By Chase Burke and Andy Jonsson, Co-Founders of ROME Real Estate Group. Data sourced from CoStar Group, Q1 2026 Sacramento Market Reports.
If you only had thirty seconds with us at a coffee shop and asked, “What’s happening in the Sacramento commercial real estate market right now?” — here’s what we’d tell you. Office is finally finding a floor after years of decline. Retail is the tightest sector but cooling at the edges. Industrial just had its first real cooldown after a five-year boom. And the best deals — for both tenants and investors — are showing up in places most people aren’t looking.
This guide pulls together the data from the Q1 2026 CoStar Sacramento market reports, layered on what we’re seeing in the field every week. If you’re a tenant, an investor, or a Bay Area exchange buyer wondering whether Sacramento still makes sense — read on.
The 30-Second Snapshot
| Metric | Office | Retail | Industrial |
|---|---|---|---|
| Vacancy Rate | 10.9% | 5.8% | 7.4% |
| Asking Rent / SF | $27.71 | $24.21 | $11.66 |
| YoY Rent Growth | +1.2% | -0.4% | -0.5% |
| 12-Mo Net Absorption | +137K SF | +403K SF | -852K SF |
| 12-Mo Deliveries | 392K SF | 470K SF | 1.4M SF |
| Sale Price / SF | $181 | $237 | $154 |
| Market Cap Rate | 9.5% | 7.0% | 7.7% |
Source: CoStar Group, Sacramento Q1 2026 Market Reports.
Office: A Floor, Not a Boom
Sacramento’s office market just had its best quarter for leasing volume in two years. The headline deal: the Sacramento District Attorney’s Office signed for 120,000 square feet at 980 9th Street Downtown, the largest single transaction we’ve seen in the urban core since the prior cycle. Vacancy held at 10.9 percent — essentially flat year over year — while the national office benchmark sits at 13.9 percent. Translation: Sacramento’s office market is underperforming on demand but outperforming most peer downtowns on vacancy.
The story underneath the headline is split. Class A (4- and 5-Star) buildings, especially newer Downtown product like Aggie Square in East Sacramento, are absorbing tenants. Aggie Square Building 1 alone took 161,000 square feet of net absorption in the past twelve months. Conversely, commodity 3-Star office in submarkets like the Highway 50 Corridor — three-story buildings from a previous era — keeps shedding tenants. Those buildings are seven percentage points more vacant than the broader market and trending wrong.
Two structural forces matter. First, the state government has been moving agencies out of leased space and into state-owned buildings as part of its 2019 specific plan. That’s pulled a major chunk of demand off the leasing market and won’t reverse. Second, leasing has shifted toward smaller deals — sub-5,000 SF deals are now nearly two-thirds of leasing volume, the highest share in five years.
What this means in practice: tenants in 4-5 Star Downtown or Aggie Square are paying close to asking. Tenants willing to look at well-located 3-Star space are getting tenant improvement allowances above $36/SF, four to five months of free rent, and TI as high as $80/SF for first-generation space. Concession packages are at multi-year highs.
Top office leases past 12 months: Blue Shield of California (128,000 SF, Highway 50 Corridor), Sacramento DA (121,000 SF, Downtown), California State Auditor (49,000 SF, West Sacramento), DMV (35,000 SF, Highway 50 Corridor).
Retail: Tightest Sector, But Cooling at the Edges
Retail has the lowest vacancy of the three sectors at 5.8 percent, but availability is rising. The market added 500,000 square feet to available space in Q1 2026 alone — the largest single-quarter addition since 2022 — driven by Amazon Fresh and Raley’s store closures. The result: 7.4 million SF of available retail space, of which over 55 percent has been on the market for more than a year.
Here’s the catch — and it’s a real one for landlords with older centers. The available space skews old. The amount of pre-1990 retail space accounts for over 70 percent of available inventory. Newer (post-2000) space is only about 6 percent of total available. Retailers prefer newer, well-located product, which means stale Class B and C centers are quietly piling up while newer pad sites and well-located strip centers in growing submarkets keep moving.
