The completion of new apartment units in Missoula has increased this year when compared to last year, though they’re being occupied nearly as fast as they’re being built.
Real estate brokers with SterlingCRE in Missoula said 241 new multifamily apartments were delivered to the market in 2021. This year, however, 265 units have already been completed as of June.
The firm’s research suggests another 250 units could hit the market by the end of the year. As construction increases, the question becomes when the multifamily building boom will begin to tip vacancy rates.
“Already, we’re seeing vacancy rise,” said Matt Mellot, the lead broker at Sterling. “The tides are changing for multifamily developers and apartment-seekers in Missoula, though we’re still not at a healthy vacancy rate of 4% to 5%.”
Data places the current Second Quarter vacancy rate at roughly 2.9% percent, according to Mellot. That’s up slightly from 2.6% in the First Quarter of this year.
If the vacancy rate continues to soften, it could eventually impact pricing.
“Current owners and property managers should be considering how to position their complex competitively,” Mellot said. “Rental rate growth is likely to slow as vacancy rises.”
While 2021 delivers the most units to the market since 2019, next year is looking equally strong, with roughly 265 units currently in the pipeline, according to Sterling.
Several affordable housing units are also expected to come online next year, including Trinity and Villagio, which together represent more than 300 units.
While construction could help soften both rental vacancies and rental prices, Mellot said the data points to the rapid absorption of new units. That suggests the new deliveries haven’t yet met current demand.
As developers cool on building multifamily projects, retail and industrial buildings are likely to be the next focus for new construction, he said.
“Missoula is finally showing some signs of relief in the apartment space,” said Mellott. “But at the same time, business owners are struggling to find commercial options, especially flex warehouse space. It’s a balancing act to build the right product at the right time.”