6.7%
PENDULUM SWINGS TOWARD FAVORING TENANTS EVEN AS DEVELOPMENT PIPELINE EMPTIES
Multifamily vacancy in the Sacramento region stood at 6.7% as of the close of Q1 2026, up from the revised 6.5% reading of three months ago and the 6.2% rate posted a year ago. After hitting a local record low of just 3.0% in Q2 2021, developers rushed to catch up with underserved demand with the market experiencing one of the more aggressive growth cycles in its recent history. Not surprisingly, throughout this period vacancy levels across the region have been on a steady upward trajectory as more inventory was delivered to market. In the 19 quarters since Q2 2021, vacancy has decreased only twice with new supply (deliveries) consistently outpacing renter demand (net absorption). That trend played out once again in Q1 2026, though with vacancy levels starting to creep in on the 7.0% threshold, the pendulum has now swung in favor of tenants with rental rate growth starting to reflect this shift. The average asking rent per unit in the Sacramento market now stands at $1,817 per unit, or $2.18 PSF. These
metrics reflect nearly flat growth of just +0.2% over the past year, which—if you factor in the 3.3% inflation rate of March 2026—reflects negative rent growth. Not surprisingly, higher vacancy levels have driven greater concessions as more property managers seek to maintain both current rates and occupancy by offering free rent on leases and free or discounted rents on parking in addition to gift cards or look-and-lease specials for prospective tenants. This trend is primarily playing out in the local submarkets that have seen the highest levels of new development in recent years—primarily Downtown and adjacent submarkets like West Sacramento, Natomas and South Sacramento. These same trade areas have also accounted for the lion’s share of positive net absorption throughout the recent spike in new construction. The challenge simply has been that deliveries in these submarkets have consistently outpaced tenant leasing activity in the last few years.
POSITIVE DEMAND AGAIN STRUGGLES TO KEEP PACE WITH AGGRESSIVE DEVELOPMENT
The Sacramento market recorded positive net absorption to
Sacramento Multifamily
Market
Vs. Deliveries (Supply) & Net Absorption (Demand)
Sacramento Multifamily Market: Vacancy/Average Asking Rent Per Unit
Source:GallelliRealEstate;CostarGroup
added 767 new units to the local inventory in Q1 2026, with new supply nearly doubling the amount of space being absorbed by renters.
We track 12 distinct housing submarkets across the Sacramento region, of which only four posted declining occupancy in Q1. None recorded substantial tenant space givebacks. The Arden Arcade market, driven by negative net absorption for older, Class C product, saw its vacancy rate climb slightly from 5.5% to 5.7 % thanks to negative net absorption to the tune of -35 units. A similar trend played out in Carmichael/Citrus Heights, which is also a mature local market dominated by older Class B and C product. Vacancy here inched up from 4.9% to 5.0% as tenants gave back 27 units. Regardless, both these markets remain among the region’s most stable with Carmichael/Citrus Heights currently ranking as the tightest local submarket in terms of availability.
Davis—one of region’s consistently more expensive trade areas thanks to strong student housing demand and a historically constrained supply—also recorded modestly negative net absorption in Q1 that drove its vacancy up modestly from 4.9% to 5.1%, ranking it as the second lowest in the region. Elk Grove reported the same phenomenon, with limited tenant space givebacks driving an uptick in vacancy from 5.3% to 5.4%, ranking it tied for the third lowest local vacancy rate with the upscale suburban El Dorado Hills trade area.
All other submarkets in the region posted gains in Q1. Roseville/ Rocklin led the way with tenants leasing 133 units through the first three months of the year. But this was outpaced with the delivery of 261 units of new product, sending vacancy upward.
While only four of 12 markets recorded decreased levels of
occupancy in Q1, only three reported declining vacancy. In every other market, deliveries outpaced net absorption this quarter.
