Office Market Rates A 10

The improvement reflects strong investment activity and an upbeat outlook that forecasts a decline in vacancies for the office market here, according to Marcus & Millichap's 2004 National Office Index.

A combination of speculative construction, reduced job growth and fewer Bay Area relocations actually pushed office vacancies higher across the metro region in 2003, but the trend is forecast to reverse in 2004, says Robert B. Hicks, a VP and regional manager of M&M's local office. Hicks also cites a rise in employment levels and declining construction as factors that will improve the office market in 2004.

The office index is a snapshot analysis that ranks 38 office markets nationwide based on a series of 12-month forward-looking supply and demand indicators. One reason Sacramento moved up in this year's survey is that office employment growth and vacancy are weighted most heavily in the index. Specifically, the report forecasts local employment gains in 2004 of 1.9%, following zero job growth in 2003. The amount of new office space built in 2003 totaled 1.1 million sf, according to preliminary figures, down 27% from 2002. That figure will drop to 900,000 sf in 2004, with activity concentrated in the Roseville/Rocklin and Elk Grove/Laguna submarkets. From a 2003 high of 13.9%, the index forecasts, vacancy in Sacramento will drop to 13.6% by the end of 2004. Effective rents are expected to increase by .9% in 2003, pushing the average to $18.34 per sf.

On the investment side, Bay Area buyers will continue to focus on the market, seeking higher returns than are available locally.