The third quarter of 2023 recorded more of the same across
Sacramento’s office market. As stated in the
Sacramento Colliers Office MarketReport, the shift toward hybrid work will lead to higher vacancy rates for a
prolonged period and some office properties will need to be repurposed to
alternative uses. The regional vacancy rate rose to its highest level since the
end of 2012 as it approaches the all-time high of 21.7% from Q4 2011. Total
occupancy losses since April 2020 have now surpassed 4.86 million square feet.
With the State of California planning to vacate approximately 300,000 square
feet of leased space in early 2024. It’s possible the market will set a new
record-high vacancy rate by mid-2024 if current trends fail to change course.
The market report by Colliers also stated that some office
owners will have to seriously consider converting properties to alternative
uses to generate income. The State of California selected McCormack Baron
Salazar as the lead developer to convert three state office buildings on
Capital Mall in Downtown Sacramento into upwards of 400 affordable apartment
units. Many local office buildings fail to meet the criteria for viable conversions
to housing. A National Bureau of Economic Research report found only 33
buildings totaling 1.3 million square feet that could realistically be
converted into apartments.
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