During the pandemic’s peak, many people switched from the urban environment to more suburban and rural settings. The flexibility of remote work led to a desire for more space at lower prices. This trend continued throughout 2020 and 2021, but we are now seeing a return back to urban neighborhoods in 2022.
With companies demanding more time in the office, employees are now forced to relocate closer to employment centers. Not only is in-office work making a return, but so is nightlife, giving more appeal to the urban areas. Oakland and Sacramento are two Western markets in which we are seeing this trend.
Between 2019 and 2021, there was a large surge in construction of new units in Downtown Oakland. This sharp rise in supply pushed vacancies higher and drove down rental rates.
This quickly changed in late 2021 and throughout 2022 with a huge increase in demand. The vacancy rate has now gone down to 10.1% and net absorption has increased. On the other hand, suburban areas that thrived in rent growth throughout the pandemic have now seen a slowdown. Cities including Emeryville, Fremont, and Newark, are now found to have lower net absorption rates.
Sacramento became a popular destination almost as soon as the pandemic started for those who were looking to escape the high living costs of the Bay Area. Particularly, it was suburban areas such as Roseville, Folsom, and Elk Grove that had rent growth and demand reach record levels. Tenant preferences began to change in early 2022 as employers began to ask that employees resume in-office work.
Downtown Sacramento, West Sacramento, and South Sacramento have now seen positive net absorption as residents opt to be closer to services and entertainment. Not only has urban life driven demand, but also the delivery of new and upscale units in the area. This gives tenants many options to consider within these three markets.
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