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233073_Bozeman MT 2024Q2 Market Report 09-24-2024
Reioort ,w" �.iw- 1 i!'IT wr ift Aw �. �mot+. � ``� .����� /t-., � „ _ ��• - _ .� / �� ". �1m� `. a► - '{ ....rw;.,,v.J'. • d 1. "d, 2024Q2 E and Market Update Prepared for: Prepared by: City of Bozeman, . . Economic Development Department (to, Systems, BOZ E MAN IVIT The Economics of Land Use e pte m be r 2024 - #233073 Table of Contents ' City Snapshot and Summary 1 City Snapshot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 . ZEconomy 7 Economic Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7. . . . . . . . . . Wages 10 Workforce. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 . 3 Commercial Real Estate 13 Office Market Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. Industrial/Flex Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6. Retail Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 4 Housing 23 Construction . . . . . . . .... . . . . . . . ..... . . . . . . . . .... . . . . . . . . .... . . 23 Housing Prices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 . Apartment Market . . ..... . . . . . . . ..... . . . . . . . ..... . . . . . . . ..... . . 25 Affordability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29. . Housing Demand . . ..... . . . . . . . ..... . . . . . . . ..... . . . . . . . ..... . . 31 ii Bozeman 2024Q2 Economic and Market Update N Table 1. Population and Housing Units,2010-2024. . . . . . . . . . . . . . . . . .2. . . . . . Table 2. MSU Enrollment,2001-2023 . ..... . . . . . . . ..... . . . . . . . ..... . . . 3 Table 3. Peer City Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6. . . . . . . Table 4. Job and Wage Growth,Top Sectors,Gallatin County,2018-2023 ....... . 10 Table S. Changes in Jobs and Wages for Key Sectors,Gallatin County,2018-2023 . . 10 Table 6. Population 25+ by Educational Attainment, Bozeman,2023 . . . . . . . .12 . Table 7. Office Summary,2010-2024 Q2 . . . . . . . . . . . . . . . . . . . . . .14 . . . . . . Table 8. Recent Office Development, Bozeman . . . . . . . . . . . . . . . . . . 15. . . . . Table 9. Industrial/Flex Summary,2010-2024 Q2 . . . . . . . . . . . . . . . . . . . . . . . . 16 Table 10. Recent Industrial/Flex Projects ... . . . . . . . . . ... . . . . . . . . . ... . . . 17 Table 11. Retail Summary,2010-2024 Q2 ... .. . . . . . . . ... . . . . . . . . . ... . . . 19 Table 12. Recent Retail Projects, Bozeman. . . . . . . . . . . . . . . . . . . . . .20 . . . . . . Table 13. Bozeman Permit Trends,2018-2023. . . . . . . . . . . . . . . . . . . . 23. . . . . . Table 14. Home Price Trends,2019-2024 Q2 .. . . . . . . . ..... . . . . . . . ..... . . 24 Table 15. Multifamily Summary,2010-2024 Q2 . . . . . . . ..... . . . . . . . ..... . . 25 Table 16. Recent Multifamily Development, Bozeman . . . . . . . . . . . . . . . .27 . . . . Table 17. Required Annual Income to Afford Median Home Price,2019-2024 Q2 29 Table 18. Bozeman Housing Demand Projection . . . . . . . . . . . . . . . . . . 31 . . . . . Table 19. Bozeman Housing Unit Projection. . . . . . . . . . . . . . . . . . . . . 31 . . . . . . Figure 1. Gallatin Valley Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 W Figure 2. Private Wage and Salary Employment, Bozeman and Gallatin County,2023 7 L Figure 3. Private Employment Growth, Bozeman and Gallatin County,2018-2023 8 Figure 4. Annual Change in Private Employment,2018-2023 . . . . . . . . . . . . .8. . . . •� Figure S. Unemployment Rate,2010-2024 . . . . ..... . . . . . . . ..... . . . . . . . .. 9 LL Figure 6. Change in Employment by Wage Quartile,Gallatin County,2018-2023 . . . 11 Figure 7. Office Deliveries,2010-2024 Q2 ... . . . . . . . . .... . . . . . . . . . ... . . . 14 Figure 8. Industrial Deliveries,2010-2024 Q2. . . . . . . . . . . . . . . . . . . . . 1.7 . . . . . . Figure 9. Retail Deliveries,2010-2024 Q2 . . . . . . . . . . . . . . . . . . . . . . 2Q . . . . . . Figure 10. Multifamily Deliveries,2010-2024 Q2 . . . . . . . . ... . . . . . . . . . ... . . . 