Sacramento Industrial Market Fires on All Cylinders

Sacramento’s industrial market is on fire. Research from Marcus & Millichap expects a swift recovery this year, building on momentum from 2020.

Marcus & Millichap forecasts Sacramento will gain 19,000 jobs, and increase of 2% over the previous quarter and a sharp recovery from the job loss in 2020. The firm also expects the market’s construction pipeline to grow 3% to 4.5 million square feet in deliveries this year, and industrial rents should climb 8.6% this year to $8.10 per square foot. Overall, these metrics illustrate a strengthening market.

The research also expects the vacancy rate to grow 30 basis points to 5.8%. This is likely due to new construction deliveries, which are significantly higher than the just over 3 million square feet in new deliveries that arrived on the market in 2020. Net absorption will also increase from 2020 to roughly 3.5 million square feet, which will help to stabilize the vacancy rate despite the new product coming to market.

Industrial asset pricing is also up in 2021, above $125 per square foot, and average cap rates should hold steady at 6.5%.

Overall, Sacramento is experiencing a rapid rebound out of the pandemic. Research from Yardi Matrix in March pegged the market as one of the fastest growing multifamily sectors in the country with rents up 6.4% and occupancy showing a 1.2% increase. The market was second only to the Inland Empire. Both markets have limited new construction and a growing population, which has helped to fuel multifamily growth. They also both have thriving industrial-using industries.

In fact, the apartment market is performing so well that an earlier report from Marcus & Millichap predicts that obsolete office properties could become conversion opportunities into apartments. Unlike industrial and multifamily, the office market has been struggling with the vacancy rate up to 14.5%, the highest level since 2016. The record supply of sublease space has tempered the sector’s growth and recovery.