Alive and well: Missoula’s retail sector eyes growth, expansion in coming year

Editor's note: The average lease per square retail foot has been updated in this story. 

With one of the largest regional draws in the state and a growing population, Missoula's retail sector survived the pandemic relatively unscathed and is showing signs of expanding over the coming year.

Connor McMahon, a retail specialist with Sterling CRE Advisors, said Wednesday that a number of national brands are eyeing the Missoula market and will likely follow the likes of WinCo Foods, Chick-fil-a and SCHEELs into the city.

“The domino effect is very real for retail,” said McMahon. “Once a few established brands come into the market, you'll likely see several others follow quite quickly. It's likely we'll only see more expansion coming in the following months and following years.”

Missoula County's current population stands at around 123,800 residents, with 80,000 of them living in the city. Census estimates suggest that around 2,200 new residents move to the city last year, accounting for a growth rate of around 1.8%.

While that has placed pressure on the city's struggling housing market, it's good for the retail sector and job growth, and it has placed Missoula on the national map. Though McMahon can't say with certainty when Missoula will land a Whole Foods or SoulCycle, he said “maybe” soon, adding that the market is healthy enough to attract them.

He hinted at a number of new offerings in Missoula's near future.

“Not only is Missoula's retail landscape healthy enough to entice some of these national brands to our market, it's healthy enough to sustain our existing local businesses,” he said. “Missoula is much healthier than other markets in the state and across the county. We saw very little impact and vacancies remain low. There are some clear opportunities in some key areas.”

According to data compiled by Sterling, the average lease for retail space in Missoula increased 6.2% to around $18.48 per square foot. In comparison, the nation average for lease rates fell 5.5% while some markets, especially in the Midwest, fell by 12% or more.

The vacancy rate for retail space in Missoula also held steady at 5.2% in 2020, up just .48% over the prior year. While a number of tired retail concepts closed their doors for good in 2020, they provided needed vacancy for new tenants to move in or expand.

“Overall, Missoula is looking very, very good,” said McMahon. “The population growth here has provided some much needed consumer spending to some of these business. While it will take time for retailers to earn back some consumer trust, Missoula seems to be making that bounce back rather markedly.”

A number of new trends could further boost the city's retail sector, according to McMahon. Among them, the state's recently passed recreational marijuana law has sparked interest among a number of potential new businesses looking to capitalize off the opportunity.

“We're seeing an uptick in activity and interest in both production and retail for this new industry,” he said. “I've spent several years working retail in other markets that had recreational marijuana, and there's usually several months of red tape to get through in ordering and getting a business open. The operators that do end up opening a business tend to be highly financed, highly organized and sign long-term leases at market rate, or even above market rate.”

Changes in the industry also are playing in favor or the retail sector, with small health clinics opening in shopping centers and in strip malls. The fusion between online shopping and the in-store experience is also boosting retail, according to McMahon.

“There's obvious issues with going completely online with shopping, from the consumer experience to quality control,” McMahon said. “Things like the buy online and the pick-up-in-store model have really helped bolster brick-and-mortar store sales. Companies like Uber Eeats and Grubhub are really just an extension of this model.”

McMahon acknowledged the pandemic was hard on some retail businesses, including gyms, salons and the entertainment industry. But others continued to operate without much impact.

“We did not get this nuclear fallout that everyone was anticipating,” he said. “The development of retail development is looking up, with 2023 showing quite a bit of new square footage in planning and permitting. Part of what's pushing this is the big boom of e-commerce this past year.”

According to data collected by Sterling, less than 20,000 square feet of retail space is under construction this year. But around 80,000 square feet is in the planning and permitting stage and is eyeing 2023.

“We're predicting that demand will increase for retail space through 2021,” said Sarah Nobel, the brand marketing director with Sterling. “We're optimistic about the future in this post 2020 terrain.”