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Navigating Sacramento's Shifting Office Market: Are Property Taxes Weighing You Down?

Updated: Sep 13

In the ever-evolving landscape of real estate, the Sacramento office market has seen its fair share of changes. With roughly 53 million sq. ft. of office space to its name, recent transformations in this market prompt a significant question for property owners: Are you paying more property taxes than you should?

Inside the Sacramento Office Market:

Vacancy Rates Are Climbing: The vacancy rate in Q2 2023 rose from 14.5% to 15.2%. This was punctuated by Centene Corporation's listing of a whopping 500,000 sq. ft. Class A space for sublease at 4151-4191 E Commerce Way. With no new constructions and an influx of Class A inventory, there's more supply than demand.

Lease Rates Inch Upwards: Despite the increased vacancy and availability rates, the average asking lease rate in Sacramento nudged up from $2.16 FSG in Q1 to $2.19 FSG in Q2 2023, primarily due to the vast amounts of Class A spaces entering the market.

The Demand for Offices is Growing: While expansive office spaces are taking a short break, the demand in the education, government, and healthcare sectors has significantly increased, with several active requirements ranging between 30,000 to 40,000 sq. ft.

Peering Into the Future: The Sacramento office market is predicted to face challenges due to an oversupply in the face of slowing demand. Yet, it still stands stronger than other Californian metropolitan areas. Well-funded property owners with a smaller cost basis are in an advantageous position, offering competitive pricing and appealing improvement allowances to potential tenants.

From the Occupier’s Perspective

The pandemic-induced work-from-home model is no longer just a temporary solution; it's becoming an integral part of the long-term strategies for many businesses. Many companies are now offering employees the flexibility to work remotely for at least a few days every week, while others might adopt a permanent work-from-home approach.

On average, this shift towards remote working is anticipated to reduce the space needs of occupiers by a substantial 20 percent, depending on the industry. As a result, we might witness a surge in vacancy rates in the upcoming six months, primarily due to an increase in new sublease spaces. Moreover, the Central Business District's (CBD) future vacancy could hinge on the State of California's "work-from-home" policies.

The Property Tax Silver Lining Amidst Declining Market Trends

With market conditions characterized by reduced market vacancy, dwindling lease rates, and rising capitalization rates, it's essential for office property owners to revisit their property tax commitments. These market alterations can lead to potential reductions in property tax expenses, which can often go unnoticed.

Time to Take Action: Reassess Your Commitments

If you're an office property owner in Sacramento, the present might be an ideal time to investigate if you're paying excessive property taxes. With the market in flux, there's a possibility of realizing significant savings.

Get in touch with a specialist today and ensure you're not unnecessarily parting with your money. Market values might be in transition, but so can your potential savings. Ensure you're not missing out on any opportunities.

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