2021 Missoula Montana Commercial Real Estate Outlook - 2021 Commercial Real Estate Outlook
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2021 Missoula Montana Commercial Real Estate Outlook
2021 Commercial
Real Estate Outlook
MISSOULA
State of the Market
Economic growth and evolving local industries drive Missoula’s
commercial real estate market. It’s a trend that will continue in the coming year.
The key to successful investment lies in understanding economic growth and the changing
business landscape.
In 2021, experts predict economic recovery in Missoula. The city enjoyed steady employment
and economic growth for the past decade. That is, until the unexpected events of 2020
stymied that prosperity.
Yet, Missoula suffered less drastic employment drops than most cities across the nation. A
diverse economic base and ongoing population growth buffered local losses.
Missoula Area Economic Development Success Stories
• Tonix Pharmaceuticals acquires 40+ acres for vaccine production in Hamilton.
• ATG commits to 40,000 square feet of space at the Old Sawmill District.
• NASA-sponsored UNAVCO opens Missoula office.
• Film production facilities spring up in Bonner and Missoula Development Park.
• Big Sky Fulfillment expands operations to 50,000 square feet at Bonner Mill.
The diverse businesses establishing roots in Missoula shape demand for commercial real
estate. The hottest assets are stabilized investment offerings (especially apartments),
accessible distribution centers, specialized lab spaces, and modern offices.
Employment growth driven by these industries will continue to propel the residential
market. In turn, demand is likely to increase for retail space and self storage through 2021.
We’re optimistic about Missoula’s future in this new terrain.
Development Cycle
Phase 2 - Expansion Phase 3 - Hypersupply Missoula’s ongoing growth is driving demand for new development,
Declining Vacancy Increasing Vacancy but supply is limited for some assets. In recent years, national demand for
New Construction New Construction commercial real estate has been consistent. After a decade of new construction,
supply is beginning to catch up. In turn, vacancy rates are increasing and markets
are dipping past equilibrium into over supply.
Missoula Office
Missoula Retail US Multifamily In Missoula, development is outpaced by growing demand for multifamily and
US Industrial Warehouse US Neighborhood Retail industrial product.
US Industrial Flex/R&D
Missoula Industrial
Industrial vacancy rates stayed stable through 2020 with most new inventory
Missoula Multifamily
10 11 12
US Office Suburban absorbed quickly. Many projects currently under construction are pre-leased or
US Office CBD 9 sold to end users.
8 13
7 Housing was in the headlines throughout 2020 in Missoula. If all units in the pipeline
Long term average occupany point
6 14 deliver and the city continues to follow the same growth pattern, the market will
5 remain in expansion beyond 2023.
4 15
3 US Retail Mall/Power
16 Office and retail is at equilibrium in the Missoula market with vacancy rates stable.
2 The US saw 1% increase to 17.7% in office vacancy and a .3% increase in retail
1 1
vacancy (REIS) to 10.5%. Missoula has an adequate pipeline of retail and office
projects to keep pace with demand. However, users require increasingly custom
Phase 1 - Recovery Phase 4 - Recession spaces - which keeps obsolete product lingering on the market.
Declining Vacancy Increasing Vacancy
Supply/Demand
No New Construction Equilibrium More Completions
Source: Mueller, 2020 & Sterling CRE Advisors
Office
Office demand will return, but details remain uncertain. The “right” Office Opportunities in 2021
space is critical to compete in the Missoula market. Location and layout can make • Private office suites/office condominiums
or break a project. Office demand throughout 2020 and into 2021 was (and likely • Flex with warehouse spaces
will be) driven by companies expanding or relocating to the market. We expect a • Downtown options
surge in new activity in the second half of 2021. That’s especially true as tenants • Flight to quality
reconsider space needs with employees returning to the office full time. • Parking is becoming a key amenity
Over the past year, sales were driven by newer buildings that meet modern needs.
In 2020, 25% of the sales were buildings built since 2010 compared to 3% in 2019.
Users are upgrading spaces in a flight to quality. Office Development Pipeline
Change From 250,000
2020 2019 2019
Vacancy Rate 10.23% 12.00% -1.77% 200,000
Average Lease Rate* $14.07 $14.00 +.5%
Square Feet
150,000
Sales Transactions 20 36 -15%
100,000
Median Sales Price* $198.75 $144.41 +28%
50,000
Average Sales Price* $186.27 $145.61 +38%
Average Size (Square Feet) 5,287 6,123 -14% 0
2021 2022 2023
* Per Square Foot Under Construction In Planning & Permitting
Industrial
Industrial Opportunities in 2021 Across Missoula, industrial space is in demand from industries
• Speculative space built with flexibility for a variety of users ranging from film to vaccine production. This means demand for space
• Smaller flex/warehouse style condominiums that meets specific needs. As a result, finding the right fit may prove challenging.