The big winner in Q1 was Folsom, which posted 110 units of positive occupancy growth as vacancy dipped from 7.4% to 6.7%. One year ago, this metric stood at 10.4%, but this number has been falling since as space added in 2024/2025 get slowly leased up. Part of the challenge is that we are anecdotally hearing from market participants that new project lease-up times that had been closer to six to 12 months on new projects a couple of years ago are now taking 12 to 18 months.
Meanwhile, though new construction has been ebbing in the last couple of years, leasing momentum has declined at roughly the same rate with new supply continuing to outpace demand.
All told, over the course of 2025, the market absorbed 2,556 total units of inventory (supply), against 3,221 total new units delivered (supply). This sent vacancy up over the past year from 6.2% to 6.5% last year. That trend appears to be continuing through the first three months of 2026. Seven projects were delivered in Q1 2026, adding 767 units to the local inventory with supply outpacing the 379 units that were absorbed (demand) for the eighth consecutive quarter.
New projects delivered in Q1 2026 included Shea Properties’ 356-unit Crescent Apartments in the Roseville/Rocklin submarket (which reportedly has already leased through roughly half of their inventory). The Natomas/North Sacramento market experienced the delivery of EQT AB’s 269-unit Grove at Woodlake, Pi Housing Solution’s 108-unit KIND South in South Sacramento, Sutter Capital Group’s 38-unit The Residency project in South Sacramento, and both
and
26 multifamily market report
The good news for local landlords is that the region’s development pipeline continues to empty. There were seven projects under construction at the close of Q1 2026.
The largest, Fulcrum Property’s 260-unit Pierside Apartments in West Sacramento is slated for a Q4 2026 delivery. The Capitol Area Development Authority’s 241-unit Monarch project is slated for Q2 delivery Downtown, as is A.G. Spanos’ 202-unit Amara in the Natomas/North Sacramento trade area, and Gianulias Investments’ 67-unit Tower Broadway project in South Sacramento on the site of the original Tower Records store in Land Park. Other notable projects include Sutter Capital Group’s 176-unit Howe Gardens in the Aren Arcade market, Heller Pacific’s 132-unit The Diggs and BRIDGE Housing’s 124-unit Rivo Apartments in Natomas/North Sacramento (both also slated for Q2 delivery), as well as projects from the John Stewart Company, Jamboree Housing Corporation, College Town International and others with all of these projects slated for completion this year.
We are not saying that 2027 will be a year without new multifamily development. Certainly, some of these projects may run into delays and not be delivered until next year. And we are certain that there will be some projects currently in the proposal state that will be moving forward with construction plans in the months ahead.
But we are hearing greater concerns from market participants in terms of challenged rent growth, longer lease-up times, and a more challenging leasing market generally. Meanwhile, the Costar Group is reporting an uptick in the number of entitled multifamily land sites being offered for sale across the region. This suggests that developers are increasingly putting the brakes on new projects in the wake of the recent uptick in vacancy. All of which should bode well for the market overall.
CLOUDY PICTURE FOR FUNDAMENTALS AHEAD
The market is on track to add roughly 2,500 new units this year. This marks a significant drop from the 3,221 apartments added in 2025 and the 4,506 new units delivered in 2024. In 2025, the market recorded nearly 2,600 units of positive net absorption. This suggests that if the market can maintain 2025 levels of leasing against current development levels, 2026 could be the first year since 2020 in which gains in occupancy will outpace new deliveries. Had positive net absorption reached at least 625 units in Q1 2026, we could report that the market was on its way to reach that goal by the end of the year. But occupancy growth during the first three months of 2026 came in at a relatively tepid 379 units. So far this century (since Q1 2000), the Sacramento region has averaged positive net absorption of 429 multifamily units per quarter.
