Commercial real estate market in Missoula remains strong, with exceptions
The demand for light industrial and warehouse space in Missoula will remain strong throughout 2019 while retail is expected to struggle in the coming years, a team of commercial real estate brokers said Tuesday.
Matt Mellott with Sterling CRE Advisors, based in Missoula, said interest in the Missoula market remains high, though a national slowdown of the economy could find its way home.
“Market cycles typically go seven to 10 years, and we're going on 10 years in an up cycle,” Mellott said. “Interest rates going up makes it harder to finance projects, and construction costs are up 15 to 20 percent over the past two years. It gets harder to make a project pencil.”
Sterling CRE will break down local statistical trends in the commercial market during next week's Market Watch. The third annual presentation will include changes in the development community and investment insight into the opportunity zones established by the Trump administration.
As was the case last year, Mellott said, the need for light industrial and warehouse space in Missoula remains high, with the demand greater than what's currently available.
“Light industrial and warehouse is the hardest thing to find, and it has been for a while,” he said. “It's the only thing I'd recommend building speculatively.”
That's not the case with retail, with a number of national chains struggling to survive. Some of those, including Barnes and Noble, J.C. Penney and Shopko have appeared on the so-called retail “death watch.”
In December, Shopko announced its plans to close 39 stores, and while Missoula wasn't listed as one of them, a number of large box stores could be empty by the end of this year, raising questions about what becomes of the property.
“Payless went out of business and the pharmacy at Shopko shut down,” Mellott said. “It's probably going to be this year that Shopko shuts down. That's 100,000 square feet of retail space, and there's other retailers going out of business. They'll have to change what they do with spaces like that.”
Among other assets, this year's statistics compiled by Sterling suggest lukewarm investment opportunities in local apartments, though the office market remains healthy.
Mellott said roughly 25,000 square feet of office space in downtown Missoula is currently available, and with growth in a number of local businesses, that's not a bad number. What the city and county do with the federal building in could alter that equation.
“It's the big wild card, on whether the federal building is usable,” Mellott said. “If the city takes the federal building, that dramatically impacts what downtown looks like for office space, because a lot of space would open up.”
Rising interest rates and higher construction costs could slow what's been a strong run in building in Missoula. Still, Mellott said, interest in Missoula's commercial real estate market remains strong.
“There's not much investment properties that are well managed and well packaged, and when we do have investment properties, we tend to sell them pretty quickly,” he said. “When you have population growth and job growth, it creates demand for professional space and housing. It's easy for an outside investor to look for growing metro areas, and Missoula is one of them.”