I say some version of this every year at MarketWatch, and I’ll keep saying it until it stops being true: real estate is local, but the forces shaping it aren’t.
Right now, the big force is inflation. Not the acute, headline-grabbing kind from 2022. The slower, more persistent kind that economists argue about at conferences and investors quietly feel in their refinance terms and insurance bills. There’s a reasonable case that we’re in for a sustained stretch of it, 3 to 4% annually, driven by factors well above anyone’s pay grade to fix quickly. I spent some time on this at MarketWatch, and I’ll leave the deep dive there. The point for property owners is simpler: inflation punishes some assets and rewards others, and which side of that line you’re on has a lot to do with where you own and what you own.
Missoula sits in a good spot on that spectrum. Here’s why.
Supply can’t easily catch up to demand here.
We’re ringed by mountains and rivers. Infrastructure expansion is slow and genuinely expensive. The city just adopted a new zoning code that theoretically allows a lot more density, and that’s a real step forward. But when you work through the actual math on an infill lot, the cost to upgrade water, sewer, and road access to support that added density often erases what you gained. The bottleneck is still there. It’s just moved slightly.
That constraint matters because it’s what gives existing assets pricing power. If a landlord in Phoenix raises rents, a developer can respond within 18-24 months with new supply. In Missoula, that response takes years and costs more than it should. Rents can rise faster than inflation. That’s the whole game.
But Missoula being a constrained market doesn’t make every deal a good one.
This is where I want to be direct, because I think people sometimes hear “supply-constrained market” and conclude that owning anything here is a smart move. It’s not that simple.
Long-term gross leases with minimal rent bumps are quietly losing ground every year in an inflationary environment. The owner absorbs every increase in taxes, insurance, and maintenance while income stays flat. We’re tracking a portfolio right now where operating expenses grew around 46% over two years on a set of properties while rents moved maybe a third of that. The math on those assets is getting harder.
Land is repricing. Several deals we’re involved in or watching closely are closing 20 to 25% below where comparable properties traded two or three years ago. Don’t interpet that as a collapse, though. Land is residual value: it’s worth what’s left after you account for construction costs, financing costs, and what you can actually rent or sell the finished product for. When building costs are high and capital is expensive, something has to give. Right now it’s the dirt, and sellers are slowly accepting that.
Multifamily and industrial with the right lease structure, and well-located retail are the asset classes I am most confident about in this environment. Annual lease resets in multifamily let rents track inflation. Our vacancy rate around 5% compares favorably to markets like Bozeman, sitting closer to 11%, where a supply wave hit faster than demand could absorb it.
The window is real, but it’s not permanent.
Missoula works as an investment market because supply is constrained. But if rents keep outpacing wages for another decade, you eventually price out the demand that makes the whole thing work. We’re not there yet. The fundamentals still point in the right direction. Population is growing, healthcare and construction sectors are adding higher-wage jobs, and the development pipeline is measured enough that we’re not setting ourselves up for the boom-bust cycle you see in more elastic markets.
What I told the room at MarketWatch is what I’d tell anyone thinking about their portfolio right now: the table is set. The question is whether you’re positioned to sit down when the opportunity is clearly in front of you, or whether you’re still trying to figure out where you stand.
If you want to work through what any of this means for a specific asset or investment thesis, that’s a conversation worth having.