Costco took occupancy of its new 165,000 SF store in Outer Placer County during Q1 — the single largest 12-month retail absorption event. Country Club Plaza in Arden/Watt/Howe added 156,000 SF, and food and beverage tenants accounted for the largest share of leasing in the past year, followed by fitness operators (Chuze Fitness, 24 Hour Fitness, Pickleball Kingdom) and general merchandise (Burlington, Marshalls, Ross).
Rent growth has gone slightly negative — minus 0.4 percent year over year, the first negative print in years — and CoStar forecasts retail rent growth finishing 2026 around 0.1 percent. For investors, this matters: the long-term annual rent growth average for Sacramento retail is only 0.4 percent, so we’re not far below trend, but landlords who modeled aggressive 3-4 percent annual escalations into pro formas are going to be disappointed.
Construction pipeline: Only 370,000 SF under construction, with roughly 15 percent available. Most of it is in Rocklin. Construction costs have made larger speculative retail uneconomic — some estimates suggest retail rents would need to rise 40 percent for new big-box development to pencil. Quick-service restaurants are the exception, since drive-thru pad sites can command rents that justify ground-up construction.
Industrial: The Cooldown
This is the sector with the biggest reset. Sacramento industrial has been the darling of the Bay Area exchange market for five years — yields above coastal California, rent growth peaking at 8.4 percent in the last cycle, vacancies in the 3-4 percent range. That story has changed.
Net absorption was negative 852,000 SF over the past twelve months — the worst stretch since 2017. Vacancy climbed 1.1 percentage points year over year to 7.4 percent, the highest level in nearly a decade. Rent growth has gone negative at minus 0.5 percent. The market took down 1.4 million SF of new deliveries during a period when demand softened — that combination always produces a vacancy spike.
Two specific dynamics caused this. First, manufacturer and agricultural-related facility closures drove negative demand for two straight quarters. Second, the speculative pipeline that crested in 2025 (1.3 million SF delivered) added inventory faster than the market could absorb it. Sublet space is now 3.3 million SF — 1.7 percent of total inventory and double what it was at the end of 2024.
However, the larger signals are positive. Larger deals are returning — Cardinal Health leased 260,000 SF in Metro Air Park, Ryder took 275,000 SF in Sunrise, Lennox 118,000 SF in Natomas/Northgate, Pacific Coast Producers a combined 916,000 SF in Davis/Woodland. Speculative construction is dialed back — only 950,000 SF under way (versus 1.3M last cycle), and 80 percent of it is the new Costco logistics facility plus a Buzz Oats warehouse in Elk Grove. Once the existing pipeline absorbs, the supply picture should tighten back up.
For small-bay industrial — multi-tenant buildings under 50,000 SF — the picture is much better. Vacancy is only 4.6 percent, rents are still growing modestly, and the long-term average is 3.9 percent. The big-box logistics segment (200,000 SF+) is where vacancy spiked to 13 percent.
CoStar’s forecast: Vacancy expected to peak in mid-2026 and improve through 2027.
What This Means for Tenants
If you’re a tenant in 2026, you have leverage you didn’t have two years ago — but it’s distributed unevenly:
- Office tenants in commodity space — especially Highway 50 Corridor 3-Star buildings — should be aggressive on TI, free rent, and lease term. Landlords have inventory pressure and concession packages are at multi-year highs.
- Office tenants chasing trophy product — Aggie Square, Downtown CBD, certain North Natomas — face less negotiating room. Demand is concentrated there.
- Retail tenants targeting older centers have unusual leverage right now — the available space is stale and landlords are motivated. New build pad sites in growing submarkets remain a seller’s market.
- Industrial tenants — especially big-box (100K+ SF) users — are in the strongest position they’ve been in five years. Sublet space is abundant and rent growth is negative. If you needed to expand or relocate and held off during the run-up, this is the window.
