Cautious Optimism: Office Tenant Trends for Sacramento and Beyond

Most commercial brokers I talk with are cautiously optimistic about the office market. Frankly, for Sacramento, if it weren’t for the State of California vacating privately held buildings, the Sacramento office market would be a shining star, an eagle amongst turkeys or a single digit amongst hacks.

Across the United States, office tenants are focused on adapting their workspaces to match evolving workforce dynamics and business priorities. In a post-pandemic world, tenants have made flexibility, efficiency, and value paramount. Trends suggest alignment of office footprints with hybrid work arrangements, investments in high-quality amenities, and sustainability-driven space solutions.

As tenants look for office solutions that better serve their employees, the focus has shifted to quality over quantity: smaller footprints with flexible configurations, enhanced technology infrastructure, and upgraded common spaces.

Across major markets like New York, Chicago, and the Bay Area, tenants are leaving aging office buildings behind in favor of properties that meet workforce demands and cost efficiencies. The Sacramento region has followed a similar trajectory but with distinct nuances. While Sacramento lacks the extreme vacancy pressures in core Bay Area cities, local tenants are navigating economic uncertainty and hybrid work models. Yet, this environment has also created opportunities. With its relative affordability, Sacramento attracts companies seeking a hub-and-spoke model—regional offices closer to employees and at a fraction of the cost compared to major metros like San Francisco and San Jose. Additionally, tenants in law, medical, and technology sectors actively seek spaces in emerging submarkets, prioritizing quality amenities, reduced overhead, and strong locations.

Let’s dive into some real-world examples and highlight how these trends have played out in recent deals across the Bay Area and Sacramento, illustrating what tenants are looking for and how different industries are approaching their office needs.

Notable Office Deals in the Bay Area and Sacramento

Bay Area Deals:

1. Technology Sector (San Francisco): OpenAI sublet 486,000 square feet from Uber in Mission Bay, leveraging state-of-the-art infrastructure to support hybrid work and collaboration.
2. Law Firm (Financial District): Pillsbury Winthrop Shaw Pittman leased 99,551 square feet in Embarcadero Center, emphasizing proximity to the courts and flexible high-end client spaces.
3. Healthcare (San Mateo): Vaxcyte, Inc. secured 189,410 square feet at Alexandria Center for Life Science in Belmont/San Carlos, focusing on medical-grade infrastructure.
4. Marketing and Advertising (South of Market): Adyen signed a lease for 148,146 square feet at 505 Brannan St., prioritizing flexible and collaborative design features.
5. AI Sector (Showplace Square): Scale AI leased 178,234 square feet at Townsend Center, emphasizing R&D and collaboration capabilities.
6. AI Sector:  Snowflake just leased 773,000 square feet in Menlo Park to add to 200,000 square feet in San Mateo and 150,000 square feet in Dublin.

Sacramento Deals:

1. Healthcare Sector (Regional): No longer under the radar, Northstate University bought 125,000 SF on Broadway for a Dental College plus more space along the 50 Corridor.  UC Davis is building Aggie Square in East Sacramento (Oak Park.)  Leasing has been strong.  First Phase delivery early 2025.
2. Government Sector (North Natomas): Alta Regional relocated to 118,934 square feet at 4151 & 4191 E Commerce Way, emphasizing cost savings and proximity to workforce hubs.
3. Security/Technology (Midtown Sacramento): Rhombus expanded into 30,000 square feet at the Ice Blocks on R Street, prioritizing innovative and flexible workspaces.
4. Legal Sector (Downtown Sacramento): Buchalter leased 24,974 square feet at BMO Tower, emphasizing upgraded facilities and prime client access.
5. Engineering Sector (Roseville): Brown & Brown Insurance secured 44,160 square feet at Stanford Ranch, balancing affordability and modern amenities.
6. Lobbying/Association (Downtown Sacramento):  School Services of California leased 10,000 square feet at 500 Capitol Mall, moving from their office of 30 years across the street from the Capitol.  The drivers for School Services were safety, parking, and quality.

Breaking Down Trends by Business Type

Law firms are balancing hybrid work with the need for professional client-facing spaces. Sacramento-based firms have shown interest in Class A buildings with high-quality conference facilities, parking, and amenities. Trends include reducing square footage while enhancing functionality, such as private meeting spaces and upgraded technology for remote depositions.  Several Class A office buildings are beginning to feel like resort hotels.

Engineering firms are leaning toward suburban office parks like those in Roseville and Folsom, prioritizing locations with ample parking, access to highways, and proximity to residential areas. Offices are often outfitted with flexible workspaces that cater to collaboration between field teams and in-office staff.

In Sacramento’s downtown core, government agencies and lobbying firms are among the most stable tenants. Their needs revolve around location proximity to the Capitol and scalable office footprints with high energy efficiency standards to meet government mandates.

Non-profits are prioritizing affordability and flexible office solutions. Many have shifted to co-working spaces or smaller leases that combine private offices with shared collaborative areas. Midtown Sacramento has proven attractive due to its central location and vibrant amenities.

Healthcare tenants are driving demand for specialized medical office spaces, particularly in areas like San Mateo in the Bay Area.  Davis, Elk Grove, and Oak Park (Aggie Square) are desirable submarkets for Medical.  Modern HVAC systems, accessibility, and proximity to hospitals are critical considerations.

Creative agencies (Marketing, PR, and Advertising) are focused on office environments that foster innovation. In Sacramento, this has translated to spaces with open layouts, bold interior designs, and breakout areas conducive to brainstorming. Midtown and the R Street Corridor are particularly appealing for their lively atmosphere and amenities.

