Average rents for Sacramento region decline for first time in 13 years, report finds

A slowdown in the Sacramento region rental apartment market in the 12-month period ending June 30 has led to the first average rent decline in 13-years, a new report shows.

The August report by the brokerage firm Colliers said average rent fell 2% in the latest 12-month period compared to a year earlier in the four county area of Sacramento, Placer, El Dorado and Placer counties.

While the rent drop may be small, it’s the first year over year average decrease since the end of the second quarter on June 30, 2010, said Bob Shanahan, Colliers Research Director for Sacramento and Reno.

“After being one of the hottest housing markets during the pandemic, Sacramento has seen a sizeable slowdown in apartment market demand since the summer of 2022, placing downward pressure on occupancy and rent growth at a time of unprecedented construction activity,” he said.

The average rent as of June 30 for market unit rentals was $1,953 a month across all apartment types and sizes in the four county area, Colliers research shows.

Office market also affected

The report also examined the Sacramento region office market and found the vacancy rate of 20% as of June 30 was the highest since the end of 2012.

Shanahan said remote work is a key cause of the rising amount of available space. The vacancy rate was 12% before the COVID-19 pandemic, he said.

And even as some workers have gone back to offices recently, Shanahan said the overall trend has been for corporations to pull back in the amount of space they rent in the Sacramento region.

He said the June 30 vacancy rate of 20% is up 3.5% from a year earlier.

“Based on the market’s current trajectory, a new record high vacancy could be set by first quarter 2024,” he said.

Shanahan said his firm is tracking distressed assets and said some office building owners may be forced to sell because refinancing will be impossible to do.

COVID-19 impact on rent

Shanahan said during the pandemic the Sacramento region saw unprecedented rental demand. He said it was not just homebuyers moving in from The San Francisco Bay Area but also renters looking for lower rents and in some cases a less urban area with more open spaces.

Before and in the first part of the COVID-19 pandemic, Shanahan said the Sacramento region was seeing average rental growth of 10% per year.

That got even bigger as the pandemic went on.

Shanahan said the average rent in the Sacramento region saw its biggest increase in history, up 15.5% in the one-year period from Sept. 30, 2021 to Sept. 30, 2022.

Rents began to decrease during the next nine months.

Shanahan said tenants may have moved back to The Bay Area with the pandemic ending or moved to less expensive places than the Sacramento region like Boise, Idaho or Reno.

However, Shanhan said a big factor in the declining rents is the large supply of new apartments becoming available in the four-county region. The quarterly supply of new apartments coming on line June 30 amounted to 1,197 units, the highest amount on record.

He said in a normal quarter 300 to 500 new units become available.

In addition, he said, there are another 4,098 units, 2.6% of total apartments in the region, under construction and slated to be completed by the second quarter of 2024.

“There is an incredible amount of new supply coming available,” Shanahan said.

While the Sacramento region is still a healthy market for landlords, the 5.5% apartment vacancy as of June 30 is the highest in 10 years and up from 3.5% a year earlier, Colliers said.

Shanahan said the larger number of available apartments is leading to an increase in landlord concessions, such as free rent for a month to lure potential tenants to sign leases.

Shanahan said the percentage of units offering concessions has more than tripled over the 12-month period ending June 30, its highest point since the second quarter of 2014.

This story was originally published August 22, 2023 at 5:00 AM.