If Sacramento Builds It, Tech Will Come

Neal Best

August 24, 2017

If Sacramento Builds It, Tech Will Come

The bi-annual blog returns, I know you have all been waiting for this! It has been clear over the past 6 months that Sacramento has nudged over the tipping point from relative national obscurity to sustained intrigue. Hottest real estate market in Californiafastest growing large city in Californiahaven for Bay Area skilled refugeeshidden gem for tech talentmerging with Silicon Valley – these are just a snapshot of the media articles that have come to light in the last 6 months. These stories are off the back of trends that we have been recording over the previous 12-18 months – skilled people are not only moving here but they are impressed with what they find.

My recent experiences discussing Sacramento as a business expansion market have already shifted from a justification of why people would want to locate here, to how good are the airport connections and what type of real estate product is available and when can it be delivered. This is a marked shift in the last year and is a pre-cursor for what is to come.

The real estate question is one that has come up again and again. Sacramento has not had a high rise added to its downtown skyline since 2009, vacancy rates are now 5.5% lower than the 2010 high with very little new product in the pipeline. Institutional money fled the market during the great recession, as it did in other secondary markets across the US with ‘flight to prime’ becoming the mantra around commercial real estate investments. However, the time may be right for it to return, with reasonable investment returns becoming harder and harder to find in prime markets and Sacramento becoming earmarked as a commercial real estate investment opportunity market.

Layered onto this is the opportunity this region has to drive demand for space – why does Sacramento have a better opportunity than most large metros to actually make the ‘if you build it they will come’ approach a valid one? ‘Quality of Place’ is one large piece of the puzzle which we can now check off the list – with the $3.2 billion downtown renaissance we have overcome the hurdle of making Sacramento a desirable place to live, but beyond that what does Sacramento have that other cities trying to attract tech expansion from the Bay Area do not;

Demand Latency – Sacramento is part of the Northern California Megaregion, there is undeniable demand latency for tech jobs from people who want to move here from the Bay Area to reduce costs as well as people who have already moved and work remotely. Added to that the growing number of tech related degree completions – up 41.3% from 2011 to 2015 – from local universities like Sacramento State and UC Davis and you have the platform for sustained expansion.

Cultural Continuity – expanding a tech presence from the Bay Area to another part of Northern California is a lot less daunting than moving to another state. There is a clear alignment on cultural and social issues that will provide peace of mind when exploring the opportunity of recruiting new talent or even transferring existing people. Maintaining a common culture in a business that straddles different social and cultural markets in other states is an added challenge that can be avoided by locating here.

Cache – you are still in California. The world’s 5th largest economy in its own right, a globally recognized aspirational place to live. While the state has its challenges in terms of barriers to business (something our region is working collectively to minimize), it is still the most profitable state to do business, it is still the no.1 destination for FDI and is unquestionably the state of choice for any aspiring tech entrepreneur.

So for the risk taking developers the time is right to get ahead of the curve and get some modern office product in the development pipeline, or even spec out some existing space to the standards expected for creative office workspace. Rents are rising steadily, there are strong indicators of significant tech space demand and most importantly a workforce that could easily be tapped into to service any significant tech expansion.

One of the things a community needs to be able to do is recognize when the winds are blowing in their favor and take full advantage …now is that time.

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