Sacramento's Economy
Is Poised for a Rebound

Even though Sacramento is more than 100 miles from Silicon Valley, the tech bust reverberated through this sleepy capital city. The ensuing state budget crisis undermined the economy of the capitol region -- where government is the largest employer.

Denver-based BCN Development is planning the Aura, a 38-story condo tower designed by architect Daniel Libeskind, in downtown Sacramento.

Both the retail and apartment sectors have improved, with vacancies trending down and rents rising in the first quarter compared with the year earlier, according to Property & Portfolio Research Inc., a Boston-based real-estate research firm. Drivers include a population growth rate and median incomes that are both above average. 

But the office market is still struggling, in part because cutbacks in government spending are holding back growth in office jobs, PPR says. Vacancies haven't yet climbed down from the peak 14% vacancy range that they've bounced around since the close of 2003. "Technically we're on the upswing but new development is the key risk," says Garrick Brown, vice president at Colliers International in Sacramento, which serves both tenants and landlords.

Though office construction is moderating, about 600,000 square feet is scheduled to be completed in 2005 and projects now in the planning and bidding phase are equal to about 29.5% of the area's inventory, according to Reed Construction Data. Of the 54 markets surveyed by PPR, Sacramento has the second highest ratio of new office construction to inventory.

The California Public Employees's Retirement System is responsible for the bulk of that new space with a 560,000-square-foot expansion of its headquarters in downtown Sacramento, scheduled for completion next month (August).

Construction -- both residential and office -- is also strong outside downtown Sacramento. Sacramento-based Jackson Properties is completing the final building in its roughly 200,000-square-foot Laguna East Business Park in Elk Grove, a former farm town about five miles south of Sacramento. "Elk Grove is growing by 10,000 people every year so the demand for office space grows every year," says John Jackson Jr., owner of Jackson Properties.

Throughout the metropolitan area population growth and an appetite for more affordable homes has fueled demand for apartments, condos and single-family homes. The area boasts a cost of living that is 12% above the national average, relatively low when compared to 46% above average in nearby Bay Area metros, PPR says.

That's helped boost the region's population by an estimated 9.9% to 1.97 million from 2000 through July 2003, according to the U.S. Census.

Still, a number of home and condo developers are betting that demand will continue. Denver-based BCN Development is planning to begin construction on the 38-story Aura condo tower in downtown Sacramento this fall. Prices for units in the building designed by architect Daniel Libeskind will be priced in the high $300,000-range for a small one bedroom and top out at more than $1 million for a three-bedroom unit, says BCN president Craig Nassi.

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