Apartment Report: Vacancy to Stabilize in '04

SACRAMENTO, CA-Apartment vacancy here is expected to stabilize in 2004 as employment gains accelerate in the local market, according to the latest report from Marcus & Millichap Real Estate Investment Brokerage Company.

Sacramento employment is forecast to remain flat through the end of the year but then grow in 2004, with more than 14,000 new positions expected, according to the report, which would be a 1.9% jump in overall employment. In light of that, Marcus & Millichap is predicting that apartment vacancy will continue a slow rise through 2003, topping out at 6.9% before stabilizing in 2004 on the strength of the employment gains.

As of the end of the third quarter, apartment vacancy in the metro area stood at 6.7%, up 220 basis points from the third quarter of 2002. The tightest submarkets in the region include Elk Grove/Laguna and South Sacramento. As of the third quarter, Roseville/Rocklin and Folsom registered the highest levels of vacancy, at 10.9% and 10.2%, respectively.

Through end of 2003, approximately 2,500 new units will have entered the lease-up phase. In 2004, that number is expected to hit 3,000. The Elk Grove/Laguna, Natomas/Northgate and Roseville/Rocklin submarkets received the majority of the 1,350 new units delivered in the third quarter of 2003, with the same submarkets set to accept an additional 680 units in the remaining quarter of this year. As of the third quarter 2003, 25 projects, amounting to 4,435 units, were under construction.

The average asking rent in the Sacramento region stood at $876 per month at the end of the third quarter, up 1.6% over the previous 12 months. The average asking rent is expected to hit $880 by the end of the year. It is expected to rise by another 2.5% during 2004, hitting $902 by the end of next year.

The Elk Grove/Laguna submarket posted the region’s highest asking rent due to some high-end product deliveries. Asking rent there now stands at $1,090 per month, a 5.7% increase over the past 12 months. The biggest increase in rent occurred in the North Highlands/Rio Linda submarket, where asking rents rose 6.9% to $811 per month.

On the investment side, sale prices continue to rise on faith in Sacramento’s long-term potential, according to the report. Sales figures translate to a 14% jump over the prior year, resulting in a median price per unit of $70,833. Record-low interest rates have helped to support higher prices. Meantime, lenders are exercising caution by raising equity requirements. According to the report, sales thus far in 2003 have been centered in the Carmichael/Fair Oaks submarket and the lower-priced South Sacramento submarket, which is benefiting from the popularity of the neighboring Elk Grove/Laguna area.