• High loading capacity (dock high/truck wells) Most future projects are already leased or owned by users. A number of the
• Warehouse with excess yard space projects are for companies who will vacate existing space - bringing needed supply
• Demand from marijuana operators looking for spaces for grow operations to market.
Sales were only down due to a lack of inventory. Price per square foot was stable.
However, the average building size was up considerably. This indicates demand for
Industrial Development Pipeline larger footprints. Distribution is still the top driver of demand.
150,000 Change From
2020 2019 2019
120,000
Vacancy Rate 5.43% 5.42% +.01%
Square Feet
90,000 Average Lease Rate* $8.25 $6.68 +23%
60,000 Absorption (Square Feet) +86,706 +158,680 -45%
Sales Transactions 19 30 -36%
30,000
Average Sales Price* $109.10 $107.99 +1%
0
2021 2022 2023 Average Size (Square Feet) 16,133 8,604 +87%
Under Construction Proposed * Per Square Foot
*Note that there are additional industrial projects in early stages with no firm delivery
date or size. They will bring an estimated 150,000 square feet online; however, most are
already leased or sold to users.
Multifamily
Supply constraints keep squeezing investors and tenants in the Multifamily Opportunities in 2021
Missoula market. Landlord bottom lines are benefitting from record low • Workforce housing
vacancy and rent increases. More units are on the way as Missoula tries to catch • Class A apartments and condominiums in key locations to accommodate a low
up to demand. maintenance, live/work/play lifestyle
• New development sites in the BUILD Grant area
The outlook for Missoula’s population growth is positive. Such growth supports • Single family build for rent concept
development and investment in multifamily properties. Even so, we advise caution
in underwriting, as current market conditions with extremely low vacancy rates and
high rent increases are not sustainable in the long term.
Change From Multifamily Anticipated Deliveries By Year
2020 2019 2019
1000
Vacancy Rate .95% 3.76% -2.8%
Average Lease Rate $931 $884 +5% 800
Sales Transactions 11 13 -15% 600
New Units
Average Price Per Unit $136,536 $88,477 +54% 400
Average Price * $149.62 $141.94 +5%
200
* Per Square Foot
0
2021 2022 2023
Market Rate Under Construction Market Rate In Planning
Affordable* Under Construction Affordable* In Planning
* Income restrictedRetail
Retail Opportunities in 2021 Low barriers to entry and steady population growth provided the
• Medical continues trend of moving into the retail landscape right climate for retailers in Missoula. Both local and national brands
• Limitations in ecommerce prove viability of brick-and-mortar opened doors in Missoula during 2020. With tired concepts shuttering for good
• Continued fusion of on-line and off-line experience supported brick-and- and providing space for new local and national tenants to move in, vacancy rates
mortar retail growth slightly increased by just 0.48%. The COVID fueled population growth provided the
• Retailers with products catering to outdoor & distanced activities are expanding necessary consumer spending to boost local businesses and was a boon to retail
tenants and landlords alike.
Change From
2020 2019 2019
Retail Anticipated Deliveries By Year
Vacancy Rate 5.21% 4.73% +.48%
100,000
Average Lease Rate* $16.48 $15.51 +6.2%
80,000 Absorption (Square Feet) +10,687 +69,063 -84%
Sales Transactions 25 36 -30%
Square Feet
60,000
Median Sales Price* $157.91 $157.80 0%
40,000
Average Sales Price* $197.87 $215.08 -8%
20,000
* Per Square Foot
0
2021 2022 2023
Under Construction In Planning & PermittingSelf Storage
Self storage is seen as a stable real estate asset in unstable Self Storage Opportunities in 2021
economies. Investor interest in self storage remains high across Montana, with • Climate controlled spaces
good reason. Many self storage facilities across the state are fully occupied with • Multi-story infill projects
waitlists. Technology facilitates online payments, app based access, and efficient • Conversion projects
leasing. • Mobile storage concepts
The outlook for self storage in Missoula is positive despite slowing rent growth.
