What Is the Current State of Sacramento's Office Market?
Sacramento's office market occupies a unique position among California metros, shaped by the city's role as the state capital and the outsized influence of government tenancy on occupancy, absorption, and investor demand. For investors and owners seeking office loans in Sacramento, understanding these dynamics is essential to identifying opportunities and structuring financing that reflects the market's distinctive characteristics.
Sacramento's total office inventory spans approximately 65 million square feet across the downtown core, Midtown, East Sacramento, Natomas, Rancho Cordova, and the Highway 50 corridor. Office vacancy rates have fluctuated in recent quarters, with overall vacancy reaching roughly 16% in late 2025 as state government agencies consolidated space and remote work continued to reshape tenant demand. However, this headline number masks significant variation across submarkets and quality tiers.
Need Financing for This Project?
Stop searching bank by bank. Get matched with 6,000+ vetted lenders competing for your deal.
Class A office properties in prime locations, particularly near Golden 1 Center and the DOCO entertainment district downtown, have maintained stronger occupancy than the broader market. Government agencies, healthcare organizations, and professional services firms continue to value central, well-amenitized office space that supports in-person collaboration and client meetings.
The Railyards development north of downtown represents both an opportunity and a competitive threat for existing office properties. As this 244-acre mixed-use district builds out with the Kaiser Permanente medical center, the new Sacramento County Courthouse, and planned commercial space, it will add high-quality office inventory that could draw tenants from older buildings in the central business district.
Despite the challenges, Sacramento's office market benefits from structural advantages that distinguish it from peer cities. State government provides a reliable, countercyclical tenant base that insulates the market from the private-sector volatility seen in cities like San Francisco. UC Davis Health, with approximately 20,000 employees and a $3.4 billion annual economic impact, anchors medical office demand in the region. And Bay Area migration continues to bring businesses and workers who need office space in Sacramento's more affordable market.
For borrowers exploring commercial loans in Sacramento, office financing requires careful analysis of the property's tenant mix, lease structure, and submarket positioning.
What Office Loan Programs Are Available in Sacramento?
Sacramento office property owners and investors have access to multiple loan programs, each designed for different property profiles, borrower objectives, and risk levels.
Conventional Commercial Mortgages from banks and credit unions serve as the primary financing vehicle for stabilized Sacramento office properties. These loans offer fixed rates between approximately 5.5% and 7.0% for 5 to 10 year terms with 25-year amortization. Lenders require 75% or lower LTV, a DSCR of 1.25x or higher, and tenants with creditworthy lease obligations. Government-leased office buildings often receive the most favorable conventional terms due to the credit quality of state and federal tenants.
SBA 504 Loans provide owner-occupied office building financing with up to 90% LTV and below-market fixed rates on the CDC portion of the loan, currently around 6.0% to 6.5%. Sacramento professional services firms, medical practices, law offices, and technology companies that occupy at least 51% of their office building can access SBA 504 financing for acquisition, construction, or refinancing.
Bridge Loans finance the acquisition or repositioning of underperforming Sacramento office properties that do not currently qualify for permanent financing. Bridge lenders offer 12 to 24 month terms at 9.0% to 12.0%, providing capital to fund tenant improvements, renovate common areas, and stabilize occupancy before refinancing into a permanent loan.
CMBS (Commercial Mortgage-Backed Securities) Loans offer non-recourse financing for larger Sacramento office properties, typically $2 million and above. CMBS rates range from 6.0% to 7.5% with 10-year terms and 25 to 30 year amortization. These loans are appropriate for stabilized assets with diverse tenant rosters and weighted average lease terms of 5 years or more.
DSCR Loans qualify Sacramento office property investors based on property cash flow rather than personal income, with rates between 7.5% and 9.5% and minimum coverage ratios of 1.20x to 1.25x.
Life Insurance Company Loans provide the most competitive permanent financing for premium Sacramento office assets. These loans offer rates starting around 5.2% to 5.8% for trophy properties with strong tenancy and location, with 10 to 20 year terms and leverage up to 65% LTV.
