SACRAMENTO-After balancing the budget earlier this year, State agencies with green on their ledger actively sought to execute deferred real estate decisions and expand their footprint in the Sacramento region accordingly. That is according to Elliot Williams, local research analyst at Jones Lang LaSalle. “The private sector continued to make strides as well with professional services, healthcare, and insurance providers contributing to overall gains for the quarter,” he says.
In all, according to Williams, the region recorded just less than 685,000 square feet of positive absorption—the highest level seen since 2005—bringing the year-to-date total to 992,000 square feet. “Growth in administrative employment is a telling sign that confidence is improving as businesses begin to bring back jobs that were lost during the downturn,” he adds.
The availability of commodity office space in the suburban submarkets will aid small and mid-sized companies as they look to grow and expand their businesses, Williams explains. “Furthermore, scarcity of large block availabilities will yield higher contract rents compared to smaller commodity space that’s in less demand.”
Sacramento is clearly part of national trend, according to Williams. “Stronger leasing volume and more tenants growing pumped up the volume of occupied space by more than 10 million square feet nationwide during the quarter, the largest quarterly increase since the end of 2011.” That absorption reined in the overall vacancy rate to 16.9%, marking the first time that vacancy has ducked 17% in five years, according to JLL research.
According to John Sikaitis, SVP and director of office research for the Americas at JLL, “The expanding U.S. private sector is driving office occupancy gains to geographies that have lagged the domestic recovery for more than two years, including Atlanta, New Jersey, Chicago, Orange County, and Sacramento, among other markets. Even in New York and Washington, the two markets where tenant demand has been most sluggish of late, the highest quality office segment started to show signs of stabilizing demand and even rent growth.”
If this momentum holds, he adds, “We could see a broader-based recovery in the two largest markets headed into 2014.”
Improving occupancy has enabled landlords in many markets to demand more rent, he continues. “National average asking rent shot up 1.2% since the end of March, the highest quarterly increase since the recovery began in 2010. Asking rent surged 5.5% in lower Manhattan contributing to a 1.9% rent increase in New York, while Silicon Valley posted the second-largest rent increase at 4.9%. Tenant improvement allowances and free rent were down 4.7% and 8.5%, respectively, in the quarter from a year ago.
Looking ahead, Sikaitis says, “With a broadening recovery geographically forecasted in the second half of the year and into 2014, the market will shift to one that begins to pull away from tenants and into the landlord’s advantage in most market segments over the next six to nine months.”