Rents in Sacramento, Calif., are growing at the above-average rate of 4 percent year-over-year as of May 2018, double the U.S. figure, according to Yardi Matrix report, Capital City, Capital Growth, a microeconomic analysis of Sacramento’s multifamily market.
With inventory expansion expected to remain limited in the near future and with above-average occupancy of stabilized properties, Sacramento is poised to remain a strong multifamily market. The average rent reached $1,405, $24 over the national figure.
Sacramento employment growth continued to shine in 2018: The expansion rate was 2.5 percent year-over-year as of March, bettering the national average by 80 basis points. As the state capital of California, Sacramento has traditionally been anchored by its state government jobs, but surges in a number of other sectors have significantly diversified the metro’s economy. Health services improved at a quick rate, with large-scale projects such as Kaiser Permanente’s Railyards medical center paving the way for sustained improvement.
The city’s multifamily market continued to gain investor interest, especially for its value-add opportunities. Development is likely to stay along the lines established during the cycle’s recent years, further fostering rent growth.
Developers added 340 units to Sacramento’s multifamily stock, 0.3 percent of total inventory, through the year’s first five months. The metro has had a notoriously limited development pipeline during this cycle, which has also led to rapidly increasing per-unit prices across asset classes.
Roughly 3,200 units were under way as of May, while another 15,000 units were in the planning and permitting stages. Although occupancy is on a downward trend, the average rate in stabilized properties — at 96.3 percent as of April — is still well above the 94.9 percent national average. With limited inventory expansion on the horizon and continued improvement in employment, the market is fairly insulated from further steep drops in occupancy, as demand will likely continue at a good rate.
The bulk of development activity is concentrated in submarkets including the Central Business District (453 units under way), Florin/Southeast Sacramento (439 units) and Laguna West (379 units).
