The Road Ahead: What Experts Expect The Sacramento-Area Economy Will Look Like In 2015

As we prepare to wrap up 2014, this is a good time to look forward to 2015:

MANUFACTURING

“Despite some high-profile closings of traditional food processors like Campbell’s, manufacturing in Sacramento has added jobs in three of the last four years, reversing a decade-long slide. Sacramento still has only half the manufacturing jobs typically seen in a city this size, but we could see the region build on some recent growth in medical equipment, technology and building materials.”

Jeff Michael, director of the Business Forecasting Center at University of the Pacific in Stockton

RETAIL

“The pillars of growth that drove shopping center recovery over the past few years have been dollar stores, discounters, food users (restaurants and grocery) and retail service users. But a number of these categories are now reaching saturation point after years of aggressive growth.

“Dollar stores have grown at an amazing pace in recent years. But the April announcement of more than 400 store closures from Family Dollar was the first sign that this growth was coming to an end.…

“Ultimately, 2015 will be a year in which the Sacramento retail market is caught between two trends: improving economics and declining demand from the pool of tenants that had been driving local growth. But improving economics and Sacramento’s relatively cheap retail rents (for Northern California) will trump the national trends.”

“In the food arena, we continue to see a strong trend of restaurant chain growth. The restaurant marketplace is saturated. Though we will continue to see strong expansion from new chains in 2015, we will also start to see some retail failures emerging. Likewise, in the grocery arena, we are seeing an influx of new, smaller format players but we are also seeing consolidation from traditional, mid-sized and mid-price-point chains.”

Garrick Brown, vice president of research for Cassidy Turley

BANKING & FINANCE

“One long-predicted trend in banking is likely to start occurring in 2015, Fleming said: “We’re starting to get some evidence that the long-awaited mergers and acquisitions activity in Northern California might actually be starting. Examples: Dallas-based Ford Financial Fund recently said it would buy a majority interest in Mechanics Bank and Spokane, Wash.-based AmericanWest Bank is buying Bank of Sacramento.

A continuing trend, Fleming said, will be ongoing margin compression as interest rates rise.

Stephen Fleming, CEO of River City Bank

RESIDENTIAL REAL ESTATE

“After a rapid, investor-fueled price increase in 2012-13 and a sharp drop in foreclosures, the housing market recovery stalled in 2014. Sales were down, and new construction barely increased in response to higher prices as permits remain well below 2007 levels. We expect residential building permits to increase by 50 percent or more in 2015 as pent-up demand for new households begins to be realized.”

Jeff Michael, director of the Business Forecasting Center at University of the Pacific in Stockton

COMMERCIAL REAL ESTATE — OFFICE

“We are seeing some large office-plate migration to the region, especially in the Roseville area … driven primarily by extraordinarily attractive lease terms in desirable demographic submarkets.…

“The lowest vacancy rates in the region are easily in midtown at 5 percent and downtown at about 10 percent … the new arena will have an additional positive impact on the desirability of the urban submarkets. … The cost of occupancy in the form of rent and parking will increase in both the downtown and midtown submarkets as a result, but not enough to deter continued positive absorption.”

COMMERCIAL REAL ESTATE — RETAIL

“Expect additional retail commitments by end of Q1 (especially from national chain restaurants vying for optimal locations) with soft-good retail commitments materializing in the second half of the year.”

COMMERCIAL REAL ESTATE — MULTIFAMILY

“Urban apartment rents have yet to reach a level that underwrites concrete/steel multistory construction, so it is likely the only significant multifamily construction we will see in or around the grid in 2015 will be stick frame over concrete podium. … That said, 2015 will likely constitute the first year in over a decade that a developer will pay a market price for land in or around the downtown grid and develop a multifamily urban project.”

Ken Turton, Turton Commercial Real Estate

HEALTH CARE — INSURANCE

“Covered California will probably increase more than expected — by 700,000 to 800,000,” Lowey-Ball predicted. Exchange officials have put the figure at 500,000. Medi-Cal enrollment will likely grow another 1 million to top 12 million, Lowey-Ball said.

HEALTH CARE — HOSPITALS & PROVIDERS

Hospitals and health plans will continue to consolidate, Lowey-Ball predicted. Health-system profits will go up as they gain leverage against health plans and get paid for patients who formerly had no insurance. Doctor income may improve as physicians join medical groups, but they’ll be less independent in the future. And telehealth may really take off in 2015, especially in rural areas where there are few providers.

Albert Lowey-Ball, economics consultant