Sacramento Sheds Capital City Image
Sacramento’s growing economy, fueled by population growth, affordability and investment in urban development, speak to the market potential of this MSA, not only for retail but healthcare.
SACRAMENTO—California’s major metropolitan markets recorded contrasting levels of rental growth during the past year. Based on a survey of leasing activity for all retail space, Sacramento experienced the highest level of rental growth compared to all other major markets.
Its growing economy, fueled by population growth, affordability and investment in urban development, speak to the market potential of this MSA. According to CoStar data, Sacramento is California’s most prominent emerging retail market. Sacramento’s year-over-year rental growth rate is 6.4%, more than double the growth rate of any other market in the state.
“Construction of new retail product has responded to the demand from retail tenants,” Madison Williams, Beta account manager tells GlobeSt.com. “With 586,000 square feet of new retail currently under construction, the city is second only to San Jose in the proportional amount of retail product that will soon become available.”
Active tenants in the market include Xfinity, Punch Bowl Social, Round 1 Entertainment and Sauced BBQ, as well as TJ Maxx and HomeGoods, Dick’s Sporting Goods and Flor & Decor. This retailer demand has contributed to upward pressure on Sacramento’s retail rents.
Sacramento’s growing population is a major contributor to its economic vitality. According to the California department of finance, the city’s population added 16,000 residents in 2017, growing at a rate of 1.1%. Statewide, population growth in the same period averaged 0.8%. From 2010 to 2018, the Sacramento MSA grew at 2%, also double the average rate of statewide growth. These new residents are driving demand for retail products and services.
Urban development is an additional factor in Sacramento’s market growth. Downtown Sacramento’s Golden 1 Arena was completed in 2016 and was named Sports Business Journal’s 2017 Sports Facility of the Year. The stadium was 14th in the nation for ticket sales in the same period.
Adjacent to the stadium, the Downtown Commons mixed-use development includes a 250-room luxury hotel and 45,000 square feet of retail space. In addition, the city has recently submitted a bid to host a 375,000-square-foot Major League Soccer stadium. These amenities and leisure options make Sacramento an attractive option to young and mid-career professionals.
“The confluence of high rental growth rate and relatively low market rents speak to the potential in the Sacramento market,” Williams tells GlobeSt.com. “Population growth alongside investment in urban development have been major underlying factors for this market trend. In the context of this overall maturation, Sacramento’s relatively low market rents are a strong incentive for new-to-market businesses to capture market share in a currently under-valued economy.”
Moreover, Sacramento’s healthcare sector has grown by 23% in the last four years, which is the highest growth rate outside of the construction industry, according to a Colliers report. Top employers in the Sacramento region (Sacramento, Yolo, Placer and El Dorado) are Kaiser Permanente at 16,959 employees (a 92% increase since 2014), UC Davis Health at 13,012 employees (a 44% increase since 2014), Sutter Health at 12,138 employees (a 16% increase since 2014) and CommonSpirit at 7,000 employees (unchanged since 2014).