Research Confirms Missoula Apartment Vacancy Woes
A survey of over 5,600 market rate apartment units in Missoula found a vacancy rate of 1.2%. The survey also found increasing rents and no incentives. “Last year at this same time, the vacancy rate was 3.3%,” said Matt Mellott of Sterling CRE Advisors. “Everyone in the rental market feels a 2% drop in vacancy, whether that means paying more for rent or struggling to find a place when you need to move.”
Sterling CRE Advisors performs a market survey of apartment vacancy every quarter. To put a 1.2% vacancy rate in perspective, cities like San Francisco, New York and Los Angeles register long-term vacancy rates below 4%. “A vacancy rate this low is concerning,” said Nick Chaussee, Sterling CRE Advisor. “Through a commercial real estate lens, there is a huge amount of opportunity for development in Missoula. But that’s in the long range. The reality right now is that rents are rising fast and apartments are scarce. A clear path forward for developers is key to righting the ship.”
What’s creating the rental crunch in Missoula?
- Limited supply of houses for sale means potential homeowners may be forced to rent, even if they would prefer to purchase a home.
- Economic downturns often cause consolidation of households – think getting a roommate or moving back in with mom and dad to save money. However, that doesn’t seem to be the case in Missoula. In fact, Montana bounced back from job losses, ranking 13th out of all states for unemployment recovery since the start of COVID-19. The losses that did occur in Missoula didn’t drive household consolidation enough to offset limited availability.
- Compounding local factors, a surge of remote work begs the question: if you can work from anywhere, why not the last best place? Ranking high on quality of life lists, Missoula is an attractive option for remote workers who value outdoor access.
- The University of Montana resumed in-person classes. Traditionally, students returning to school creates an influx of renters in late summer. Additionally, the Montana Kaimin reported that dorms are housing fewer students as a coronavirus precaution.
- In addition to few available apartments, limited new units are coming online through year end. In Q2, 76 new apartments became available and were fully leased up quickly. Since July, only nine new apartments have been completed. At the time of the survey, 72 new units were likely to open up in Missoula before the end of 2020. Development Services staff noted strong construction activity in Missoula, but scant apartment housing. In 2020, most construction focused on things like warehouses, office buildings, schools, and hotels.
- Development Services also reported operations bottlenecks. The permitting division is at 50% of capacity, slowing the administrative processes to get new housing in the pipeline.
- Finally, potential rental opportunities can be hamstrung by community pushback. Missoula’s Planning Board rejected a recent rezoning request that would have allowed for more rental units in Grant Creek. That failed rezone by itself eliminates over 25% of the apartment units in the development pipeline over the next 3 years. The board cited opposition from project neighbors as the main factor in their decision. One member noted negativity towards renters and derision of higher density projects. Recent history bears out this resistance to higher-density housing. An opponent to a proposed senior living facility said the building would “infect” his neighborhood.
The Sterling CRE Advisors team focuses on the big picture.
It’s a complex problem, made up by a lot of factors. Pointing the finger at incoming residents or scoffing at higher density housing isn’t a solution. We need to support more efficiency in Development Services so developers can start making up some of the ground lost in regards to housing. Population growth is coming – it’s here already. How we handle this moment is key for Missoula’s future.
Contact Matt Mellott for more information.