Demand for Sacramento rental housing has outpaced the number of new properties being developed in the region. Sacramento job growth has strengthened, and is largely outperforming the national average. Healthy job growth has prompted people to move from expensive Bay Area submarkets, thus boosting in-migration. Sacramento rental demand is growing even stronger due to increasingly unaffordable home prices in the area. As a result, there has been downward pressure on vacancy.

Sacramento Rental Market Conditions Continue to Strengthen

Sacramento rent growth has been robust for many years. While gains have cooled since 2016, when Sacramento still led the nation in rent growth at a near double-digit pace, year-over-year gains remain well above the national average.

New development picked up two years ago, with several projects currently under construction metrowide. Developers tend to favor the urbancore and affluent suburban submarkets likeRoseville/ Rocklin and Elk Grove.

The metro’s strong fundamentals have not gone unnoticed by investors—annual sales volume reached an all-time high in 2018, and topped $1 billion for the fourth consecutive year. Both pricing and inventory turnover have edged higher in recent years, and cap rates have continued to compress.

Here are some key metrics on the Sacramento rental housing market:

  • Q4 2018 Year-Over-Year Rent Growth: 5.9%
  • Q4 2018 Metro Rental Housing Vacancy Rate: 2.5% to $1,637
  • Q4 2018 12-Month Delivery of Units: 24,704

Downtown Development Costs Run High

High construction costs, cumbersome approval processes, and uncertain demand for high-end units deters many developers. Before breaking ground, entitlement costs for rental properties often range from $40,000 to $50,000 per unit.

A handful of developers have targeted Downtown and Midtown. New product has solely been 4- and 5-star, with large units and luxury-style amenities to entice renters to a live/work/play environment. Eviva Midtown, for instance, came online in September 2016. The 118-unit modular development features a mix of large one- and two-bedrooms, with top-tier amenities. Eviva achieved 90% occupancy in about 11 months, for a lease up rate of approximately 10 units per month.

The Q, a Mynd-managed property, completed construction last year, adding 68 units to the local rental housing market. The Sacramento Kings plan to develop 92 apartment units and ground- floor retail in the area as well. Dubbed Bel Vue, the project broke ground in August 2018.

Suburban Construction Dominates Activity in Sacramento

However, the majority of construction projects are located in affluent suburban submarkets, such as Folsom, Roseville/Rocklin, and Elk Grove, favorites of Bay Area residents. For example, one of the most noteworthy projects is Pique at Iron Point, a 327-unit community under construction in Folsom. Developed by Elliott Homes, theproperty broke ground in the first quarter of2018, and is expected to be delivered around mid-2019.

For more information on the state of Sacramento’s rental housing market, download our latest State of Mynd Sacramento report.