Market Update

Yellowstone Fever!

America is captivated by the new Paramount network show “Yellowstone”. While we won’t suggest it is a primary driver of positive migration patterns into Montana, it does speak to many of the reasons Americans are choosing Montana; wide open spaces, outdoor activities, water, and yes, a healthy economy.

The Migration Trends

Net migration in Montana is occurring 3.3 times faster than pre-pandemic times. Of those moving in, 45% have a college education compared to only 30% 5 years ago. More than 22% of in-migrants are working from home compared to 2019. It is now estimated that Montana will double in size in 40 years versus the pre-pandemic estimate of 70 years. Net in-migration to Yellowstone County has more than doubled since 2019. Yellowstone County is particularly well positioned to take advantage of this trend due to a number of factors. First and foremost, Yellowstone County, and Billings specifically, offers a broad balanced economy anchored by its medical, industrial, distribution and agriculture sectors. Billings also has access to land for future growth and a reliable water supply.

Medical Expansion

SCL, recently acquired by Intermountain Health Care out of Utah, has quickly become the dominate player in regional l health care. Last year SCL/Intermountain sold land in its Shiloh development to Rocky Vista University for the construction of Montana’s first Medical School. This 150,000 SF building is now complete and sits adjacent to SCL’s new West End 65,000 SF clinic currently under construction. While impressive, these projects are dwarfed by SCL/Intermountain’s announcement to build a new $1 Billion dollar hospital downtown on their current parking lot. This project will take over four years to complete and will bring hundreds of contractors and professional service jobs to Billings.

Industrial Demand Strengthens

Industrial demand for shop and warehouse space has been a quieter story. Over the past 5 years, shop/warehouse lease rates have more than doubled and the cost to build new industrial buildings has followed suit. Lease rates have risen from the $5 PSF NNN range to over $10 PSF NNN for newly constructed units. The purchase price has also increased from a low of $75 PSF just 5 years’ ago to over $150 PSF for shop space with indoor facilities.

Housing, A Tug of War

The housing story in Billings presents a tug of war between interest rates and the lack of inventory. Over the past 30 years, inventory levels have hovered around 1,000 homes. Last spring Billings’ inventory shrunk to just 78 homes available on the market. Inventory has since pushed back up to 465 homes. However nearly 232 of these homes are under contract. Continued migration into the Yellowstone market along with the expansion of the medical and industrial sectors ensures a tighter housing market and stable to growing home values for the foreseeable future.

Forecast

So, what lies ahead for Yellowstone County and Billings specifically? According to the BBER, they forecast a small contraction in Montana earnings for 2023 followed by positive growth in 2024, 2025 and 2026. BBER sees a similar contraction this year in Yellowstone County followed by stronger growth in consecutive years than the state as a whole. Forecasting can be a fool’s errand but Billings does appear well positioned for growth whatever the outcome of the greater Montana and US economies portends to be.

George Warmer, Managing Partner