Colliers Sacramento Office Snapshot: Q3 2024

Vacancy have moved higher according to Colliers Sacramento 3^rd quarter report. Colliers states that because the State of California is vacating 278,000 square feet across four buildings, occupancy losses have pushed higher but there is hope of a recovery in mid-2025.

Two Downtown buildings sold at substantial discounts, reflecting the office sector’s pricing reset. Ethan Conrad Properties acquired 770 L Street for $22.5 million ($132/SF), a 52% drop from when New York Life bought it in 2018. Ethan Conrad also purchased 630 K Street for $10.3 million ($119/SF), a 63% drop in value since early 2020. An affiliate of Buzz Oates is reportedly under contract to acquire 400 Capitol Mall from Manulife for $117 million, which would be a 41% decline from the 2019 purchase price. 801 K Street, which is only 27% leased, is going up for auction on October 21 at an $8.5 million starting bid. It sold for $79.2 million in 2016.

Wells Fargo Tower Sold

The decline of downtown Sacramento and the office market is now more clear than ever. As reported by KCRA 3, Sacramento's tallest tower has sold for a steep decline, a 67% drop in value from what it was most recently sold for. The tower was originally constructed for $120 million in 1992 and sold in 2000 for $130 million. The building was later resold again to to Hines’ Core Fund in 2007 for $237,250,000 million. The 501,308-square-foot was most recently sold to an all-cash buyer for $117 million. 

Renaissance Tower Will Be Auctioned

 
The 28-story Renaissance Tower at 801 K Street will be up for bid on October 21^st. As stated in the Sacramento Business Journal, the building is currently 27% leased, well below most other "trophy" office properties in Sacramento's urban core. Renaissance Tower also has a seven-story attached parking garage. the starting bid for the building would be $8.5 million. That's nearly a tenth of the building's last sale price, $80 million in 2016. 

On-Hold: 201 N St. Residential High-Rise

It’s been reported in the Sacramento Business Journal that the proposed 28 story residential high-rise at 201 N Street has officially been paused. With no activity with the city of Sacramento to secure building permits since 2022, it’s a safe bet Southern Land Company is feeling the pinch from the slowing economy. The proposed project exterior looked to be made with high quality materials and lots of details. Does Sacramento have enough deep pockets to rent out or own enough of these high-rise units to make them profitable? I would say no, that is why downtown sees lots of residential projects being built up to eight stories, after that the construction costs to go taller are to high and there are not enough people in Sacramento willing to pay that high amount to live there. I could make an extensive list of all the failed high-rise residential projects in Sacramento in the last 40 years, this might be another.

Colliers Sacramento Office Snapshot: Q2 2024

I’m a little slow on getting this posted, but ColliersSacramento Q2 office market report shows several challenges that appear show a trend for the region. As stated in Q2 2024 Sacramento Office Market Report, Sacramento’s office market maintained its trajectory toward setting a record high vacancy rate later this year. Downsizing and consolidation has pushed the market towards record high vacancy rate. There was a negative absorption of -140K sf in the quarter with more planned in the next 12 months with multiple large vacancies slated for the second half of the year (read more under Absorption & Demand).

But on a positive note, Capitol Mall’s properties are recording significant occupancy gains through the first half of the year. 400 Capitol Mall went on the market for sale this quarter and will test buyer demand for stabilized Class A high rises.

Colliers forecast that the State of California’s return to office this summer, two days a week will increase foot traffic in the urban core. The Sacramento office market has been downsizing for the last four years. With the lack of demand, local office inventory will likely diminish in years ahead. There are approximately 1 million square feet of office properties being evaluated for conversions to alternative uses, including medical office, apartments and hotels.

SOLD – 301 Capitol Mall

301 Capitol Mall - Taken in 2010

After nearly 18 years and several attempts to develop the land, CalPERS has sold the former twin 53-story Tower on Capitol Mall site to the Shingle Springs Band of Miwok Indians. Located at 301 Capitol Mall, the property was sold for $17 million and the Miwok Indians have said they have not plans for the site. The 2.39 acre block is currently fenced off with over a thousand piles poking out of the ground where 615 foot tall towers would have gone. The site is also over grown with full size trees on the southern side facing Capitol Mall. Social media seems to be excited that a casino could someday be built there, not me.

Resources Building Renovation – Exterior Replacement

1416 9th St. Resources bldg. renovation

The 60 year old Resources Building at 1416 9^th Street is now having the exterior cladding attached. It appears modern and clean, but the exterior has now lost any architectural significance and will soon be a featureless, bland glass tower. The original exterior had character and reflected a time that was the beginning of office high-rises being built in downtown.

1416 9th St. Resources bldg. renovation

The cost to do a total replacement of the exterior must have expanded the overall $461 million renovation costs quite a bit. It was not that long ago in 2010 two 18-story State office towers in downtown were also renovated. Both State offices #8 & #9 at 714 P Street had both interior and exterior upgrades while also keeping the original exterior design. AC Martin rendering

1416 9th St. Resources bldg. renovation

Resources bldg. AC Martin rendering

Resources bldg. AC Martin rendering