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Sacramento Leads Major Apartment Markets for Rent Growth in Q3

Sacramento Leads Major Apartment Markets for Rent Growth in Q3

For the second consecutive quarter, Sacramento registered as the frontrunner for annual rent growth among major U.S. markets. The lead is representative of progressive momentum in this late-recovery multifamily market.

With a 5.1% increase in 3rd quarter 2016, Sacramento’s recorded annual rent growth reached 10.5%. That annual figure of 10.5% exceeds performance in Riverside/San Bernardino by 1 point. Including smaller markets, Sacramento’s performance trailed only Reno’s increase of 12.1%.

In Sacramento, rent growth was driven by Class A and B properties, which saw double-digit rent hikes in the past year. Among submarkets, growth was spread fairly evenly, with most areas recording increases around 9% to 13%.

Rent growth brought the metro’s average rental rate to $1,246 as of 3rd quarter 2016, which was below the West’s regional average of $1,633.

Rent growth levels have steadily increased as vacancies have dwindled over the past three years. At 97.5%, occupancy for 3rd quarter 2016 was just 0.4 points shy of the previous quarter’s 15-year high. With few vacancies, absorption in Sacramento slowed. For the quarter, 437 units returned to the availability pool. For the year-ending 3rd quarter 2016, demand registered at 615 units, a drop from the previous 12 quarters’ annual demand average of 1,716 units.

With high occupancy and strong rent growth, construction levels in Sacramento remain above historically normal levels. At the end of 3rd quarter 2016, 1,965 units were under construction, about 40% higher than the 10-year average. Central Sacramento and South Sacramento accounted for more than 70% of current activity. Over the next year, 1,398 of all under-construction units are expected to complete. The new product would grow overall inventory just 1.1%.

The robustness of Sacramento is due, in part, to the gradual restoration of the metro’s economy. In line with recent activity, the market added 20,500 jobs in the year-ending 3rd quarter 2016, a 2.2% increase of the employment base. Attribution for half of all new opportunities could be split between the Mining/Logging/Construction industry and the Education/Health Services industry. Government employment could be credited for a quarter of recent job additions. The sector accounts for 24.4% of all employment and remains the market’s occupational anchor.

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