On July 30, 2020, The Sacramento Association of Commercial Real Estate Brokers, known as ACRE, held its mid-year review by webinar. Despite the inability to have the hosted panel and conference in person, the webinar was a success by all measures. The webinar reflected a significant effort by the organization to the benefit of its members. The panel included local and regional commercial real estate experts spanning most corners of the industry.
Remembering Jason Gallelli of Gallelli Real Estate
To start things off, ACRE president Alexis Garrett, along with Kevin Soares, led a touching tribute for one of Sacramento’s most prolific brokers, Jason Gallelli of Gallelli Real Estate. Jason won ACRE Broker of the Year six times before he died in June of 2020. The tribute was a heartfelt reminder of Sacramento’s close-knit community, especially among the ACRE ranks. I never met Jason, but I could tell he impacted and was loved deeply by many people.
In Jason’s honor, David Creeggan, of Trainor Fairbrook, led a spirited discussion among some of Sacramento’s best real estate professionals to discuss the state of Sacramento Commercial Real Estate.
Here are some of the key takeaways:
Sacramento's Commercial Real Estate Will Survive and Thrive Again
Sacramento’s commercial real estate market will inevitably suffer from the pandemic, just like every other city in America. However, Sacramento’s commercial real estate market is resilient for several reasons. For starters, Sacramento hasn’t saturated it’s commercial core. In fact, according to the panel, major construction has been minimal since the last recession. Therefore, the supply in Sacramento is limited enough to withstand even a substantial drop in demand. Still, many big-box tenants, including the State of California, may have been on the verge of expanding space and adopted a reductionist mindset instead. While buyers and leasers on the market are looking to score the “COVID Discount,” most, if lucky, are only seeing a 5-10% reduction in pricing.
Financing is Bellwether for Growing or Shrinking Sectors
Financing, on the other hand, remains a tell about what industries will remain viable during the downturn and which will have to reinvent themselves in our economy’s new image. Notably, the Industrial and Multi-family markets in Sacramento are still lending strong and are poised to remain so through any pandemic-induced economic downturn.
Bay Area Exodus and Limited Supply is Driving Multi-Family Housing
When it comes to multi-family housing, Sacramento remains a hot ticket item for Bay Area elopers. With many Silicon Valley firms adopting a 100-mile radius work from home policy, the prospect of being cooped up in a tiny San Francisco apartment 20 hours a day suddenly seems unappealing. Sacramento, here we come! For half or a third of the price, you can get double or triple space, and you can live in midtown or downtown! The demand for multi-family housing, as a result, has far outpaced the supply.
Industrial Markets Are Only Getting Stronger Post-COVID
Industrial, on the other hand, has been a consistent source of production, making Sacramento a regional distribution hub. The explosion of online shopping and more robust distribution channels has increased the need in Sacramento for more industrial space. Cost-effective and relatively straightforward to build, lending on industrial properties remains strong in Sacramento.
Sacramento Small Businesses Need Help
Finally, the overarching theme in all of this was the inherent risk to small business in this environment, which had the least margin for error and the most barriers to reopen or reestablish themselves. The panel advocated for landlords to take stock of their tenants and realize that perhaps the best tenant you will get is the one that is already in your space. In this spirit, landlords will likely make some concessions during this downturn to keep their best tenants afloat and ensure each other’s longevity.