Sacramento Retail Market Report

Traditionally high-vacancy metro retains its reputation. Sacramento entered this year with the fourth-largest rate of retail availability among major U.S. markets, and the metro will struggle to improve its position in 2023. Single-tenant vacancy, in particular, tied for the highest in the country late last year. On the surface, these conditions may appear cause for concern, but are not unusual for the market. In fact, the 2022 vacancy rate in the mid-6 percent range was considerably below Sacramento’s trailing-decade average of 7.9 percent. Nonetheless, the challenges presented by a weaker economic outlook and some local job losses will sustain pressure on fundamentals. Most notably, the market will stay in the bottom 10 of NRI-ranked metros for rent growth in 2023. Downtown retail that is dependent on weekday foot traffic faces the steepest hurdles, which are unlikely to abate until more in-office workers return on a regular basis. On a positive note, the multi-tenant segment gained substantial ground, with a 100-basis-point-plus decline in availability through late last year. The sector also faces mild competition from new supply, as the construction pipeline contains only a few 50,000-square-foot-plus builds.