26 Figure 11. Income Gap to Afford Median Priced Home, Bozeman,2019 . . . ..... . . 30 Figure 12. Income Gap to Afford Median Priced Home, Bozeman,2024. . . . . . . .30 . Economic & Planning Systems, Inc. iii Notable changes since 2023Q2 Since the 2023 Q2 report, the economic fundamentals in Bozeman and Gall- atin County have not changed.There are however some nuanced but notable trends that this 2024Q2 analysis has identified. Economic engine for the state ► The State of Montana added 40,000 jobs from 2018-2023. Bozeman and Gallatin County accounted for 30%of the state's job growth. Minor shifts in industry growth patterns ► Countywide, hotels and restaurants became the largest industry in terms of total jobs, moving the retail sector from the largest to second largest. Construction remains the 3rd largest industry,and health care the 4th largest. ► As of the 2023Q2 report, construction was the fastest growing industry for the 5-year period of 2017-2023Q2.As of 2024 Q2,job growth in hotels and restaurants edged out construction for the 2018-2024Q2 time-period (countywide). In the City of Bozeman, hotels and restaurants were also the fastest growing sector,followed by health care(2nd), construction (3rd), professional and technical services (4th),and retail (5th). Home price moderation in some areas ► The higher interest rate market has had some impacts on prices in Gallatin County, as high rates reduce people's purchasing power which puts downward pressure on prices.Areas outside of Bozeman have seen drops in the median price,while Bozeman had only minor appreciation. ► In Bozeman,the 2024 Q2 median price was up by 1.9%(to $784,500)over 2023 year end,versus a drop of 3.6%from 2022-2023 and an increase of 14.1%from 2021-2022. ► In Belgrade,the median price dropped by 4.4%to $579,000 from $605,700 at year end 2023. ► In Greater Manhattan,the median price dropped by almost 12%to$650,000 from $713,100 at year end 2023. Multifamily vacancy rates ► The multifamily vacancy rate is currently approximately 9.9%, up from 7.1%in 2023 year-end.There were over 500 new units delivered in the first half of 2024 which likely caused this increase in the vacancy rate.We expect the vacancy rate to stabilize based on continued job growth, and the pattern over the last five years of vacancy rates increasing with new supply and then stabilizing over the next 6 to 12 months as new supply is absorbed. ► Despite the increase in vacancy rates,the average rent in Bozeman has increased to $1,979 per month from $1,717 indicating continued housing demand. Economic & Planning Systems, Inc. 1 1. City Snapshot and Summary This report details the economic landscape of Bozeman and Gallatin County, Montana, focusing on key growth trends, commercial real estate development, and housing market dynamics. Designed for economic developers, real estate developers, and investors, lenders, and policymakers,the report aims to deliver crucial insights into regional growth patterns, industry-specific economic advancements,wage trends, and housing demand and affordability.The purpose is to assist the community in tracking progress, identifying trends, and recognizing potential challenges.This 2024 edition is part of an annual series that monitors and updates market conditions within the city and county. City Snapshot Bozeman, home to 60,425 residents (Table 1), is located in Gallatin County (pop.132,441). Bozeman is notable for its diverse economy, highly educated workforce, and exceptional quality of life; a unique blend rarely found in small cities. Montana State University (MSU) is an anchor in the community and a strong research institution with nearly 17,000 enrolled students and 3,600 faculty and staff.The area has excellent access to year-round outdoor recreation activities and uncrowded spaces.The combination of these factors has supported strong job and wage growth and a related demand for more housing. One of the most pressing issues for the City and greater Bozeman area, is