Commercial market well in Missoula but apartments, office, warehouses in short supply
MISSOULA – Measuring Missoula’s economy on multiple fronts suggests it is doing well compared to the rest of the country, although the Class A office space limitation, the city’s lack of housing, and the lack of industrial warehouse space continue to play a role economic burden.
Matt Mellott, chief broker and principal at Sterling CRE Advisors in Missoula, said the analysis of the city’s commercial real estate data will shed light on how and where the Missoula economy is growing and what needs to be done to address the shortcomings.
From large land sales to coworking spaces with waiting lists, the city’s commercial market got off to a brisk start in 2021. However, shortcomings persist, including the lack of housing and industrial warehouses in the city.
The latter is growing in popularity as consumers turn to online shopping, which requires local storage during the fulfillment process and last mile delivery.
“As soon as it is built, it is absorbed,” said Mellott. “As soon as we receive a new industrial listing, it is usually rented out almost immediately. Here, too, the demand for industrial space is quite high. “
Mellott put the current vacancy rate for industrial warehouse space in Missoula at around 5%, which is well below the historical average. He said vacancy rates continue to decline as shoppers turn to online shopping versus traditional retail.
While the vacancy rate for warehouse space is low, the vacancy rate for apartments in Missoula is just under 1.25%, according to Sterling. While a number of projects are under construction, it will take time for them to hit the market.
“The market has picked up the signal,” said Mellott. “Demand has increased and supply has been restricted by land and construction costs and the like. It takes a long time for an idea to turn into a project, for people to move in. “
Like the housing market, the city’s lack of supply on the housing front has led to a rise in prices. According to Mellott, the year-over-year increase is around 5.5%.
Investors have shown growing interest in the Missoula real estate market.
“There’s a lot of demand for housing, both from tenants and investors, which has driven up prices for both rents and property sales,” Mellott said. “There isn’t a ton that will deliver in 2021, but there are plenty of units that will arrive in 2022 and 2023. I think you will see some relief for tenants over the next 18 to 24 months, though not much in 2021. “
Retailers continue to struggle nationwide as consumer practices change and the pandemic keeps shoppers at home. But Mellott said the data suggests Missoula is holding its own and outperforming the national average.
For the most part, he said, most of the vacant retail fronts are being filled with new tenants.
“Nationwide retail hasn’t done very well, but Missoula is pretty stable,” he said. “As soon as things are available, they are more or less picked up. Once a user leaves the company, with a few exceptions, it is replenished by another user. “
Missoula has not built a new downtown office building in several years, creating pent-up demand for Class A office space. The lack of supply has led some companies like Congizant-ATG to build their own.
The company has a project under construction in the Old Sawmill District that will employ hundreds of workers.
“There are a couple of other companies like this where they need tens of thousands of square feet but don’t have space. So they have to go through a construction process that takes two or three years,” Mellott said. “From an economic development point of view, this is a little limiting. They are hard to land in Missoula when they call for Class A office space. “
Despite the city’s housing, warehouse and quality office challenges, Mellott believes the data suggests an optimistic future, and Missoula is doing well despite the challenges of last year.
“If you just look at the vacancy rates and rental growth, everything is more or less positive with small outages while the rest of the county is focused on office and retail,” he said. “Even in apartments in denser cities, vacancy rates have risen and rents have fallen, and we haven’t seen any of this.”
Sterling CRE will break the data down Wednesday in this year’s MarketWatch, which is practically at 10:00 a.m. The presentation is free, but registration is required.