Pro/Con: Missoula Short-Term Rentals

Pro/Con: Missoula Short-Term Rentals

Missed Missoula MarketWatch? The upshot is that Missoula’s commercial real estate sector is still active, with interest on both the sale and lease sides – but, there are challenges ahead for every asset type. Missoula’s commercial real estate market faces low vacancy rates, with a limited supply of office, retail, and industrial spaces to meet growing demand.

At Missoula MarketWatch, the Sterling Advisory Services team provided a quick snapshot of the short-term rental market in Missoula.

Short-term rentals (STRs) have gained popularity in Missoula, driven by the city’s busy tourism season, concerts and sporting events, relocations, and business travelers. For property owners, STRs offer a way to generate income without committing to long-term leases. According to AirDNA, the city has approximately 724 active rentals, with the highest concentration of units in the 59801 zip code that includes the University area and Midtown.

In Missoula, the average one-bedroom STR can bring in $34,000 per year in gross income, 133% higher than the average one-bedroom apartment. However, higher management costs and the fluctuating demand of the tourism market are downsides to operating STRs.

Community sentiment towards STRs is mixed, with some people believing they affect the quality of neighborhoods and take housing away from residents. Missoula’s new fee schedule passed in February includes a one-time registration fee of $555 per unit and a yearly fee of $206, plus a required business license and fee for a health inspection.

Occupancy rates in the Missoula market are seasonally driven, with demand peaking in July and bottoming out in January. The average occupancy rate for 2022 was 64%, down over 7% from 2021. ADRs (average daily rates) for 2022 increased by 19% over 2021, with the highest rate increases seen among two-bedroom units.

New hotels like The Wren and the upcoming LOGE Camps hotel in Missoula offer competitive rates, stylish room designs, and concierge services, potentially drawing market share away from STRs. As more apartments become available in Missoula, STRs could see a slowdown in bookings from longer-term guests.

Overall, operating STRs can be profitable in an attractive market like Missoula, but the industry increasingly requires more effort to manage units well and maintain a hospitality mindset. Rising labor costs and new fees from the city of Missoula may factor into budgets in 2023.

Click here to see the office, retail, and industrial sector overviews, and stay tuned for a deeper dive into the multifamily sector coming soon.