Room to rent: Vacancy rates increase in Missoula apartments, market report finds
The vacancy rate for multifamily apartments in Missoula has increased, prompting landlords to adjust pricing on certain units or offer amenities to entice renters, a new market report has found.
Still, the need for newly built apartments in Missoula will remain steady through 2019 due to the high cost of single-family homes. Baby Boomers looking to downsize and Millennials forming new households will also drive the market's needs.
“The vacancy rates are higher than what people have been planning for,” said Matt Mellot, a commercial real estate adviser with Sterling CRE in Missoula. “The vacancy is a good 3 to 4 percent higher than what's been reported.”
A market report completed by Sterling on Oct. 31 and released last week looked at multifamily apartments across the city. It found that vacancy rates have increased to 8.2 percent, marking a substantial jump over the prior year.
Vacancies on the south and northwest sides of the city were the highest at 11 and 13 percent, respectively, followed by Midtown at 10 percent. Rates in the Mullan-Reserve and Target Range areas were lowest at 5.4 and 4.9 percent.
“Newer units tend to cannibalize the older projects, and they're also a little bit cheaper than some of the alternatives in the core of town,” Mellot said.
The report attributes the overall increase in apartment vacancies to several new projects, including ROAM student housing, located downtown, and Cambium Place in the Old Sawmill District, both sizeable projects that opened this year.
“There was a big spike of those (new units) that hit all at once,” Mellot said. “Vacancy is up, but overall, the apartment market will be fine because of rising interest rates and rising construction costs, and people not being able to get into single-family homes.”
The report estimates that 295 new apartment units are set to deliver next year. That's down from the prior two years.
But despite the dip, the report foresees a lingering need for multifamily units due to the lack of affordable single-family homes, which now stand at all-time high median of nearly $300,000 in Missoula.
Millenials are also forming new households and Baby Boomers are downsizing, helping feed the market. The city's destination for retirees is also impacting the market, the report notes, as is growth in health care.
“It's not doom and gloom for the apartment market,” Mellot said. “People who would normally be out looking for houses aren't able to find them, so they'll stay in apartments.”
In response to the increase in vacancies, the report found that landlords have adjusted prices in some categories, primarily for 2-bedroom, 1-bath units, which currently have the highest vacancy rate.
Other landlords are offering incentives to lure renters, like waiving the first month's rent or giving out gift cards.
“There was one we saw doing a $500 Costco gift card,” Mellot said. “Vacancy is expensive for landlords. You're not getting any rent. You still have to heat that unit in the winter and you're not getting anything for it.”