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Sacramento’s Apartment Market Momentum Has Returned

Sacramento’s Apartment Market Momentum Has Returned

In metro Sacramento, the apartment market performance now has gotten back on track in a big way, after several years when the area posted results well below the national norm.

Occupancy reached 97% at the end of 2014, with no more than a handful of vacancies seen in any neighborhood or product niche. Occupancy has climbed a whopping 510 basis points from its mid-2009 low. Calendar 2014’s occupancy jump of 110 basis points ranked among the largest increases realized anywhere across the country, in large part reflecting that most other spots already had regained essentially full occupancy two to three years earlier.

Annual effective rent growth for new leases in Sacramento now is running at 5.4%, up from the mild price increases that had averaged just 1.6% annually in 2012-2013. The metro’s top-tier communities, in particular, are experiencing a pricing surge, as 2014’s price jump for the class A stock reached 7%.

A healthier economy is helping support apartment demand in Sacramento. Local job additions have hovered near 20,000 positions annually during the past three years, translating to 2.4% annual growth.

At the same time, very little further product has come on stream of late. Total completions were held to 3,150 units over the course of the past five years. In comparison, that five-year sum of 3,000 or so units was about the average annual new supply tally back in the mid-2000s.

Sacramento is positioned to maintain considerable momentum over the short term, as product deliveries will remain limited for a while longer. Only about 800 units are under construction right now.

Looking beyond the next year or so, however, rent growth at recent levels could be tough to sustain if building activity kicks into higher gear. A new sports and entertainment arena that is on the way downtown is reported to be spurring housing development interest in the urban core. Across the Sacramento River from downtown, the city of West Sacramento is another urban-feel locale that could attract meaningful building.

In the suburbs, larger apartments face competition from the metro’s very large stock of rental single-family homes, and that’s another factor that could cap rent growth over the longer term.

(Image Source: Wikimedia Commons via Basil D Soufi

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