Sacramento saw rent fall for the first time in more than a decade during the third quarter of 2022. The city’s apartment market tends to defy even national economic slumps, but how will it fare amid the current economic slowdown? Victor Calanog, Head of Commercial Real Estate Economics at Moody’s Analytics, shares his analysis.
Sacramento rents saw a surprise drop
Sacramento boasts some of the tightest vacancy rates in the country. As of the third quarter of 2022, vacancies for the metro sat at 2.6% — a rate only four other markets can match, according to Moody’s Analytics CRE. It was therefore a bit of a surprise when rent growth turned negative in the third quarter.
Effective rents fell 1.5%, which is a sharp contrast given the market never saw negative rent growth at any point in the last decade or more. Even during the pandemic, rents rose in Sacramento. The last rent dip was during the Great Financial Crisis of 2009.
It was a surprise, but not shocking: Expectations for economic growth in 2022 pulled back throughout the year. Moody’s economic forecasts for the U.S. economy started at 3.4% growth for 2022 back in January of that year, but fell to a 0.09% decline as of November.
Economic uncertainty ahead
Ongoing geopolitical turmoil, persistent inflation and rising interest rates all play a part. If these sources of uncertainty persist throughout 2023, rent growth is likely to be halved relative to 2022.
Top submarket: North Sacramento
But some submarkets will likely continue to outperform. The North Sacramento submarket saw vacancies drop 20 basis points to 1.8% — the tightest it’s been since late 2001. Also, while effective rents fell at the metro level, the North Sacramento submarket recorded just a 0.4% decline, a fraction of the negative growth rate for the metro as a whole.
Historically, Sacramento has tended to defy even national economic slowdowns. Time will tell whether any upcoming recession will mean continued positive numbers for Sacramento — or not.
By the editorial team at Story by J.P. Morgan
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