Emerging Market Profile | Sacramento, CA
California’s major metropolitan markets saw contrasting levels of rental growth over the past year. Based upon 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 – speaks to the market potential of this MSA.
According to data from Co-Star, Sacramento is California’s most prominent emerging retail market. As seen in Figure 1, Sacramento’s Y-O-Y 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 responding to the demand from retail tenants – with 586,000 SF 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 & HomeGoods, Dick’s Sporting Goods and Flor & Decor. The demand from retailers such as these 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 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 growth statewide. 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 Golden1 Stadium Center was completed in 2016, and was named Sports Business Journal’s 2017 Sports Facility of the Year. The stadium was number fourteen 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 SF of retail space. What is more, the city has recently submitted a bid to host a 375,000 SF Major League Soccer stadium. These amenities and leisure options make Sacramento a more 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. 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.