Which Sacramento Submarkets Are Strongest for Office Investment?
Sacramento's office submarkets demonstrate markedly different performance characteristics, and lender appetite varies significantly based on location and tenant composition.
Downtown Sacramento remains the largest office concentration, anchored by state government agencies, the federal courthouse complex, and professional services firms. The area surrounding Golden 1 Center and DOCO has benefited from approximately $6.7 billion in investment that has transformed downtown from a government-centric district into a mixed-use urban center. Office vacancy downtown runs approximately 14% to 18%, with government-leased buildings performing significantly better than privately tenanted space.
Midtown Sacramento has emerged as the preferred office location for creative, technology, and professional services firms seeking a walkable, amenity-rich environment. Smaller office buildings along J Street, L Street, and Capitol Avenue command premium rents and maintain lower vacancy rates than the downtown core. Midtown's appeal to younger workers and its vibrant restaurant and retail scene support strong tenant retention.
Point West and Cal Expo Corridor along the Highway 50 and Business 80 interchange provide suburban office options with competitive rents and strong freeway access. This submarket attracts insurance companies, healthcare organizations, and back-office operations that value accessibility over the urban experience.
Natomas offers newer office buildings in a suburban setting near Sacramento International Airport. The Natomas market benefits from its position along I-5 and I-80 but faces competition from downtown and Midtown for quality tenants.
Rancho Cordova and Highway 50 Corridor serve the eastern Sacramento metro with a mix of office, flex, and R&D space. Major employers including Aerojet Rocketdyne and various government contractors anchor this submarket, and proximity to Folsom and El Dorado Hills provides access to an affluent residential labor pool.
How Do Government Tenants Affect Sacramento Office Loan Underwriting?
Government tenancy is the defining characteristic of Sacramento's office market, and lenders evaluate government-leased properties with specialized criteria that differ from standard commercial office underwriting.
State of California leases represent the single largest source of office demand in Sacramento. State agencies occupy roughly 20 million square feet of office space across the metro area, including owned and leased space. For office loan underwriting purposes, state government leases carry the credit rating of California (rated A1/A- by major rating agencies), making them among the most creditworthy tenants in commercial real estate.
However, government leases present unique underwriting challenges. State leases typically include termination provisions that allow the agency to vacate with relatively short notice (often 180 days), and the state's ongoing efforts to consolidate and reduce its office footprint create tenancy risk that lenders must evaluate. Properties heavily dependent on a single government agency face concentration risk that may require higher debt coverage ratios or lower leverage.
Lenders underwriting Sacramento office properties with government tenants evaluate several specific factors: the remaining lease term and renewal probability, the tenant agency's budget stability, the property's suitability for alternative tenants if the government lease terminates, and the building's proximity to the State Capitol complex (which drives government demand).
Office properties with diversified tenant rosters that include both government and private-sector tenants typically receive the most favorable loan terms, as the combination reduces both the volatility of private tenancy and the concentration risk of government dependence.
Use a commercial mortgage calculator to model different vacancy and rent scenarios for Sacramento office properties with government tenant exposure.
What Should Sacramento Office Borrowers Know About Loan Qualification?
Qualifying for an office loan in Sacramento requires demonstrating that the property, the borrower, and the market fundamentals support the proposed financing structure.
Debt Service Coverage Ratio (DSCR) is the primary underwriting metric for Sacramento office loans. Lenders require minimum DSCRs of 1.25x to 1.35x, meaning the property's net operating income must exceed the annual debt service by 25% to 35%. For properties with significant government tenancy, some lenders accept slightly lower DSCRs (1.20x) based on the credit quality of the tenant.
Loan-to-Value Requirements for Sacramento office properties typically range from 60% to 75%, depending on the loan program and property quality. Government-leased buildings may qualify for higher leverage (up to 75%) due to the tenant credit quality, while value-add or transitional office properties are limited to 60% to 65% LTV.
