Commercial Update

The local Commercial market and the local Residential market have direct impact on each other. For some examples, check out these newlines:

From the California Association of Realtors:

Higher interest rates and inflation are having a mixed impact on the demand for commercial real estate. The pace of absorption has slowed in the industrial and retail markets as consumers cut back on spending amid high inflation. Meanwhile higher mortgage rates and continuing return of workers to the office have increased the pace of absorption of multifamily units and office space.

As rising mortgage rates make a home purchase less affordable, occupancy of multifamily units in the past three months as of May 2022 rose to about 75,600 units, an increase from 62,000 units in 2022 Q1.

From Will Austin of CoStar Analytics, we received this:

The office market in Sacramento, California has been slow to recover as the pandemic lingers on, with many employers delaying a full-scale return to the workplace. Further complicating the matter is the clear preference of millennials and Gen Z to work remotely, a concession many companies willingly acquiesce to in a difficult hiring climate.

However, Sacramento has started to change as new residents moved into the area during the health crisis. Since the beginning of 2020, 50,000 new residents have relocated to the area, representing a 20% increase over the prior decade’s average. Most of these residents have been between the ages of 18 and 44, representing a new crop of young professionals looking to start or continue their careers in the California capital.

An improved talent pool is one reason why high-tech firms in the area are confidently expanding their operations. Recently, Schilling Robotics signed a 71,000-square-foot lease in Davis, within 1 mile of its existing location. The new property will house engineering and mechanical employees as the firm expands its underwater exploration business line.

Another expansion worth noting is Thermogenesis in Rancho Cordova. The gene-therapy firm signed a 30,000-square-foot lease, effectively doubling its footprint. The new space will be used primarily for manufacturing, and the lease is expected to increase to 35,000 square feet by the end of the year.

All this growth has been supported by an increase in venture capital in recent years. Since 2017, Sacramento companies have received a total of $13 billion in venture funding, $3.6 billion of that total was acquired in 2021, second only to 2019’s total.

Where Sacramento has struggled is recruiting new businesses to the market, and there have been relatively few success stories over the past cycle. However, two new developments could help to bring new biotech firms to the area.

First, Aggie Square is being developed in concert with UC Davis. The 1.2 million-square-foot development will cover 8 acres adjacent to the university medical school and will include space for research, wet labs, commercial space and housing. Also, California Northstate University is planning a new 457-bed teaching hospital at the Sleep Train Arena site in North Natomas. The new school will employ 400 faculty serving 2,000 students.

These elements will combine to help reshape the region. Growth in the past cycle was slow and plodding, but that is changing. The mix of growing local firms and developments attached to institutions of higher education could create economic synergies, spurring the development of a new biotech cluster in the region.

Stay tuned!