CLASS B: DELIVERIES RAMPING UP ACROSS MOST SUBMARKETS

Class B vacancy currently stands at 5.8%. This is down slightly from the 5.9% rate recorded in Q1, though since hitting a record low of 2.9% in Q2 2021, the general trend has been one of rising vacancy. The market absorbed 312 units in Q2, with the Folsom (115), Natomas/ North Sacramento (74), South Sacramento (60) and Elk Grove (50) submarkets leading all other trade areas in terms of positive net absorption. The Carmichael/Citrus Heights (-36) and Arden Arcade (-23) submarkets recorded modest negative net absorption in Q2.

Only two new projects, totaling 300 units, were delivered in Q2; in April, Artemis Real Estate Partners delivered The Celeste—a 225-unit project at 3820 Chiles Road in Davis. That same month, St. Anton completed the 75-unit Bidwell Place project in Folsom. Through the first half of 2023 a total of four new projects featuring 478 new multifamily units have been delivered in the Sacramento region. However, deliveries are about to ramp up substantially for Class B product throughout the region.

There are currently 20 projects under construction throughout the region that, upon completion, will add an additional 3,366 units to the local inventory. This is the most robust Class B development pipeline that we have tracked since Q1 2000 when there were 3,641 units under construction.

There are twelve projects (totaling 1,801 new apartment units) slated for delivery over the final half of 2023, with the remainder of projects currently under construction scheduled for completion in 2024. Assuming that the projects currently underway are not delayed, Sacramento will close this year having added 2,279 Class B units.

Among the projects that will come online over the final half of the year are the 281-unit Track 281 project in the River District of Downtown, the 270-unit Zeta Luxury Apartments at 3701 E. Commerce Way in the Natomas/North Sacramento submarket and the 266-unit Solasta Luxury Apartments in the Pocket neighborhood of South Sacramento. Seven of the region’s 12 multifamily trade areas currently have new projects under construction.

The current average asking rent for Class B product in the Sacramento region is $1,824 per unit—the same rate recorded exactly one year ago. As is the case with Class A product, Class B rents will be facing the dual headwinds of economic uncertainty and an influx of new competitive product.