Colliers Sacramento Office Snapshot: Q3 2023

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.

How Not To Add To A Historic Building

 Now that the former Capitol Annex is demolished, it’s puzzling to see that the state has not shown an official rendering of what will replace the old structure. Here are some images from 2022 of the proposed Capitol Annex replacement buildings.  Much larger, with a glass exterior, overpowering the historic 1860's Capitol, and diminishing the view of the architectural front. It also appears that all approaches to the historic 1860’s capitol are now below grade, changing the historic character of the building.

You could argue that the proposed rendering negatively impact the historic 1860’s capitol.

Constructing a new addition on or adjacent to a primary elevation of the building which negatively impacts the building's historic character.

Attaching a new addition in a manner that obscures, damages, or destroys character-defining features of the historic building.

Placing new construction too close to the historic building so that it negatively impacts the building's character, the site, or setting.

Constructing a new addition that is large as or larger than the historic building, which visually overwhelms it (i.e.; results in the diminution of loss of its historic character).

Adding new construction that results in the diminution or loss of the historic character of the building, including its design, materials, location, or setting.

Constructing a new building on a historic property or on an adjacent site that is much larger than the historic building.

Housing Proposed at Former SacBee Building

The city is reviewing a proposal to demolish the former Sacramento Bee building at 2100 Q Street and develop a 538 apartment complex. Shopoff Realty Investments hopes to have it break ground in 2026 and open in 2028. The proposed project will consist of two mirrored wrap buildings, with 5 levels residential apartment and 5.5 levels of parking garage. A pedestrian paseo connecting the 22nd street in the north and the multi-family community in the south is proposed in between the two buildings.

There would be  approximately 3,400 SF leasing and mail on ground level at the corner of Q Street and 23rd Street (or 21st Street for building 2), approximately 3,893 SF amenity space on ground level connecting an on grade pool courtyard facing the paseo, 298 parking spaces, and courtyard facing R Street are proposed within each independently functioning building/community.

Metro Place - Proposal From Times Past

Metro Place was proposed at 9th & J Streets

Metro Place was proposed in 1999/2000
32-story office/apartment
$127 million in construction costs
114 apartments on the top 10 stories
262,000 square feet of offices
20,562 square feet of retail on the ground floor
1,044 parking spaces. The whole building would be more than 850,000 square feet.
Would have received a $11 million subsidy from the City of Sacramento plus the city's quarter block of land valued at $4.8 million. The whole city package came to $16.7 million. The project never received funding because at this time around the nation office markets were in the doldrums and demand was sluggish. 

Early rendering of Metro Place proposal without curved version

Early rendering of Metro Place proposal without curved version

Early rendering of Metro Place proposal without curved version

Early rendering of Metro Place proposal without curved version

Early rendering of Metro Place proposal without curved version

Early rendering of Metro Place proposal without curved version

Early rendering of Metro Place proposal without curved version

Here's a link at the Biz Journal as to why is was not feasible...

Friday, April 26, 2002
Metro no place
A downtown Sacramento skyscraper with offices and apartments would have replaced a vacant lot -- if lenders hadn't been spooked

Dean Ingemanson's plan for a 32-story office/apartment building at the Metro Place site on 9th and J streets is defunct because it cannot secure financing in today's weak office market.

Shifting to a more feasible project, Ingemanson has signed a tentative agreement with a Southern California developer, CIM Group Inc., to build an apartment building of about five stories on the site.

Yet Ingemanson and others agree that if the hybrid tower had been built, it almost surely would have been commercially successful.

"The bottom line," Ingemanson said, "is that if I was able with a magic wand to get it built, it would have succeeded because of the low vacancy of class-A office space downtown and demand for downtown apartments."

On top of that, it would have been a stunning coup for the redevelopment officials who staunchly supported Ingemanson's dream of a mix of high-rise apartments with offices and ground-floor retail in downtown Sacramento. And it would have permanently removed one of the worst eyesores in the downtown area, a half-block long hole in the ground, walled off with a cheap plywood fence.

