Economy
Sacramento’s labor market remained relatively stable through Q3 2026, with total employment holding near 1.1 million jobs. The unemployment rate improved to 4.8% in Q3 2026, down from 4.9% in the prior quarter and 5.1% one year ago, indicating modest labor market strengthening despite ongoing economic uncertainty.
Demand
The Sacramento office market posted just over 5,000 square feet (sf) of positive net absorption in Q3 2026, bringing year-to-date (YTD) absorption to nearly 156,000 sf. Leasing activity totaled approximately 482,000 sf during the quarter, bringing the YTD total to 1.2 million square feet (msf).
The quarter’s largest deal was Micron Technology’s 96,022-sf renewal at 2235 Iron Point Road in Folsom. Other notable renewals included Bank of America (36,433 sf) in the Downtown submarket, UC Davis (26,250 sf) in South Sacramento and the State of California (26,158 sf) in North Natomas. Kimley-Horn signed a new 19,634-sf lease, relocating from 555 Capitol Mall to 500 Capitol Mall, expanding by more than 5,000 sf.
The region’s active pipeline of tenant requirements grew 15.2% quarter over quarter to 1.8 msf, a positive signal for future leasing activity. New requirements from state and other government agencies totaled roughly 355,000 sf, although many searches continued to advance slowly as departments evaluated long-term space needs and budget priorities. Excluding state agency searches, demand was concentrated among professional services and healthcare users, which comprised the bulk of remaining active requirements.
Overall, demand remained active but selective, with renewals accounting for 40.6% of YTD leasing activity. Tenants continued to prioritize building quality, amenities and operational efficiency, contributing to an ongoing flight to quality. Renewals and rightsizing strategies continued to represent a significant share of market activity and reinforced the measured pace of leasing decisions. The market’s comparatively stable vacancy continued to reflect its government and quasi-government tenant base, which operates with longer planning horizons and lower occupancy volatility than many private-sector users.
Supply
Overall vacancy in the Sacramento office market declined to 13.6% in Q3 2026 from 14.1% in the prior quarter and 14.3% one year ago, reaching its lowest level since Q2 2022. Vacancy has trended lower since Q1 2026, moving closer to a 12-year historical average of 13.4%. Sublease vacancy fell to 269,000 sf, its lowest level since 2018.
Positive absorption during the quarter was concentrated in the Highway 50 Corridor and South Natomas, which recorded 41,712 sf and 34,417 sf, respectively. Roseville/Rocklin closed Q3 with a 10.2% vacancy rate, remaining near sub-10% territory and reinforcing the submarket’s relative strength among suburban office markets. Its YTD absorption of nearly 60,000 sf was the highest in the market.
While leasing activity generated modest positive absorption, owner-user sales played an equally important role in lowering vacancy. Cushman & Wakefield does not include owner-occupied or government-owned buildings in its statistical inventory, so the purchase of vacant office stock removes it from both vacant space and inventory. Tracked inventory declined by approximately 205,000 sf in Q3, led by the City of West Sacramento’s purchase of 750 Riverpoint Drive, a fully vacant 100,000-sf building previously marketed for lease that the City’s Police Department is expected to occupy. West Sacramento vacancy declined to 3.5% from 9.5% as a result.
Pricing
The overall average asking rent declined to $2.15 per square foot (psf) on a monthly, full-service basis in Q3 2026, reversing the increase recorded in the prior quarter. The decline reflected lower rates in several submarkets, most notably Davis/Woodland and West Sacramento, rather than rising vacancy in lower-cost submarkets such as the Highway 50 Corridor, where vacancy declined.
Downtown Class A rents declined slightly but remained the highest in the market. Limited availability within Downtown’s Core Four office towers, where rents averaged $3.70 psf, continued to highlight tenant demand for well-located, high-quality assets.
Capital Markets
Investment sales maintained momentum in Q3 2026, with eight transactions exceeding 20,000 sf totaling $68.9 million over 412,000 sf. This marked a substantial increase in average transaction size from Q3 2025, when eight transactions totaled $39.7 million and 291,000 sf. The average sale price was $167 psf, and YTD sales volume reached $148.1 million across 22 transactions. The largest transaction was Global Net Lease’s $23.6 million, or $222-psf, purchase of 10391 Peter A. McCuen Boulevard in the Highway 50 Corridor as part of a 45-property portfolio. Although pricing remained below prior-cycle levels, Sacramento continued to experience fewer distressed asset sales than many other Northern California markets.
