While metros across the Golden State are seeing a somewhat brighter future on the horizon, the city of Sacramento continues to lag behind in some key fundamentals. Most notably, overall vacancy is rising across most major submarkets, which stands in stark contrast to industry conditions nationwide.
Unemployment in the third quarter of 2012 came in at 10.6 percent, 50 basis points lower than at the start of the year but still 40 points higher than the statewide average—and a whopping 290 basis points above the national average. Hendricks & Partners notes that since 1990, the jobless rate has averaged 6.8 percent, indicating that there is still ample room for recovery under the right conditions.
Yet as the employment picture remains somewhat uncertain in the near-term, construction has come to a standstill across the metro, with no major completions in the MSA since the fourth quarter of 2010. Additionally, multifamily permit issuance fell 47 percent to 310 annualized units in September. In the five years before the financial crisis, permits averaged 3,650 units per year.
While vacancy is up on a year-over-year basis, Hendricks & Partners notes that the occupancy picture is not necessarily so clear-cut, as 2012 was a particularly volatile year. Vacancy actually fell 80 basis points in the third quarter after having risen 70 points in the second quarter and 20 points in the first. Much of the fluctuation is due to a 370 basis point rise in the Davis submarket earlier in the year, which quickly eroded in the following months.
The third-quarter improvement in vacancy was largely due to static rents, which held at $963 per months over the past two quarters. The preceding six months saw meager gains of 1.5 percent.
While the picture for the apartment industry in this region remains somewhat glum, the Davis submarket has seen marked improvement over the last year, with vacancy falling all the way from 7 percent in the second quarter to 3 percent in the third. Rents in this area now average $1,313 per month—by far the highest in the local market.
The worst performing submarket continues to be the North Highlands area, with vacancy at a staggering 11.8 percent and rents at $738 per month. Although this is a more suburban/rural area of the city, the current rate still falls far higher than the 7.5 percent seen at the onset of the recession in 2009.