"I thought it was a great urban design project," said Andrew Plescia, the city's economic development director and a strong supporter. "It would have brought a lot of vitality and livability to downtown."

So what happened to this dandy redevelopment project that might have been a resounding commercial success?

The simple answer is that lenders wouldn't touch the $127 million venture. They were spooked by the national economic downturn, combined with a rising office vacancy nationally, especially in the Bay Area. It didn't matter that Sacramento itself is one of the nation's strongest office markets.

No magic wand, no money: Ingemanson's proposal called for a 32-story building to include 114 apartments on the top 10 stories, as well as about 262,000 square feet of offices and 20,562 square feet of retail on the ground floor, plus 1,044 parking spaces. The whole building would be more than 850,000 square feet -- almost as big as the nearby Downtown Plaza mall.

Metro Place would be built on the half block on the south side of J Street between 8th and 9th streets. Ingemanson controlled the western quarter block, while the city owns the eastern quarter.

In early 1999, Ingemanson purchased most of his portion out of bankruptcy court. He then proposed a partnership with the city to build the tower, and the city agreed to chip in an $11 million subsidy, plus the city's quarter block of land, valued at $4.8 million. The whole city package came to $16.7 million.

For redevelopment officials it was a dream come true. Metro Place, two blocks from City Hall, would have replaced a decade-old blight and replaced it with office workers who would shop downtown during the day and residents who would shop downtown after hours.

"It was a huge, wonderful step forward for the housing market downtown," said John Dangberg, executive director of the Capitol Area Development Authority and former redevelopment director for the Sacramento Housing and Redevelopment Agency.

Renters were clearly very interested in the upper-story apartments. Despite high rents, the units would surely have leased, said Dangberg and others.

Office pundits agree that the office portion would eventually have paid off. Downtown Sacramento's office vacancy is 5 percent -- among the lowest in the nation.

Wrong time: But Ingemanson, looking for a loan of $70 million, showed up at the lenders' doors at the wrong time.

"The financial market is chasing stabilized, completed projects, and development projects are seen as higher risks," said Kevin Randles, a mortgage banker with the local office of L.J. Melody & Co., a Houston-based lender and subsidiary of CB Richard Ellis.

Around the nation, the office market is in the doldrums. Demand is sluggish and vacancies are up as a result of corporate America's slowdown during the past year. The Bay Area especially has seen horrendous vacancies and rental decreases as a result of high-tech's hard times.

Sacramento, less than 90 miles from the bay, is guilty by geographical association.

"Sacramento is the only big office market in the United State with single-digit vacancy rates," Randles said. "But we're seen as a sister city to the Bay Area, which is having a lot of trouble."

More here... http://www.bizjournals.com/sacrament...29/focus1.html

10th & J Streets Housing Proposal

The TA Development Group has submitted plans to build an eight-story building that would have 256 apartments. Plans include demolishing a couple of empty buildings at 10^th & J Street once the plan is approved by the city. It will have a swimming pool on the top floor and construction could begin in the next 12 to 16 months. The developer is also working on a plan for the Goodyear site at 11^th & I Streets that would include 204 apartments and hope work begins there in Spring of 2024. 

Colliers Sacramento Office Snapshot: Q2 2023

The Sacramento vacancy rate has hit 20% with a negative net absorption of -279,278 square feet. Sales appear to also be down because of higher barrowing costs. As reported by Colliers Sacramento, the local unemployment rate was 3.9 in May with employed persons at 1.09 million, but local layoffs have stated to increase so far this year.

As of June 2023, there were only 13 office buildings in the Sacramento region that were potentially troubled, in special servicing, or in foreclosure, totaling 1.68 million square feet of space and $163 million in loan value, according to MSCI Real Capital Analytics, which equates to less than three percent of the office market. Through Q1 2023, some $4.1 billion of new office assets were added to the troubled group of office properties nationally and more loans are set to mature in the office sector than any other asset class.

