After a strong end to 2015 office leasing, a broker with JLL Sacramento said there’s optimism coming into the new year.
During the fourth quarter, according to JLL, the market absorbed more than 416,000 square feet of vacant office space. Managing director Greg Levi put the year’s total for the region at 985,947 square feet, far beyond the 360,000 reported for 2014.
Even more encouraging is the kind of absorption. While swings that large are often the result of a handful of firms making big moves, much of the more recent activity comes from expansion or new leases by firms looking for 15,000 to 50,000 square feet, he said.
“It’s showing that we’re more than a government town,” Levi said. “We have a private sector.”
Brokers have often identified more activity by smaller firms — many of them locally based — as a critical factor to push vacancy lower. For the year, total vacancy dropped in the market by a full percentage point, to 16 percent.
Some of the leasing could be termed a flight to quality. But Levi said he’d also point out others, such as engineering firm Dragados and California Northstate University, are relatively new to the region.
For at least early 2016, the prospects look good for more positive absorption, though probably not on the scale of the end of 2015. In particular, Levi said, the attraction of being near Golden 1 Center downtown is benefitting nearby high-rises like 555 Capitol Mall. Another nearby building, Renaissance Tower on K Street, is in escrow for sale, he added.
In the city’s central business district, the class A space has a vacancy of 14 percent. With larger spaces increasingly hard to find downtown, Levi said, the economics of new construction are improving. If there’s not quite enough for a 20-story high-rise, there might be enough momentum to pre-lease something smaller on the scale of 12-story Meridian Plaza.
Before new towers make sense, “The rents still need to go up,” Levi said.