As Missoula’s population grows, so does demand. With much of our new housing Self Storage Anticipated Deliveries By Year
being in multifamily product, the smaller floorplans may require that newcomers
rent storage units.
500
Change From
2020 2019 2019 400
Average Rent Non-Climate* $.70 $.68 +2%
300
New Units
Average Rent Climate* $1.19 $1.11 7%
Sales Transactions 6 3 +100% 200
Average Price Per Unit $9,263 $8,813 +5% 100
Average Price* $52.89 NA NA
0
* Per Square Foot 2021 2022 2023
Under Construction In PlanningLand
Land Opportunities in 2021 A shortage of properties drives demand for land. Residential land buyers look
• Raw residential land in growth locations for fully entitled properties, complete with infrastructure already in place. Industrial
• Infill development sites conducive to high density residential projects buyers want fully turn-key space that is ready to occupy in 60-90 days. Commercial users
• Industrial land suited for warehouse/distribution facilities in town and along who can’t find suitable properties are considering building in commercial corridors.
the I-90 corridor
We expect to see more consistency in infill land pricing as the market stabilizes.
Key factors to consider in land transactions include zoning, soil condition, available
sales land infrastructure and access.
Missoula County 2020 Commercial Land Sales
2020 Average Sale Price Per Square Foot
Commercial Industrial
• Missoula City In Town $20.51 $20.19
• Missoula City Outskirts $8.83 $4.93
* Excludes properties in Special Districts and Citizen Initiated DistrictsWhat’s Next?
Missoula’s CRE market moves into 2021 on solid ground. Vacancy rates and rent
growth show a healthy, well-built market. The city continues to attract diverse new
industries like biotechnology, entertainment, and logistics.
Headwinds
• Housing: Rapid construction cost increases are making new development
difficult in some cases.
• Space at a Premium: Industrial and flex space users are short on options.
• National Economy: Frozen evictions/foreclosures mean distressed properties
are in limbo.
Opportunities
• Housing: Strong demand for housing at all price points continues in Missoula.
• Back to the Office: Office space looks different than it did pre-pandemic. Hot
desking isn’t hot but private offices are.
• Supply Chain: Logistics are building on the Montana frontier.
Takeaway
All up, we see a great deal of potential in Missoula - and so do investors from
around the country. 406 - 203 - 4547
Info@SterlingCREadvisors.com
Ready to make moves with your commercial asset or break into the local CRE 2829 Great Northern Loop | Missoula
market? Contact Sterling CRE Advisors. www.SteringCREadvisors.comOur Team
Meet the Sterling CRE Advisors
Claire Matten | Advisor | CCIM Matt Mellott | Advisor | CCIM |
• Certified Commercial SIOR The people who aren’t pictured here are
Investment Member • Certified Commercial
even more important.
• Over $420M in transaction Investment Member
volume • Society of Industrial and
An ace marketing, research, and operations
• Specializes in industrial, Office Realtors Member
team hustles behind the scenes at Sterling CRE,
self-storage property • Specializes in office,
bringing analytical and creative eyes to every deal.
property analysis
Claire@SterlingCREadvisors.com Matt@SterlingCREadvisors.com With backgrounds in real estate development,
406-360-3102 406-203-3950 data analysis, planning, PR, marketing, paralegal
and insurance, we’ve got the answer to your CRE
questions.
Nick Chaussee | Advisor Connor McMahon | Advisor
• Certified Commercial • International Council of Olga Bobko | Operations Director
Investment Member in Shopping Centers Maggie Collister | Project Marketing Manager
process • Over $100M in transaction Sarah Knobel | Brand Marketing Director
• Specializes in multifamily volume Sara Townsley | Research Director
property, commercial • Specializes in retail sales
leasing and leasing
Nick@SterlingCREadvisors.com Connor@SterlingCREadvisors.com
406-529-0535 425-478-48262021 Missoula Montana Commercial Real Estate Outlook
At first home to American Indian tribes and later developed as a trading post, Missoula has been
an economic hub since it’s very beginnings. Once the headquarters of Copper Kings and pulp
mills, the city welcomed education, healthcare, and tech to the business landscape. Through it all,
Missoula’s greatest strength is the ability to adapt.
Like the rivers that converge here, an eclectic mix of people from all over flow into the Garden City.
It’s this economic vitality and eccentricity that attracts innovators to Missoula. As the city moves
into a burgeoning future, there is no doubt that we will rise to meet the opportunities ahead.
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