Vacancy in multifamily housing tight in Missoula; economic recovery key to building
The supply of multifamily housing in Missoula will likely remain tight over the coming year, with most new units already occupied and fewer projects planned, according to a quarterly real estate report released this month.
Prepared by Sterling CRE Advisors, the second quarter report found a vacancy rate of 4.9% across the city, marking a slight increase over the 3.6% vacancy rate recorded in the first quarter of 2020.
“It's trending up when usually in the second quarter the vacancy trends down because people move and apartments get absorbed,” said Matt Mellott with Sterling.
“If there's a downtown in the economy, there's typically fewer households. The average household size grows which decreases demand for apartments, or even housing. That's to be expected when there's economic shock, that people will have a roommate or stay with their parents.”
While the vacancy rate is trending up, the market remains tight. Area landlords have nixed most rent concessions and the median price of rent has grown.
Between the second quarter of 2019 and 2020, rents increased between 2.3% and 23%, depending on the type of unit. However, the report found that rent prices for two-bedroom, two-bath units actually fell by an average 5.9% across Missoula.
If the vacancy rate continues to climb, Mellott believes the rental market will shift with it.
“I wouldn't be surprised to see the asking rents flatten off or trend down a little,” he said. “Property owners will want to get those units filled, so they'll begin to offer incentives like reduced rent or free rent. That typically lags behind an increase in vacancies.”
The number of planned projects over the next 12 months remain few in number, according to the report. Over the past year, 921 new apartment units have opened for occupancy and 901 had been filled at the time of the report.
Only 90 units are currently under construction.
“Missoula is a supply constrained market,” the report said. “The supply expected to come online within the next six to 12 months is inadequate to meet demand, unless population growth stops or reverses.”
Given the limited number of units under construction, the supply of multi-family units in Missoula will likely remain tight, at least in the short term. Sterling said 1,846 market-rate units are planned between 2021 and 2022, or shortly after.
But those projects could hinge on the economic recovery and whether banks are lending.
“You might have builders that want to build them, but if the banks aren't will to lend, it doesn't matter,” Mellott said. “That's generally what happens in economic contractions and there's less credit available for construction projects.”