MISSOULA — While Missoula's unemployment rate of 3.2% remains below the national average, the loss of jobs in key sectors last year could have a ripple effect across the city's economy, according to new data.
In its annual Market Watch report, Sterling CRE Advisors believes the city's economy has the “right ingredients” to compete effectively in both regional and national markets.
However, the city's commercial real estate sector may be fighting some headwinds due in part to runaway housing costs and job losses, including last year's closing of Pyramid Mountain Lumber and Roseburg.
“It's not that we've had a net loss of jobs, but you're losing the export-focused jobs,” said Matt Mellott, a managing partner with Sterling CRE. “When you start to lose those, it has a dampening impact on population growth, and that creates this ripple effect on the demand for apartments, office space or industrial space, among others.”
Prior to the pandemic, Missoula's population grew at an average annual rate of .75%. During the pandemic, however, the rate of growth climbed to 1.6%, placing greater pressure on the city's housing market. In 2019, the median price of a single-family home in Missoula sat at $332,000. At the close of 2024, it had risen to $600,000, according to the Missoula Organization of Realtors.
If the rate of population growth returns to .75% as opposed to 1.6%, it amounts to 12,000 fewer housing units over 20 years, Mellott said.
“We'll still have demand for new housing and all these other things, but when you revert back to the pre-Covid rate of growth, there's going be a lower demand for houses and the other stuff," Mellott said. “But right now, the for-sale housing market is wildly out of balance.”
The city's housing constraints may have wider impacts on the city's economy. According to Sterling, housing costs remain a major problem for commercial growth, as employers tend to shy away from high-cost markets when looking to locate or expand their business.
But boiled down, Mellott said commercial real-estate is driven by job growth, and job growth spurs population growth.
“When you see things like Roseburg and Pyramid lumber closing, it opens up industrial and warehouse space,” said Mellott. “But that also trickles down into your economy. All your population growth is driven by how many jobs are leaving or being created.”
The latest data suggests that commercial development has slowed since 2022, with little new retail or office space being built. Industrial growth has remained steady while office and retail jobs continue to grow.
As it stands, Missoula has an office vacancy rate of 7.5%, according to Sterling's data. On the retail side, vacancy rates stand at 3.2%, while industrial space stands at 5%.
“The retail landscape in Missoula is poised for expansion in 2025 due to its appeal as a regional hub and tourist destination,” Sterling reports. “Opportunities in Missoula's office market will also favor landlords and sellers who can offer premium spaces, or properties with potential for high-end redevelopment.”
Other factors could sway the outcome, Mellott said.
“When you start losing your core employers and with return-to-office mandates, where it's sucking some of the remote workers from the market, it can all have a dampening effect,” he said. “But there are still opportunities out there. An out-of-balance housing market means there's opportunities there for people to solve the pain of these high housing prices.”
