The Bay Area tech crowd is flooding Sacramento. What it means for real estate, our economy
For years in the shadow of bigger coastal metropolises, California’s capital region has emerged as one of the hottest relocation spots in the West for young professionals who’ve moved during the COVID-19 pandemic.
A LinkedIn analysis found that the Sacramento region was the third most popular destination in the country for professional workers who left the Bay Area in 2020. Sacramento ranked behind tech meccas Seattle and Austin, Texas, and ahead of Portland, Ore. and Denver.
For every LinkedIn Sacramento member who moved to the Bay Area last year, 1.45 members did the opposite, a substantial increase over the year before. Sacramento also attracted an increasing number of Los Angeles-area residents. LinkedIn is an online employment networking site.
The study of LinkedIn members provides concrete evidence of a trend that many leaders in Sacramento have noticed anecdotally in the past year. And the data could help the region’s policymakers figure out what impact migrants are having — for better and worse — on Sacramento’s economy, real estate values, growth patterns, infrastructure needs and overall livability.
A second study, from the nonprofit Bay Area Council, buttresses the LinkedIn findings. It found that Sacramento and San Diego were the only two metro areas in California that gained professional workers in 2020. The Sacramento region’s professional services workforce, a broad sector of the economy that covers architects, engineers and more, grew by 1.7%. The Bay Area’s professional workforce shrank 2%.
Business and real estate experts say less expensive housing prices here coupled with the sudden phenomenon of teleworking appear to be the main drivers.
“Being able to work from home is a game-changer for many workers, especially from tech companies,” Sacramento region real estate analyst Ryan Lundquist said. “It’s no surprise to see some Bay Area residents target tech hubs like Seattle and Austin or Sacramento, which is probably more because of proximity to the Bay Area and being a profoundly more affordable market.”
The growth in professional workers is a bright spot in an otherwise dismal economic picture. While the pandemic has drained the Sacramento region of 71,500 jobs, ballooning the unemployment rate to 7.9%, those job losses have come almost entirely in restaurants, hair salons and other service industries that have been hit hard during COVID-19 business closures.
In contrast, the region’s professional ranks have grown, albeit slowly. In the past year, the region has added 400 architects and engineers, 800 bankers and 100 real estate agents. Insurance company payrolls have grown by 600, according to the state Employment Development Department.
Barry Broome, head of the Greater Sacramento Economic Council, said the area now has a dynamic pull that is being noticed by workers and investors. “In 2015, nobody wanted to come here,” Broome said.
He cited the emerging economic hub in the downtown Railyards, scheduled to become home to a Major League Soccer stadium, a major Kaiser Permanente medical center, urban housing and sites for entrepreneurs and start-up businesses. A few miles away, at the UC Davis Medical Center, a major housing and jobs site called Aggie Square will help attract smart young workers.
Other areas – including south Placer County, El Dorado County and the cities of Woodland and Rancho Cordova – are drawing business interest.
“We feel the next three years are going to be the most successful economic years in the history of the region,” Broome said.
But Sacramento’s economic situation is also complicated.
Sacramento has limited available housing stock and office space, which can hurt business recruitment. Housing prices soared last month to all-time highs. Sacramento leaders acknowledge pressure to build more apartments and homes, including affordable housing to keep lower-income residents from being forced out. There’s also a need to retrofit old commercial buildings into new office space.
Who is coming to Sacramento?
Many young professionals leaving coastal California are heading right past Sacramento to other boom cities in the West, including Austin, Boise, Idaho, Dallas, Seattle and Denver. Some of those cities are less expensive to live in than Sacramento, and some have larger tech and business bases.
Sacramento, though, has an asset those other cities don’t. It’s close to San Francisco and Silicon Valley, which remain the center of the tech world.
That has made it a convenient lower-cost housing choice for Bay Area teleworkers who no longer need to live near work, but want to be close enough for periodic trips to the home office. The proximity also helps in case some transplants decide they want to return permanently to the Bay Area if the teleworking trend fades.
Many experts believe teleworking is here to stay. A Bay Area Council analysis found that half the jobs in San Francisco, San Mateo and Santa Clara counties can be performed remotely. The bulk of these jobs are in high-paying office, administrative, computer and math, financial operations, and management occupations.
“Among those employed in the Bay Area in occupations with an average annual income below $40,000, only 6 percent are eligible to work from home,” the report found. “On the other end of the spectrum, among those employed in an occupation that has an average annual income over $150,000, 76 percent are eligible for remote work.”
Last spring, Twitter, Square and some other Bay Area tech companies announced they would let employees work from home permanently. Facebook said it will allow at least some of its workers to telecommute, as long as they live within a four-hour drive of the company’s home office.
The influx from the Bay Area has helped some young tech companies in Sacramento, which often have had to scramble to find workers. “We’ve been able to expand our talent pool,” said Tim Harris of DialSource, a Sacramento company that makes software platforms for sales teams and call centers.
For instance, DialSource’s main point of contact at Bay Area-based Salesforce, one of its major corporate partners, just moved to Sacramento and is telecommuting.
