Tech tenants, in particular, are dominating the growth in the Sacramento office market. It's especially interesting to note that there has been a significant increase in tech companies moving from San Francisco to Sacramento. With a strong employment base and housing that remains low-cost, Sacramento has emerged as an ideal location for companies seeking expansion in Northern California.

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For example, Voit recently helped a tech company reduce its leasing costs from $6.00-per-square-foot to $1.50-per-square-foot by moving its operations from San Francisco to Sacramento. The opportunity to achieve significantly reduced lease rates in this market continues to be a huge draw for business owners expanding in Northern California.

In San Diego, alternatively, retail tenants are driving much of the market growth. National retailers are especially active in the current market, seeking improved locations and competitive pricing.

High income demographic areas, such as Del Mar Heights, Del Mar, and Encinitas, continue to be in high demand for tenants in the San Diego retail sector.

Fitness and health stores, sporting goods, drug stores and restaurants are leading the retail tenant growth in this market. For example, one of the largest lease transactions in Q3 of 2013 was with CrossFit, a health club that is currently in the midst of a branding expansion, according to reports.

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However, competition is high in San Diego, and with a limited supply of quality retail product for lease on the market, landlords now have the flexibility to offer fewer or reduced concessions. Tenants should take note of the benefits of this reduction in concessions; the cost savings for landlords provide the opportunity to upgrade the quality of their properties, allowing tenants to continue to operate in higher quality space.

As office and retail tenants expand in Sacramento and San Diego, industrial tenants in the Inland Empire are growing into larger facilities to improve their operational efficiency.

For example, today's industrial tenants are leasing warehouse properties with extra trailer and container parking, thereby reducing the amount of warehouse floor space needed, and reducing off-site storage costs.

Specifically, e-commerce companies have been leading the expansion in the Inland Empire. Many of these companies are moving their operations into larger facilities, over 500,000 square feet or more. For example, e-commerce giant Amazon.com recently expanded its distribution operations into three buildings in the Inland Empire, each over 500,000 square feet, totaling 2.7 million square feet.

The increasing demand for properties over a half million square feet is driving landlords and institutional owners to accelerate construction in the Inland Empire to keep up with the demand. According to Voit's Q3 2013 report, over 14.8 million square feet is currently under construction in the Inland Empire. The majority of product currently under development is well over 500,000 square feet.

This is good news for larger tenants who are seeking expansion in the Inland Empire, as new quality properties will be available in the coming quarters. New properties also mean upgraded building attributes and technologies, which tenants in today's market are requiring in order to further improve operational efficiency.

For example, many tenants in large distribution buildings now require properties with guard houses to control ingress and egress, as well as dedicated queue lanes for truck staging, which removes these trucks from public streets. Energy saving building features are also in demand. These include solar radiant barrier roofing materials, interior lighting that is motion activated and utilizes daylight harvesting to control the system, and exterior LED lighting fixtures.

As the California market continues its steady recovery, tenant confidence will continue to grow. The competition for quality product will remain high as inventory continues to tighten, which will result in further stabilization of lease rates in these markets.

Robb Osborne, Senior Vice President in Voit Real Estate Services' Sacramento office. Contact him at [email protected]. Mark Caston, Senior Vice President in Voit Real Estate Services' San Diego office. Contact him at [email protected]. Walt Chenoweth, Executive Vice President in Voit Real Estate Services' Inland Empire office. Contact him at [email protected]. The views expressed in this column are the author's own.