The Judicial Council of California’s new Sacramento County Courthouse located on the southeast corner of The Railyards north of Downtown will be completed in the next nine months. North of The Railyards, the State of California’s 1.25 million square foot Richards Boulevard Complex in The River District is due to be completed by Q1 2024. This project will kickstart the consolidation of multiple state government departments into these brand-new buildings and is expected to be a catalyst for ongoing development in this emerging mixed-use district. CalSTRS’ new building at 200 Waterfront Place is due to deliver in Q3 2023, which will bring 200,000 square feet of available space in its current 100 Waterfront Place building into the vacancy column.

Demolition begins On Capitol Annex

The term "Demolition by Neglect" fits the current state of the Capitol Annex that is now being demolished. For decades the State failed to properly maintain and upgrade the Capitol Annex, therefore it is now in disrepair and needs to be torn down. State legislators for nearly 70 years didn't even do the minimum to keep the structure up to code or make any upgrades throughout the life of the structure. The budget to replace the Annex is currently $1.4 billion, as you know, this estimate will be way under budget when the project is completed in five or six years. It was only three years ago when the proposal was estimated to be $775 million. The State doesn't even have a rendering of the replacement building to show the public, just another reason why public trust of all politicians is at an all time low. 

28-Story Hotel Proposed

At the corner of 15^th and K Street a 300 room hotel has been proposed. Yahoo! News mentions that the project would include a pedestrian bridge to connect to the Convention Center, a roof top bar/restaurant and 28 residential units over four floors. The land is currently a parking lot owned by AKT Development. The projects sponsor is reported to be Gafcon Construction firm. Gafcon will partner with Tony Giannoni who has lead previous Sacramento construction projects such as Sutter Health corporate headquarters, the Meridian Plaza and the Residence Inn.

It appears there have been no plans have filed with the city planning department, estimated cost, or estimate for ground breaking. It’s mentioned in the article that the developer will be asking the City for a subsidy from the current 12% tax by stays in the new hotel to help fund the project.

Back in 2017, the then proposed Convention Center renovation also include plans for a K Street hotel. At the time no developer was named to build the 350-rooms standing 300 feet tall. http://livinginurbansac.blogspot.com/2017/12/sacramento-convention-center-expansion.html

Knott's Landing - Proposal From Times Past

Knott's Landing - Sacramento theme park proposed in 1990"s

Knott's Berry Farm once tried to buy up some land north of Old Town Sacramento and make it into a Theme Park called "Knott's Landing". The theme park was proposed in the mid 90's and would have been along the Sacramento River and  Old Sacramento. From what I have seen, the proposal, it was quite detailed, but in the end it it ran afoul of the Old Sacramento Master plan. It appears the "I" Street bridge would have been dismantled and new bridge built where one is currently in the planning stages. It also included a baseball stadium about the size of the Rivercats ballpark and an indoor arena. It also looks as if the train tracks would have been realigned under the new bridge in a northeast direction to a new train station. I think it would have been successful, a fun place for locals and visitors to enjoy.  
http://www.robinshall.com/knotts-landing-sacramento

Robin Hall the award-winning theme designer returned my request for additional info with this message. "We did the drawings for Knott's Landing in late 1996-into January 1997. My boss; Terry Van Gorder, was always trying to get the Knott Family to expand the brand and build other parks and Knott's Camp Snoopys in different locations around the world. So I would draw up different proposed parks and we would present them. Unfortunately the Family was very risk averse and didn't want to invest anything beyond the design and the branding."

Knott's Landing - Sacramento theme park proposed in 1990"s

Knott's Landing - Sacramento theme park proposed in 1990"s

Knott's Landing - Sacramento theme park proposed in 1990"s

Colliers Sacramento Office Snapshot: Q1 2023

Regional Vacancy Rate Ticks Up to Highest Point in a Decade. As reported by Colliers Sacramento, the vacancy rate appears poised to rise through much of the rest of the year with large blocks of space to be vacated by CalSTRS and Centene likely to outpace scheduled occupancies of vacant buildings by UC Davis Health, California Highway Patrol, and CapRadio.

