With multifamily construction in full swing throughout 2023, the Missoula multifamily market has finally reached a state of equilibrium. In Q4 2023, the vacancy rate for market-rate rentals nearly doubled, rising to 6.13% compared to 3.37% in Q3. This change is welcomed by renters as it provides more choices.
The current average rent stands at $1,388 per month, ranging from $970 per month for a studio to $1,914 for a three-bedroom. Most unit types have experienced slight rent decreases from a year ago, except for two-bedroom options, which saw minor rent growth.
Renters are now being offered incentives, with a common offering across the market being half a month of free rent, equivalent to a 4% discount, indicating a slowdown in leasing. In contrast, many Bozeman complexes are offering two months of free rent, a significant 16% discount.
The increase in vacancy rates and stagnant rent growth were anticipated by the end of 2023 due to the substantial number of unit deliveries. A total of 1,019 units, including both market-rate and affordable options, were delivered in 2023—more than the combined total of units delivered in the last three years.
While absorption pace at market-rate properties remained consistent in the first three quarters of 2023, it significantly dropped in Q4, with the pace slowing by 83%. However, absorption remains positive.
One contributing factor is the completion of 438 dedicated affordable housing units, as several new complexes opened and quickly filled up. Many of these renters were previously in market-rate units that consumed a high percentage of their incomes or were inadequate for their needs.
The pipeline continues to bring units to the market, with 589 units currently under construction and an additional 163 in permitting. This is likely to lead to further increases in the vacancy rate through 2024.
What the numbers don’t show is the relief that new options will bring renters. The past few years have been challenging for people with a big dog, a mark on their credit report, or dealing with an unresponsive landlord. A balanced market in Missoula may not bring substantially lower rents, but having options can bring a big bump in housing security and peace of mind.