The Key Factors Behind Sacramento’s Growth
- Aug 27, 2019
Substantial population and employment growth are the lifeblood of Sacramento’s multifamily market, and as supply still lags demand, the metro is expected to continue flourishing in the foreseeable future. Multi-Housing News reached out to Marc Ross, executive vice president of CBRE, to discuss the particularities of the Sacramento multifamily market. Ross sheds light on the trends shaping the metro and reveals the most promising submarkets for investment.
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How would you describe the current landscape of the Sacramento multifamily market?
Ross: The Sacramento multifamily market has been on fire for the past few years, and fundamentals remain healthy. While activity has moderated slightly, the region remains one of the top three markets nationally in terms of rent growth after having held the number one spot for the past several years. We are still seeing healthy rent growth across all submarkets and asset classes.
What sets Sacramento’s multifamily market apart from other West Coast markets?
Ross: Sacramento remains a relatively affordable market despite its population growth—the city had the largest percentage gain in population (1.5 percent or 7,400 residents added, as of January 2019) of the ten largest cities in California, according to California’s Department of Finance. The region is a late cycling market and recovered from the last recession much later than the rest of the nation. Because of this, some other markets have oversupply issues, but Sacramento’s multifamily demand still outstrips supply, signaling healthy rent growth for the foreseeable future.
The development pipeline consists mostly of lifestyle properties and rents continue to rise. How will this impact the market?
Ross: Lifestyle properties are largely what developers are focused on today as it’s the only profile with rents that can justify the costs of new construction. Because the region’s supply pipeline is modest at the moment, we don’t expect the market to slow down in the near future.
Which submarket do you see as the most promising for investment opportunities and why?
Ross: Sacramento’s urban core, which includes the downtown and midtown submarkets, is home to just over a handful of great developments underway. Some of these new developments are coming online this year, but most are set to deliver in 2020. Many new restaurants and other cultural attractions are changing the face of Sacramento’s downtown, including the recently built Golden 1 Center and Downtown Commons. And now with the nation’s largest infill development, the Railyards, which is directly north of downtown, this urban core area will grow significantly.
What could shake the market?
Ross: One thing we’re keeping our eye on is the city of Sacramento’s new rent control measure, which just passed and is the first of its kind for the city. It remains to be seen how this will affect the city’s landlords and tenants. Generally, the outlook is very positive for our region in terms of market fundamentals.
What is the number one factor that investors should consider when deploying capital in Sacramento?
Ross: A continued imbalance of supply and demand means the market is positioned to continue to outperform other markets in the west. Sacramento is a maturing market and growing more sophisticated with its amenity set and types of housing, which draws in Millennials and young working professionals. We expect this trend to continue.