By Claire Matten, Advisor, Sterling CRE
The apartment rental market has been exceptionally strong since 2014 in Missoula thanks to millennials forming new households, 30 – 40 year olds remaining in multifamily, and baby boomers downsizing to apartments. Missoula’s status as a leading destination for retirees has also impacted the rental market and will likely contribute to large gains in healthcare employment in the future. Overall, job growth in Missoula has resulted in rapid population growth in recent years. This has had a ripple effect on the occupancy levels of multifamily developments.
However, a wave of new apartments hitting the market over the summer has started to show up in increased vacancy rates, decreased absorption rates, and concessions offered by landlords to get new tenants in the door. Higher borrowing costs and increasing vacancy rates should lead to a cooling off of the apartment boom.
Sterling CRE’s analysis of new apartment building permits indicates that, so far, an estimated 295 units are set to deliver in 2019. This is significantly off the pace of the preceding two years. However, the on-going challenge of finding affordable single family housing within Missoula city limits will keep demand for multifamily housing steady.
Sterling CRE’s latest market-wide rent survey completed October 31, 2018 indicates that Missoula is currently experiencing an overall apartment vacancy rate of 8.24%. This is a substantial jump in vacancy year-over-year. Delivery of projects likes ROAM student housing, Cambium Place and others has had a direct impact on vacancy rates and has lead to a softening of rental rate growth.
Even more interesting is the breakdown of the vacancy levels among the various types of units. Demonstrated in the chart above, the 2 bed/1 bath units are currently showing the highest number of vacancies while the 1 bed/2 bath units are almost completely occupied. This same chart shows the rental rate competition created by the 2 bed/1 bath vacancies has resulted in owners reducing rates in an attempt to fill these units.
Overall, job growth in Missoula has resulted in rapid population growth in recent years. This has had a ripple effect on the occupancy levels of multifamily developments.
Further analysis of the multifamily research compiled analyzes the various vacancy percentages by submarket here in Missoula. With a good deal of multifamily development occurring on the west end of Missoula in recent years,
it has apparently filled a need. Target Range and Mullan/Reserve corridors are showing the lowest vacancy rates while areas such as the Northwest and South side of Missoula are hitting the higher end of the vacancy spectrum.
Higher borrowing costs and increasing vacancy rates should lead to a cooling off of the apartment boom.
In summary, the multifamily boom in Missoula appears to be mellowing. We will continue to monitor absorption rates as new projects are delivered to analyze the risk of saturation and overbuilding. With Missoula’s economy on solid ground and favorable migration trends, this sector should remain healthy for developers and investors in the future.
You’re invited to contact Sterling CRE’s team of advisors for your next acquisition, disposition or development of an apartment asset.
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