Tracking Missoula Commercial Real Estate Cycles for Maximum Return on Investment
If you’ve been to Sterling CRE Advisors MarketWatch event before, you’re probably familiar with the Mueller study. The chart below shows four distinct phases in the commercial real estate cycle. Our team uses it to guide investment and exit planning.
The Mueller study uses long term occupancy averages compared with rent growth to determine where a certain asset class lies within this commercial real estate cycle.
But how relevant is the US cycle when it comes to Montana’s extraordinary growth?
To answer this question, we mapped Missoula commercial real estate assets on the cycle to show where we sit on the national stage. Stay tuned for other major Montana cities as we carefully map their spot on the cycle.
Phases
In recovery, Phase 1 features declining vacancies and no new construction. This is a reaction to more completed projects and a climbing vacancy rate. Right now, we don’t see any of Missoula’s assets in this phase. Mueller doesn’t place any US assets in this phase either.
However, in Phase 2, we do see Missoula’s industrial and multifamily assets. In this expansion phase, vacancy continues to decline as was the case in Phase 1.
But, new construction distinguishes this phase. In Missoula, industrial and multifamily product are still early in this phase. Both are experiencing a limited supply and climbing demand.
The point of equilibrium sits where rent growth starts to level off and new construction rents are no longer growing enough to support current construction costs. You can see Missoula’s office and retail sectors are currently settled here. Mueller places the US industrial market at this point of equilibrium.
Moving into Phase 3, we see hypersupply in the market. That leads to increasing vacancy and lots of new construction. As you can see, the national retail and multifamily markets are here. We don’t place any of Missoula’s assets here, simply because occupancy and rent growth don’t dictate such a position.
In Phase 4, there is recession with higher vacancy rates and more completions. You’ll see US malls here but no Missoula assets. Stay tuned for more on where Montana’s major cities fall on this All Missoula MarketWatch data is available here. We’ll be placing other Montana cities on the Mueller cycle – get that content by signing up here.
Contact Nick Chaussee for more intel on Missoula’s commercial real estate market.