Tech Companies, particularly those in AI and data science, are searching for high-tech office infrastructure to support their teams. While San Francisco remains a stronghold, Sacramento is becoming a cost-effective option for smaller firms looking to grow regionally.

Companies in the energy and semiconductor industries seek spaces with abundant clean energy infrastructure. These firms prioritize functionality, proximity to universities, and green amenities.

Computer Science and IT Services:  The demand for flexible, plug-and-play office spaces is growing among IT firms. Suburban Sacramento, including areas like Rancho Cordova, has seen increased leasing activity as firms prioritize affordability without sacrificing modern amenities.

What This Means for Sacramento Tenants in 2025

While national trends reflect widespread caution among office tenants, Sacramento’s office market is in a manageable supply-and-demand state. Companies seeking value, flexibility, and quality amenities can find competitive options compared to larger, more expensive metros. Sacramento remains a stable, cost-effective environment for professional office space. Meanwhile, growing sectors like technology, semiconductors, energy, and environmental firms recognize the value of Sacramento’s talent base and quality of life.

The Sacramento market offers more than just affordability: it represents a chance to innovate, grow, and remain resilient in a rapidly changing landscape.

Bay Area is bubbling, but it is too early to pop the cork! 

The Bay Area office market in 2024 reflects ongoing challenges stemming from remote work trends, high vacancy rates, and shifting demand for premium spaces.

Despite elevated vacancies, tenant activity has concentrated in Class A buildings in markets such as San Francisco and Palo Alto. Large leases by technology, AI, and life sciences companies highlight continued interest in high-quality, amenity-rich properties. Rent growth remains modest, with significant concessions provided to attract tenants. Sublease availability continues to weigh on recovery, though the demand for innovation hubs signals opportunities for long-term stabilization.  San Francisco is not in a “Death Spiral!”

Recently, I was on a panel with fellow CCIMs from the Bay Area.  For the Bay Area, the average answer was ten years when asked how long it would take to absorb the vacant office space.  My answer for Sacramento: seven.  Actually, we are looking at five years; I didn’t want my Bay Area cohorts to get an inferiority Complex.   The Panel was moderated by Ed Del Beccaro, CCIM, and the panelists included fellow CCIMs: Matt Hurd (East Bay), Kareem Barzegar (San Francisco), Markus Shayeb (San Francisco).

Sacramento keeps percolating. 

Sacramento’s office market has demonstrated resilience compared to national trends, bolstered by an expanding healthcare sector and substantial professional service firms in law, engineering and construction, education, and technology.

The State of California’s consolidation into recently developed government-owned projects is a key factor shaping/hurting the market. This shift has caused notable buildings to experience a spike in vacancy as state agencies vacate older buildings and move to about 3,000,000 SF in and around downtown. Leasing activity is picking up. Suburban markets like Roseville and Folsom attract tenants seeking affordability, proximity to housing, and modern amenities. Downtown remains attractive for professional services firms.  For Downton, it seems like the COVID hangover is going away, and it is likely that Downtown Sacramento “WILL BE BACK!” Vacancy rates have edged upward but remain below national averages. Rent growth remains modest, with concessions and tenant improvement allowances prevalent.

JUST IN!  Intel Contracts, Bosch “Goes Big” in Roseville

The semiconductor industry has experienced significant disruptions and realignments in recent years. While some major players, like Intel, have scaled back operations or reduced investments in certain facilities, Bosch is going big in Roseville.

Intel’s semiconductor manufacturing contraction reflects broader downsizing and cost-cutting trends in response to market volatility and global competition. In contrast, Bosch’s investment in Roseville represents a strategic counterpoint. By committing $1.5 billion to upgrade the site into a state-of-the-art production hub for silicon carbide semiconductors, Bosch is positioning itself at the forefront of the electric vehicle revolution.

The Roseville site, with its existing clean-room facilities and a workforce of 250 experienced associates, provides Bosch with a solid foundation for growth. Unlike Intel, which has faced challenges maintaining its dominance in the face of rising competition, Bosch is doubling down on innovation and technology that support the clean energy transition. Federal funding opportunities, such as those provided under the CHIPS and Science Act, further bolster Bosch’s investment strategy.

Market Comparison

1. Office Rents:
   • Bay Area: Higher overall rents, particularly in premium Class A buildings, with asking rates exceeding $4.00 per SF in some markets.
   • Sacramento: More affordable, averaging $2.29 per SF, with suburban markets offering even lower options.
2. Vacancy Factor:
   • Bay Area: Elevated vacancy rates exceeding 20% in some markets due to sublease pressures and remote work.
   • Sacramento: Vacancy rates are rising, particularly in buildings vacated by the State of California, but remain stable at approximately 11.4%.
3. Net Absorption:
   • Bay Area: Negative net absorption driven by tenant downsizing and sublease activity.
   • Sacramento: Positive net absorption, supported by constrained supply,  State Agency consolidations,  and a few new companies taking down significant blocks of space.

Outlook for 2025

Looking ahead to 2025, the Sacramento market is expected to remain relatively stable, with moderate increases in vacancy driven by further state consolidations. However, suburban markets like Roseville, Folsom, and Elk Grove will continue to see steady tenant demand, particularly among healthcare, technology, and engineering firms seeking affordability and modern amenities. Rent growth will remain modest, with concession packages likely to persist.

In contrast, the Bay Area’s recovery will hinge on a rebound in tenant demand for Class A spaces and an eventual stabilization in sublease availability. While rents may remain flat, innovation-driven sectors like AI, biotech, and semiconductors are expected to lead leasing activity. Vacancy rates may remain elevated through 2025, but increased demand for high-quality, amenity-rich buildings will support a gradual recovery.

Merry Christmas!