Sacramento, California, has become an attractive option for residents fleeing the pricey San Francisco Bay Area. It was just one of a handful of major markets in the state that weathered the downturn well during the pandemic.
“Sacramento made for an appealing landing spot for Bay Area residents in 2020 and 2021, in particular. That was due not only to the relative proximity of those markets, but also to the affordability of Sacramento relative to its neighbor in the southwest,” says Carl Whitaker, director of research and analysis at RealPage. “Even today with robust rent growth occurring for the better part of the past two years, Sacramento’s average rent of $1,960 is more than $1,250 less than that of the Bay Area.”
While Sacramento was oversupplied heading into the Great Recession, Whitaker says that factor along with the broader impacts from the recession led to very little multifamily development in the 2010s. Over the past decade, the capital city’s apartment stock has grown by less than 8,000 units, or just 5.5%. With extremely limited inventory, the past two years of heightened demand has resulted in skyrocketing occupancy and rapid rent appreciation, according to Whitaker. However, the current multifamily development pipeline has picked up, with over 5,000 units underway—two-thirds the amount delivered in the past 10 years.
“Although construction may lend itself to some short-term growing pains, this is probably a good thing for the Sacramento market,” adds Whitaker. “While there is no panacea to affordability issues and limited apartment availability, the closest thing that the industry has is new apartment deliveries. Put another way, the best way to solve the housing shortage is to deliver more housing.”
While the outlook remains positive for the market, Whitaker says questions loom in the coming year, especially as gateway markets like San Francisco are making comebacks from their pandemic lows. “How much of Sacramento’s recent demand surge was temporary due to move-ins from more expensive coastal markets? And can Sacramento’s largely blue-collar economy provide enough demand depth to absorb newly delivered Class A product, which will inherently command top-line rental rates?” he asks. “The last question is especially true within the context of slowing inbound migration, if not outbound migration, heading back to the Bay Area.”