Buffalo Market, a bulk-grocery delivery startup, is moving its headquarters from the Bay Area to Sacramento. Co-founder Sean Howell said all seven headquarters employees plan to relocate here. Buffalo Market isn’t a tech company, but the motivations for coming here are similar — including cost and ease of doing business, and the desire to relocate from the densely-populated Bay Area with COVID raging.
“COVID has made business hard everywhere,” he said. “That’s made companies really look at what they really gained by being in San Francisco.” He said Sacramento “is definitely a more inviting place.”
What it means for Sacramento real estate
While some Bay Area emigres are landing in downtown Sacramento, more are heading to older suburban neighborhoods like Carmichael and burgeoning exurban areas like the new Folsom housing developments south of Highway 50. Another top destination for Bay Area transplants is Rancho Cordova, where young professionals who once crammed into small Silicon Valley apartments can purchase spacious homes for less than $450,000.
Recent data show that El Dorado County and Placer County were two of the main boom growth areas in California last year, both for housing construction and population growth. The housing and population growth numbers in those counties, as well as Sacramento, were modest by historic terms. But they stand out because California as a whole is no longer gaining in population, and some coastal areas are losing population.
Roseville Realtor Cyndy Silva of eXp Realty, a Bay Area emigre herself, works in some of the hottest real estate markets in the region: south Placer and the suburbs of northern Sacramento County. In the last year, 90% of her clients have been from the Bay Area, she said, attracted by the lifestyle and affordable housing.
“In the Bay Area, they work just to pay the mortgage,” she said. And, as COVID-19 forced more people to spend more time at home, some discovered they did not like the confines of the small houses and apartments they could afford in the Bay Area.
Other arrivals are retirees who made a killing selling their Bay Area homes, she said, and can afford a home here with hundreds of thousands of dollars of retirement cash to spare. “Here, they can get their dream home.”
But that is contributing to an affordability problem. Rent increases in Sacramento have been among the highest in the country in recent years. The median homes sales price in the capital region in January was a record $485,000, according to Lundquist.
Meanwhile, the number of homes for sale is at what may be a historic low, prompting bidding battles.
Music teacher Mateo Dillaway and his fiancee, a nurse, moved to the Sacramento area from Marin County last year so they could buy a larger home, start a family and live a more outdoorsy lifestyle. But they have been outbid nine times for homes and have had to downscale their goals as house prices march upward mercilessly.
He’s still grateful, he says, for the chance to build a life in Sacramento, but he’s on edge until he can score a home.
“It’s been stressful,” he said. “We’re lowering our expectations.”
Where to live: Bay Area or Sacramento?
With some workers leaving, Bay Area leaders have felt a rising sense of competition with Sacramento. Now, some of those leaders view Sacramento as a partner in a larger mission — the fight to keep jobs from leaving California altogether. The Bay Area Council and the Greater Sacramento Economic Council work jointly at times as business recruiters.
“The Bay Area needs a strong Sacramento,” said Jeff Bellisario of the Bay Area Council. “The more that costs are driving people out of our region, and they can see Sacramento as an alternative, that is better for the state than if they are going to Texas or Washington.”
Former Silicon Valley entrepreneur Garrett Larsson is a tech pioneer in downtown Sacramento. He and partners launched his current company, Rhombus Systems, which makes facial-recognition security cameras, a few years ago here, feeling that Sacramento was fertile ground for startups.
When he first relocated several years ago, Sacramento felt like a somewhat risky place to launch a tech company compared to Silicon Valley. Now he sees a much tighter connection, thanks in part to teleworking. His sister-in-law and her husband, both tech workers from the Bay Area, just moved to Sacramento to telework.
“I don’t know if it’ll happen in a huge wave, but ... this has loosened up people to leave the Bay Area,” he said.
The arrival of professional workers is prompting an increase in the number of businesses expressing interest in establishing a presence in Sacramento.
“We’re starting to get calls from the Bay Area: ‘All of our employees have moved to Sacramento and we’re looking to move the company or open a satellite office,’” said David Brandenburger, managing director of the Sacramento office of commercial real estate firm Newmark.
It’s not just tech companies. Brandenburger said he’s been hearing from accounting firms, law firms and other companies that employ professionals. He recently gave representatives from a Bay Area architecture firm a tour of vacant offices in the downtown area.
There’s no shortage of empty offices. In part because of teleworking, office vacancies are on the rise in Sacramento. Brandenburger said vacancy rates in Sacramento have ticked up slightly, to 10.5%, and could reach as high as 15% in the next three years.
While that would be an uncomfortably high rate, it could help with business recruitment. Broome said he feels Sacramento needs more mid-size office space to attract new businesses. “Companies will come, but the real estate has to be there,” Broome said.
He said the lack of suitable space hurt recruitment efforts in recent years. Broome said he is rooting for the state government to continue to keep some employees at home to free up space for companies interested in relocating.
This story was originally published February 12, 2021 at 5:00 AM.