Tenant Quality and Lease Analysis forms a critical component of Sacramento office loan underwriting. Lenders evaluate the creditworthiness of each major tenant, the remaining lease term (weighted average lease term, or WALT), renewal options, rental rate relative to market, and any tenant improvement obligations or free rent concessions that affect near-term cash flow.
Borrower Experience matters more for Sacramento office loans than for simpler property types like multifamily. Lenders expect borrowers to demonstrate experience managing office properties, understanding the local leasing market, and navigating the complexities of tenant improvements, build-outs, and lease negotiations. First-time office investors may need to engage experienced property management or leasing teams to satisfy lender requirements.
Capital Reserves for Sacramento office properties should account for tenant improvement allowances ($30 to $60 per square foot for standard office build-outs), leasing commissions (4% to 6% of total lease value), and building system replacements. Lenders typically require funded reserves at closing or demonstrated access to capital for these anticipated expenditures.
How Are Office Conversions Affecting Sacramento's Lending Landscape?
The trend toward office-to-residential and office-to-mixed-use conversions is reshaping how lenders evaluate Sacramento office properties, creating both opportunities and complications for borrowers.
Sacramento has identified office conversion as a strategy to address both office vacancy and the regional housing shortage. Several downtown office buildings have been evaluated for conversion to residential use, and the City of Sacramento has explored streamlined permitting processes to encourage these projects.
From a lending perspective, office conversion projects typically require bridge financing or construction loans during the renovation phase, with permanent financing available once the residential units are leased and stabilized. Conversion costs in Sacramento range from approximately $150 to $300 per square foot depending on the building's structural characteristics, mechanical systems, and the extent of required modifications.
Not all Sacramento office buildings are candidates for conversion. Buildings with floor plates deeper than 70 feet, limited natural light penetration, inadequate plumbing infrastructure, or structural systems incompatible with residential partition layouts may be too expensive to convert. Lenders evaluate conversion feasibility based on detailed architectural and engineering assessments before committing capital.
The conversion trend creates a secondary benefit for existing Sacramento office buildings that are not conversion candidates. As surplus office inventory is removed from the market through conversions, the remaining office supply tightens, potentially improving occupancy and rental rates for well-positioned office properties.
Investors considering office conversions in Sacramento should explore value-add financing options that accommodate the repositioning timeline and budget requirements.
What Is the Outlook for Sacramento Office Investment and Lending?
Sacramento's office market is navigating a transition period that creates both risk and opportunity for investors and borrowers.
The near-term outlook is shaped by competing forces. Government space consolidation and remote work adoption continue to pressure vacancy rates, while Bay Area business migration, healthcare sector growth (particularly UC Davis Health and the Aggie Square development), and the Railyards buildout create new sources of office demand.
Lenders are approaching Sacramento office loans with increased selectivity, focusing on properties with strong tenant credit, below-market vacancy, and locations that benefit from the city's investment catalysts. Properties that meet these criteria continue to attract competitive financing, while buildings with high vacancy, limited parking, or dated physical improvements face more challenging lending conditions.
The interest rate environment will significantly influence Sacramento office refinancing activity. Approximately 30% to 40% of commercial office loans originated during the low-rate period of 2020 to 2022 will require refinancing by 2027. Borrowers whose properties have experienced increased vacancy or declining rents may face refinance gaps where the current property value no longer supports the existing loan balance.
For investors with patience and capital, Sacramento's office market offers opportunities to acquire well-located properties at discounted valuations, reposition them with tenant improvements and lease-up strategies, and refinance or sell as the market stabilizes. The city's structural advantages, including government employment, UC Davis Health, Bay Area migration, and major development catalysts, support a recovery trajectory that rewards long-term investors.
Contact Clearhouse Lending to discuss office loan options for your Sacramento commercial property.
