February 7, 2020
California’s state capital—and, potentially, the backdrop for another battle over rent-control legislation—Sacramento is also the West Coast’s leading market for rent growth, at least for the moment.
Yardi Matrix data shows that the Sacramento metro area achieved year-over-year rent growth of 5.1% in January, besting second-ranked Portland, which logged a few years as the nation’s top-performing market in this regard.
However, Yardi Matrix projects both Portland and Seattle to achieve faster growth in the year ahead. For that matter, the Bay Area metros of San Francisco and San Jose are also expected to surpass Sacramento during 2020.
Even so, Sacramento’s current top ranking is the result of a collection of demand drivers that are prolonging a stretch of robust rent growth, says Marcus & Millichap—which also expects the region to hold onto that ranking.
For one thing, there’s population growth: an increase of 100,000 residents over the past four years, drawn by the area’s relatively low cost of living.
“During 2020, the metro continues to welcome a collection of new residents, many of whom will accept positions in the expanding healthcare sector,” according to Marcus & Millichap.
Sacramento’s healthcare sector is delivering strong growth following the completion of several large medical office buildings and the upcoming delivery of Centene’s 68-acre campus in Natomas, which will employ up to 5,000 people. Marcus &Millichap notes that an additional campus for Kaiser Permanente is planned for the Railyards District, an infill site that will also house a soccer stadium for Sacramento Republic FC.
Given the economic expansion and steady household growth on the horizon, “an uptick in multifamily deliveries is warranted,” Marcus & Millichap says. “Of the 1,400 completions slated for finalization this year, most are located in Sacramento or Folsom. New supply targeted in areas with high rental demand will allow overall absorption of apartments to slightly outpace the metro’s growing inventory.”
The resulting decline in unit availability will push up the average effective rent, says Marcus & Millichap, “with Sacramento ranking as the top West Coast metro for rate growth in 2020.”
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