Sacramento office investment sales are up. And the majority of investors are institutional and from out of town. Sacramento has long been considered a second-tier market. Today, many investors believe second-tier markets hold the greatest opportunities. Is it really almost Easter?
Institutional and out-of-town investors create value with perspective. Example: Seagate Properties from San Rafael recently bought the Senator Hotel Office building in downtown Sacramento. Seagate has increased lease rates significantly. Even so, the rates remain below those in many major markets. Seagate can also rationalize additional improvements such as a gym and a restaurant.
Private equity real estate funds currently hold nearly $300 billion in investment capital. The current state of the market is also responsible for an institutional increase in real estate investments as new and existing investors are looking to lock in historically low interest rates.
As the market cycle matures, office vacancies are expected to bump up to 13.6% nationally in 2020; presently the number sits at 13.2%. Rent growth is also slowing. So investors seeking higher yields, are looking to buy in secondary Markets and non-Gateway markets. Gateway Markets include San Francisco and New York and have historically attracted foreign capital funding. A recent study seeking to quantify the top 10 office investment markets in the country included only two primary markets – Chicago and Manhattan. Please take a look at this article from CCIM Magazine, visit here.
The Urban CORE is not the only place investors are looking. Institutional investments in Sacramento’s suburban markets like Roseville, Rancho Cordova, Folsom and North Natomas have seen a significant uptick. According to Real Capital Analytics, nationally Suburban cap rates are averaging at 6.8 percent, compared to 5.5 percent for central business districts. Investors are also looking to invest in second tier markets like Sacramento due to sustained demand, improved transportation infrastructure and local amenities. Sacramento is no longer a secret, and prices are showing it.
Take a look at this recent article in The CCIM Magazine for more information: visit
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