Colliers Sacramento Office Market Absorption & Vacancy Rate 2014-2023

Quarterly net absorption was -464,299 square feet but would have been slightly positive without Centene’s 517,000 square foot vacant sublease in North Natomas. The Sacramento region’s office market has now witnessed a staggering amount of occupancy losses since early 2020 as companies are reorienting their office space requirements in this new age of hybrid work. Diminishing office occupancy and falling net operating incomes are beginning to lead to distress in the office sector. It is likely property defaults will rise in the next two years as mortgages signed before the pandemic expire.

Colliers Sacramento Market Fundamentals 2023

Colliers Sacramento Office Development Pipeline 2018-2024

Changing Sacramento Skyline

Downtown Sacramento

J Street in Downtown Sacramento

 

Sacramento County Courthouse Construction

Sac. County Courthouse looking west from F & 7th Streets

The New Sacramento Courthouse exterior skin was completed in September of last year as well as the curtainwall installation (except for leaveouts) and Clark Pacific has completed precast panel installation. It appears interior is where much of the work is focused on right now. Opening will likely occur in Q1 2024 per the contractor’s current schedule.

Sac. County Courthouse looking west from F & 7th Streets

Sac. County Courthouse looking west from F & 7th Streets

Sac. County Courthouse looking west from F & 7th Streets

Sac. County Courthouse looking west from F & 7th Streets

Sac. County Courthouse looking west from F & 7th Streets

Sac. County Courthouse looking west from F & 7th Streets

Sac. County Courthouse looking west from F & 7th Streets

Resources Building $461 Million Renovation - Update

The Resources Building Renovation Project (Project) involves a tear-down of the 17-story 657,000-square-foot building leaving the building’s steel frame, then reinforcement/rebuild matching the current footprint, mass, and height. The Project would include code-required improvements, including seismic upgrade, installation of a building-wide fire sprinkler system, reconstruction of three 17-story exit stair towers, and replacement of asbestos-containing fireproofing. Antiquated mechanical, plumbing, electrical, security, and telecommunication systems will be replaced, completely upgrading all infrastructure systems. The Project will make the building safe while honoring the building's historic qualities.

The Resources Building at 1416 9th Street in downtown Sacramento

The Project goal is to achieve Zero Net Energy and Leadership in Energy and Environmental Design (LEED) Silver certification. Project delivery and Completion is anticipated in Spring of 2025, within 42 months of Notice to Proceed (NTP). Project will include exterior envelope replacement, including installation of new roof and insulation, window system, and building skin.

https://rbr.gilbaneco.com/

The Resources Building at 1416 9th Street in downtown Sacramento

The Resources Building at 1416 9th Street in downtown Sacramento

The Resources Building at 1416 9th Street in downtown Sacramento

The Resources Building at 1416 9th Street in downtown Sacramento

The Resources Building at 1416 9th Street in downtown Sacramento

The Resources Building at 1416 9th Street in downtown Sacramento

Capitol Park Hotel Renovation Almost Ready For Homeless

Capitol Park Hotel at 1125 9th St, Sacramento, CA
was originally built in 1912

The 110-year-old Capitol Park Hotel is starting to look livable, renovations of the historic building will finished soon and the Sacramento homeless will be able to move in. The local news has reported that the cost to renovate the building has gone up from the original $58 million to $64 million. Originally, the  per foot cost breakdown was $1,000 per square foot. If you look at just the per square foot cost, this is the most expensive residence in Sacramento county. The age of the building means the renovation is costing more than $445,000 per unit., but costs have gone up so this is now a low number.

Capitol Park Hotel at 1125 9th St, Sacramento, CA
was originally built in 1912

Capitol Park Hotel at 1125 9th St, Sacramento, CA
was originally built in 1912

Capitol Park Hotel at 1125 9th St, Sacramento, CA
was originally built in 1912