Sacramento Mayor Steinberg offers a vision of downtown with fewer office towers, more apartments

‘Sacramento Mayor Darrell Steinberg offered a vision Tuesday morning of a downtown with more office buildings being converted to apartments towers as remote work continues to keep employees away from their former digs.

“State, local and private sector workers have become accustomed to telecommuting — and they like it,” Steinberg said at the Downtown Sacramento Partnership’s State of Downtown breakfast. “The reality poses either a threat or an opportunity, especially for mid-size and smaller office buildings.”

Approximately 1,000 guests attended the annual breakfast, which was canceled last year because of COVID-19 concerns, to hear from Steinberg, other elected officials and Michael Ault, the Partnership’s executive director.

Ault stressed an upbeat tone, talking about 700 residential units that were built downtown in 2021, and another 3,300 units that are under construction,

He also cited the opening of two downtown hotels in 2021 and new restaurants and retail establishments. That said, he also acknowledged that some businesses have closed..

Tuesday’s meeting brought life to the blocks surrounding the SAFE Sacramento Convention Center but on most days when meetings don’t occur the streets are empty, a reflection of the bulk of office workers that continue to stay away from downtown.

Ault said office workers have not filled up Sacramento’s office towers again even with the lessening of COVID-19 rates.

“The foundation of our district has been and will be the Class A (newer state of the art) office market,” he said. “The uncertainty of the return to office environment presents an enormous challenge to our district.”

In an interview before the breakfast, Ault, said around one-third on average of downtown office building tenants are back from pre-COVID 19 days.

He said different state agencies as well as private companies are taking different approaches to a return to office, some encouraging workers back in the office, others continuing to offer full-time remote work opportunities.

“The downtown environment, especially from an office standpoint, is going to be a lot different moving forward,” he said.

Around 100,000 workers filled office buildings before the pandemic but Ault said it’s impossible to tell when, if ever, all those workers will be back.

Sacramento’s downtown is particularly dependent on state workers. Real estate firm CBRE estimates up to 40% of the office space downtown is made up of state employees, either in leased or state-owned buildings.

Two years into the pandemic, it would seem that there would be more information on the return to the office building, but the reality is that it is still being worked out, said Randy Getz, Sacramento area executive vice-president for CBRE.

Getz, who did not speak at the breakfast, said it’s clear, however, that a larger percentage of office workers will never return full-time.

He said nationally 16% of pre-pandemic workers choose to work remotely some of the time, now that number is up to 32%.

However, Getz said, surveys show two-thirds of workers miss the office, a positive sign that the number of office workers could increase as time goes by.

“People miss the social interaction,” he said.

In his speech, Steinberg also offered what he said was a reality lesson from COVID.

He noticed the pandemic “pulled the rug out from some of the city’s biggest initiatives,” noting the death of his 2019 plan to add $40 million to the redo of the downtown Sacramento waterfront, including a new public markets building, a great lawn for events and an interactive playground.

“We were going to use $40 million in public investment to attract more private investment. But we had only one source of financing: the hotel tax, “ he said. “The hotels and conventions are coming back now but that money is gone for now. There’s a cautionary tale in the Old Sac story. We can’t rely on a single tool or funding strategy to invest in our downtown’s future.”

One of Steinberg’s idea’s is an enhanced infrastructure financing district for downtown that would enable the city to capture a larger share of expected tax growth to pay for infrastructure developments, such as sewer and water lines.

He said state law allows for such a district and he will meet with the city council and the city manager shortly to see how such an initiative could be developed.

Steinberg said the city of West Sacramento in 2017 created a similar district that covers 25% of the city, including its entire waterfront, producing nearly $9 million a year in new funds.

He said it’s too early to tell how much Sacramento could raise for its proposed downtown district.

This story was originally published February 22, 2022 at 12:21 PM.