Sacramento’s office market cannot be generalized. You have to look at each submarket – and in some submarkets – there are multiple “centers.” For example, in Midtown there are probably three or four. The same is true for Downtown.
I think that Downtown will rise like the Phoenix, but it will take a few years to see a meaningful recovery. The State of California is sticking with its plan to vacate private sector buildings, and private sector tenants are coming to terms with shrinking office needs. Also, many downtown office tenants are looking to move out of downtown, or they are downsizing.
Suburban markets like Natomas, Highway 50, Folsom, and Roseville, are seeing positive leasing activity, but is it still slow. Midtown and areas like R Street are also doing alright. In Midtown and the R Street corridor, there are not many quality options for lease, so when a quality opportunity opens up, it typically gets leased quickly. Recently we leased about 6,000 SF at 1810 13th Street at $2.65 full service with just carpet and paint.
Unless properties are priced right, Offices for sale are sitting on the market longer. Interest rates have stifled buyer demand. When interest rates were under 4% the lease Vs. buy analysis favored buying. Now, interest rates are about 7%. So, the analysis results in more tenants renewing or leasing less space elsewhere. Properties with upside potential, parking and a quality environment for their employees will be the first properties to sell.
The nice thing about Midtown is that you can walk to a variety of restaurants and shopping. Also, it is a great place to live and employees can walk to work. BACON CRE has properties for sale in Midtown currently used as office space, that can be converted back to residential use. Also with each property, the new owner can occupy a portion of the building and then lease out the extra space to either another office user or a residential tenant. How about Live/work?
There is a myriad of possibilities for 2609 Capitol Avenue, including a conversion to a mixed-use building. 2609 Capitol Avenue is a classic built in the 1900s. Frank Lloyd Wright comes to mind when one first sees the building. The distinct parallel roof lines, accented in red nicely contrast the dark brown and army green facia colors. The building sits on a large parcel that provides 14 parking spaces. The Property has been meticulously maintained and is in great condition. The property has been occupied by a law firm for the past 30 years.
Once the property is converted, you could have two residential units generating significant revenue – either as an Airbnb or a long-term rental. Some investors like the idea of turning the whole building into residential, but it seems to make more sense to keep the two main floors as office. So, if you are an office tenant tired of paying someone else’s mortgage, 2609 Capitol Avenue is worthy of consideration.
2609 Capitol Avenue consists of two main floors, a lower level, and a penthouse. The Lower Level has two separate entries from the parking lot, so this area is ideally suited to be converted into a two or three-bedroom rental – or an Airbnb which would generate about 50% more income. The penthouse would also be a terrific studio unit if the buyer wants to work, live and play!
Since the first and second floors are already set up as office, a law firm or other professional firm could occupy these floors while collecting rent on the lower-level space and the penthouse. In the past, the owner has easily leased out extra offices, providing additional income and flexibility to expand and contract as needed.
The building is within walking distance to Sutter Memorial, the Fort Sutter Hotel developed by Randy Paragary in 2022, and of course, Sutter’s Fort. Freeway access is excellent.
If you would like to learn more, Please call Tom Bacon, CCIM at 916-761-1202.