This could all change quickly depending upon the macroeconomy, but unfortunately the outlook here is cloudy as well. As this report went to press, the ongoing war in Iran and the blockade of the Strait of Hormuz has created a global oil shock that has sent energy prices skyward. The average national price of gasoline in the United States is now above the $4.00 mark while diesel fuel, the lifeblood of the nation’s supply chain, has climbed by more than 50% with the national price topping $5.50 per gallon. Ultimately, higher fuel prices function as a regressive tax with those higher costs not stopping at the pump. While consumers might be able to pull back on nonessential trips, carpool or work remotely in the face of high gas prices, higher diesel prices cascade into higher freight rates, food prices, manufacturing outputs, and overall inflation (which climbed to 3.3% in March and will get worse before it gets better).
Inevitably, the increased cost of getting goods to market will be passed on to consumers in the form of higher prices in the weeks and months ahead. Ultimately, the depth of the economic impact will be determined by the length of the supply chain disruption but most economists are lowering near-term outlooks for growth, with groups ranging from Moody’s Analytics to Oxford Economics all significantly raising their odds for a potential global recession ahead—most with the caveat that an extended crisis of four or more months making a downturn more likely than not.
In the meantime, even assuming a best-case scenario of an immediate reopening of the Strait, most energy analysts say it would be at least four months before we could see a return to prewar levels of oil production and a full recovery of the supply chain. Which means that even in the most optimistic outlook, significantly elevated gas prices through Summer 2026 are likely.
An expansion of the war, especially if substantial amounts of critical energy infrastructure across the Gulf were to be destroyed or damaged, or if the conflict were to drag on for months, would substantially increase the chances of global recession by the end of the year.
At the least, with local multifamily fundamentals already favoring
Sacramento Multifamily Market
Average Sale Price Per Unit Vs. Average Cap Rate Q1 2026
Sacramento Multifamily Market: Average Sales Price Per Unit Average Cap Rate
tenants, these trends are going to increasingly take rental growth off the table for all but the most prestigious projects in 2026. At its worst, the current energy shock has increased the potential of recession before the end of the year.
Perhaps most challenging for real estate professionals is that the inflationary impact of heightened fuel prices impacting virtually every level of the economy will mean a greater inflationary impact the longer the crisis extends which will make it difficult for the Federal Reserve to lower interest rates. However, a challenging economic year could become a buying opportunity for some investors.
Multifamily investment deal activity has been subdued and uneven in the region since 2022. According to the Costar Group, transaction volume across the Sacramento region is down by 50% if you compare deal flow between 2015 and 2019 with the same metrics between 2022 and 2026.
In 2025, we tracked $445.5 million in total sales volume, up considerably from the $337.2 million we tracked in 2024. Three interest rate cuts from the Federal Reserve in 2025 were likely factors in this. However, Q1 sales activity appears to have fallen off a cliff with our sources currently reporting less than $40.0 million in closed deals. Keep in mind that it often takes months for the sources we use (Costar, Crexi, etc.) to fully research individual deals and give a more accurate picture of activity in any given quarter so initial
stats always tend to be on the low side. Revised data after months of gathering and confirming transactions remains more dependable for investment deal data in the commercial real estate space than initial reporting. But we continue to hear the same anecdotal concern from market participants that we have over the past three years; that sales activity remains challenged by a disconnect between bids and asking prices locally.
While owners continue to want to command pricing with cap rates in the 5.0% to 6.0% ranges locally, would-be buyers are generally demanding lower prices and higher cap rates to justify risk. This standoff has largely been in place since 2022. With activity negatively impacted, many potential sellers have become concerned that there would be fewer available properties to trade into.
A more challenged macroeconomy in 2026 could potentially break this logjam in favor of would-be buyers, with cap rates likely to increase under that scenario. Since the pandemic, local sales activity has been dominated by private buyers who have accounted for roughly 70% of all transactions. We anticipate this trend to hold regardless of which scenario plays out in the months ahead, though a sharp enough spike in cap rates could potentially bring institutional players back to the market in numbers we have not seen since before 2020.
Source:GallelliRealEstate;CostarGroup
