Missoula Multifamily Market Overview | Q3 2023

Missoula’s multifamily vacancy rate is inching up, meaning more available units in the market. Going forward, expect to see slow growth in vacancy rates and stable rents. Missoula renters are unlikely to see a significant drop in rent, though incentives such as $100 to $200 off the first month of rent are popping up.

Vacancy Rate

The vacancy rate currently stands at 3.37%, which is indicative of a supply shortage. However, it is a significant improvement over the rates in 2021 and 2022 which hovered at 1%, which caused challenges for tenants looking for a home. With an additional 718 units under construction, vacancy rates will likely drift higher in coming quarters with rates stabilizing around 4% to 5%.

One notable change in the Missoula market is the availability of a variety of unit types across all submarkets. Prior quarters had a shortage of three-bedroom homes and limited availability in popular locations like Downtown and the Rattlesnake.

Rents

The average rent continues to tick up across Missoula and now stands at $1,394 per month. Three-bedroom, two-bath units have notched 12.42% rent growth year-over-year, while two-bedroom, two-bath units had a rent drop of 6.00%. Average rent per square foot ranges from $1.58 for a 3-bedroom, two-bath to $2.59 for a studio.

Supply

In the first three quarters of 2023, 880 new apartments have come on the market. 442 of those have been market rate. The absorption rate has been positive. An additional 831 units are under construction or permitting. If the absorption rate for market-rate units stays consistent, Missoula could potentially drop back into a severely undersupplied market within the next 18 months.

There are a substantial number of new apartment communities in planning. However, many developers are tapping the brakes on new projects. Increased lending costs, sluggish rent growth, and higher exit cap rates are making it difficult to plan viable projects.

Demand

Demand drivers for Missoula have remained steady throughout 2023. Employment continues to increase although the rate has slowed to 2.4% from the 3% to 4% seen in 2021 and 2022. Increasing employment is a major factor in the region’s ongoing population growth.

People moving to Missoula are likely to be renting. Home sales and for-sale housing production continue to drop in the region. The median home price continues to drift up, despite increasing interest rates impacting buying power. The homeownership rate continues to decline in Missoula as well as the US.

National Context

Markets across the US have seen increasing vacancy rates and dropping rents. The average vacancy rate in the US is now 6.3%, up 0.7% from a low point of 5.6% in Q2 2022. This is still well below the long-term average of 7.3%. Missoula’s vacancy rate of 3.37% is exceptionally low.

The average US rent is $1,702 per month, about 20% higher than Missoula’s. The year-over-year rent growth of 5.38% seen in Missoula puts it in the top ten markets for rent growth in the US.

Outlook

Missoula’s apartment market remains relatively tight, with increasing rents. However, vacancy is increasing, and rents are stabilizing. Tenants are unlikely to see significant rent drops but may be able to get more for their money at a new complex or enjoy some rent concessions.

The stability in the market may be short-lived if the economics of housing development don’t shift within the next six to twelve months. If projects currently in planning are delayed by a year or more, there could be a lull in the pipeline leading to a tighter market.