What This Means for Investors
The investment story is more nuanced because cap rates and yield expectations are repricing across all three sectors:
- NNN-leased retail with corporate credit still trades tight (5.5-6.5% cap rates for top-credit tenants on long lease term). Bay Area 1031 demand is keeping pricing firm — see our Sacramento NNN Lease Guide for the full breakdown.
- Multi-tenant retail centers are pricing in the 7-8.5% cap range, with wider spreads for centers with rollover risk or older inventory. Buyers should price the stale-space risk explicitly.
- Office is the contrarian play. Cap rates are 9.5%+ market-wide and rising, sale price/SF has flatlined at $181. For investors with long hold periods, conviction on the right submarket, and operational capacity, there are deals that won’t exist again for a decade.
- Industrial big-box has reset. Cap rates moved up to 7.7% market-wide. The right asset (good submarket, mid-credit tenant, 5+ years remaining) at the new cap rate may price meaningfully better than what was available 18 months ago.
The 1031 buyers we work with are increasingly looking at value-add and small-to-mid-size NNN deals rather than chasing trophy assets that no longer pencil. We’d argue that’s the right read on the market.
Submarket Watch List
Where we’re seeing the most activity (and where we’re not):
- East Sacramento (Aggie Square). The bright spot in office. Tenants and capital both moving there.
- Roseville/Rocklin. Affluent submarket, dominant for big-box retail and credit-tenant NNN. Tight inventory, premium pricing.
- Outer Placer County. Costco’s 165K SF retail debut. Continued growth potential as residential expands.
- Elk Grove. Active retail leasing, new industrial construction. Long-term residential growth driving demand.
- Highway 50 Corridor. Office struggling. Industrial and retail mixed. Best opportunity for office tenants seeking concessions.
- Metro Air Park / Natomas. The new logistics frontier. Costco’s new 665K SF facility anchored the submarket.
- West Sacramento. Industrial sublet space heavy. Buyer’s market for tenants; more cautious for landlords.
Our Outlook for the Rest of 2026
We expect three things to continue through year-end:
- Office vacancy peaks above 11% in 2027, then improves slowly. Government consolidation continues to cap upside. Class A leases up; Class B and C continue to lag.
- Retail vacancy stays range-bound around 5.5-6%, but availability remains elevated as old centers struggle to backfill. Rent growth recovers modestly toward 1% by end of 2026.
- Industrial vacancy peaks mid-2026, then improves as the speculative pipeline gets absorbed. Big-box rent growth stays negative through year-end; small-bay holds positive.
The wild cards: energy costs (which CoStar flags as a risk to all three sectors), federal trade policy (mostly an industrial concern, less for Sacramento than coastal markets), and the timing of any state government return-to-office mandate (which would reshape the Downtown story quickly).
Bottom Line
Sacramento commercial real estate isn’t booming, but it’s not breaking either. The market is splitting cleanly between the assets that work and the ones that don’t — and the spread is the widest we’ve seen in a decade. Tenants have leverage in commodity space; investors have to underwrite tighter than they did during the 2021-2024 run-up. Pricing dislocations always create opportunity for the side that does its homework.
If you’re navigating any of this — whether you’re a tenant looking for space, an investor sourcing replacement product, or a Bay Area exchange buyer trying to figure out where to park proceeds — this is exactly the kind of market where having a local broker who actually closes deals matters more than usual. We do. Reach us at (916) 932-2199, or learn more about our commercial real estate services.
Chase Burke and Andy Jonsson are the co-founders of ROME Real Estate Group. Chase has closed over 650 commercial transactions totaling more than 1.7 million square feet. Andy brings a CPA background to commercial real estate, with deep expertise in deal underwriting and lease economics. Both are Sacramento natives. Market data in this report is sourced from CoStar Group’s Sacramento Q1 2026 Market Reports.