Sacramento’s Rent Growth Still Strong, Not Dazzling

Written by Landlord Property Management Magazine on . Posted in Blog

The final Yardi Matrix monthly report on multifamily rent trends for 2018 showed Sacramento is significantly below its previous pace as the fastest-growing rental market in the country.

Sacramento has experienced decelerating but steady rent growth, due to a continued influx of new residents from pricier Bay Area markets and a limited multifamily supply. The metro’s average rent rose to $1,454 as of October, slightly above the national rate. Despite becoming less affordable, Sacramento remains an accessible living option among the region’s metro areas. The market’s strong appeal to investors has maintained a high transaction volume, which is expected to surpass the 2017 level.

Employment gains were led by the state capital’s public sector, which added 5,300 jobs year-over-year. The University of California, Davis, is undergoing a large expansion project, which will generate further growth for the education and health services sector, where 4,200 jobs were added in the 12 months ending in September. Trade, transportation and utilities also gained a large number of jobs during the interval, with a total of 4,900.

As the spillover effect from the nearby Bay Area continues, the metro’s suburban markets have seen occupancy rates rise dramatically, along with rents. Transactions have stayed strong, with 90 percent of deals being completed for assets that present a value-add opportunity. As new development remains limited, rent growth is likely to continue at a good pace, although a return to past highs is unlikely.

Here are some takeaways from the Yardi Matrix Report:

  1. Nationally, Sacramento’s December year-over-year rental growth rate of about 4.5 percent was the seventh-highest in major U.S. metropolitan areas. Las Vegas, with 7.3 percent, was at the top. With the Inland Empire in third and San Jose at fifth, Sacramento wasn’t even the fastest-growing metro in the state.
  2. However, the national figure of 3.2 percent year-over-year growth was significantly below Sacramento. The local region was higher than the national number in both categories of apartment types as well, with 4.5 percent growth for both the lifestyle and rent-by-necessity categories.
  3. Over the last three months, Sacramento rents rose by less than .1 percent compared to the previous three months, suggesting the market at least recently has flattened out. The report noted those months are typically a slow time for rental growth nationally.
  4. Looking ahead, Yardi Matrix expected rents to grow by 6.5 percent in Sacramento over 2018. Growth in Sacramento overall in 2018, however, was 4.4 percent, and occupancy dropped from 96.5 percent in November 2017 to 96.3 percent a year later.
  5. For the first time in recent memory, the percentage of newly completed units in overall stock was more than 1 percent, at 1.1. With hundreds more units under construction in the Sacramento central core, Folsom, Roseville, North Natomas and elsewhere, the region is seeing its largest multifamily building numbers in more than a decade.

Yardi® develops and supports industry-leading investment and property management software for all types and sizes of real estate companies.  Established in 1984, Yardi is based in Santa Barbara, Calif., and serves clients worldwide.  For more information, visit www.yardi.com.

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