Frequently Asked Questions About Sacramento Office Loans
What is the minimum loan amount for a Sacramento office property?
Minimum loan amounts for Sacramento office properties vary by program. Conventional bank loans typically start at $500,000 to $1 million. SBA 504 loans are available for smaller amounts, with the CDC portion starting at $50,000 (though the total project cost is usually $350,000 or more). CMBS loans generally require $2 million or more. Bridge loans for office properties start at $500,000 to $1 million depending on the lender. The appropriate minimum depends on the property's value, the borrower's objectives, and the fixed costs of loan origination relative to the loan amount.
How do Sacramento office cap rates compare to other California markets?
Sacramento office cap rates range from approximately 6.5% to 9.0% depending on property class and location, significantly higher than San Francisco (5.0% to 7.5%), Los Angeles (5.5% to 7.0%), and San Diego (5.5% to 7.5%). These higher cap rates reflect both the perceived risk of Sacramento's government-dependent market and the lower absolute rent levels compared to coastal metros. For investors, the higher cap rates translate to stronger cash-on-cash returns and more favorable DSCR metrics for loan qualification, though exit pricing may be less aggressive than coastal markets.
Can I get an office loan for a partially vacant Sacramento building?
Yes, though the financing options depend on the vacancy level and the borrower's stabilization plan. Properties with occupancy above 75% may qualify for conventional permanent financing with higher DSCR requirements or lower leverage. Properties with 50% to 75% occupancy typically require bridge financing or mezzanine debt during the lease-up period. Properties below 50% occupancy are generally financed through bridge loans, hard money, or construction-style facilities that account for the capital needed to attract and build out space for new tenants.
How do tenant improvement obligations affect Sacramento office loan underwriting?
Tenant improvement (TI) allowances are a significant consideration in Sacramento office loan underwriting. Standard TI packages in Sacramento range from $30 to $60 per square foot for new leases, with government tenants often negotiating higher allowances. Lenders deduct unfunded TI obligations from the property's effective net operating income when calculating DSCR. Properties with near-term lease expirations that will require TI investment face more conservative underwriting, as lenders account for the capital expenditure needed to retain or replace tenants.
What documentation do I need for a Sacramento office loan application?
Sacramento office loan applications require the property's current rent roll showing all tenants, lease terms, and rental rates; copies of all executed leases (particularly government leases); three years of historical operating statements; a current year operating budget; a property condition assessment or recent inspection report; the borrower's personal financial statement, tax returns, and real estate portfolio summary; and a narrative explaining the investment strategy, market positioning, and tenant retention or lease-up plan.
Are Sacramento medical office buildings financed differently than general office?
Yes, medical office buildings (MOBs) in Sacramento receive preferential treatment from many lenders due to the healthcare sector's stability and Sacramento's strong medical employment base. UC Davis Health, Sutter Health, Kaiser Permanente, and Dignity Health all maintain significant presence in the region, creating reliable demand for medical office space. MOB loans typically offer higher LTV ratios (up to 80%), lower rate spreads, and longer amortization than general office loans. The specialized nature of medical build-outs, which are expensive to relocate, contributes to lower tenant turnover and stronger cash flow stability.
Navigating Sacramento's Office Lending Market
Sacramento's office market presents a nuanced landscape for borrowers and investors, combining the stability of government tenancy with the challenges of a market in transition. Success in securing competitive office financing requires a deep understanding of the local market's unique characteristics, realistic expectations about vacancy and rent trends, and a well-articulated investment strategy.
Properties that benefit from Sacramento's structural advantages, including proximity to the State Capitol, access to the I-5, I-80, and Highway 50 transportation network, and location near development catalysts like the Railyards, DOCO, and UC Davis Health, will continue to attract competitive financing. Borrowers who present well-documented loan packages with clear tenant strategies and realistic projections will find willing lenders across multiple program types.
Contact Clearhouse Lending to explore office loan programs for your Sacramento commercial property and connect with lenders who understand California's capital city market.