region will add 29,000 residents to its population base, many of them fleeing the more expensive Bay Area. "The influx of new residents will help sustain local home building activity, which in turn will support new retail construction," says Robert B. Hicks, regional manager of Marcus & Millichap's Sacramento office.
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