increasing the housing supply, as the median home price is currently $784,500 up f rom $770,000 in 2023. Bozeman is one of the fastest growing f w.. cities in the U.S., adding an estimated 24,000 residents since 2010 or an 111111 . average of 1,713 residents per year. This translates to a = 3.7 percent growth Y_ rate,well above the statewide average of 1.0 percent. �- Economic & Planning Systems, Inc. 1 Table 1. Population and Housing Units,2010-2024 2010-2023 Description • • 2015 2020 2023 Population Bozeman 36,440 40,319 53,293 60,425 23,985 1,713 3.7% Belgrade 7,281 7,738 10,460 12,060 4,779 341 3.7% Manhattan 1,396 1,191 2,086 2,243 847 61 3.4% Other/Uninc. 44,541 51,491 53,121 57,713 13,172 941 1.9% Gallatin County 89,658 100,739 118,960 132,441 42,783 3,056 2.8% Bozeman%of County Pop. 40.6% 40.0% 44.8% 45.6% 56.1% Housing Units Bozeman 16,761 18,293 23,535 27,130 10,369 741 3.5% Belgrade 3,154 3,308 4,339 5,029 1,875 134 3.4% Manhattan 574 653 872 924 350 25 3.5% Other/Uninc. 20,841 23,715 24,089 25,893 5,052 361 1.6% Gallatin County 41,330 45,969 52,835 58,976 17,646 1,260 2.6% Bozeman%of County(HU) 40.6% 39.8% 1 44.5% 46% 58.8% Source:US Census;ESRI Business Analyst;Economic&Planning Systems The majority of County residents live in an area along the 1-90 corridor including and surrounding Bozeman known as Gallatin Valley, also includes Manhattan, Belgrade, and the Four Corners and Gallatin Gateway portions of unincorporated Gallatin County.The most urbanized area of the County is the"Triangle" area that includes Belgrade, Bozeman, and Four Corners (Figure 1). Figure 1. Gallatin Valley Region PPP Gallatin Sacagawak 1 Loga. River Ranch Peak a/!/ n Hillman Edilou Manhattan I1 Springhill J Bntlgl/yer White Powers Belgrade Junction Belgrade Camona Amsterdam Holland 5 Springhill Park Cowan ~ee Vincent e Four orners Bozema 3i WcsFE"h neen Patterson A its Gal atin )Gat'ay Hoffman Chimney Rock 2 Bozeman 2024Q2 Economic and Market Update The Bozeman economy has eight key segments that distinguish it from other midsized cities and recreation or resort-oriented mountain communities. • Higher Education - In 2023, Montana State University (MSU) had 16,978 students enrolled and roughly 3,600 faculty and staff. MSU is one of 146 Rl research institutions with "very high research activity"within the Carnegie Classification of Institutions of Higher Education (Indiana University). Table 2. MSU Enrollment,2001-2023 Enrollment Trends 2001 2010 2015 2023 Undergraduate 10,538 11,579 13,707 14,885 4,347 1.6% Graduate 1,208 1,986 1,981 2,093 885 2.5% Total 11,746 13,565 15,688 16,978 5,232 1.7% Source:Montana State University;Economic&Planning Systems • Tourism and Recreation - Bozeman serves as a "gateway community"to some of the finest outdoor recreation spots in the world, including the Bridger Bowl and Big Sky ski areas, Custer Gallatin Nation Forest, pristine rivers and streams, and the iconic Yellowstone and Glacier National Parks.The Bozeman Yellowstone International Airport (BZN) plays a crucial role, having handled over 2.5 million passengers in 2023. Yellowstone National Park alone attracted 4.5 million visitors that year, marking the second-highest attendance on record. Many of these travelers pass through BZN and Bozeman on route to Yellowstone, cementing the area's status as an international destination. During peak seasons,the streets and restaurants of Bozeman become a vibrant mosaic of cultures,with numerous foreign languages echoing through the air. • Health Care- Bozeman Health is a key healthcare hub in Southwest Montana, employing approximately 2,400 people.The recent redevelopment of the Gallatin Valley Mall into the Gallatin Crossing campus has added new medical facilities, including Intermountain Health and Ortho Montana.This state-of-the-art facility spans over 45,000 square feet and houses a team of 17 surgeons.Additionally,there are numerous other clinics and medical offices both surrounding the hospital and scattered throughout Bozeman.The Billings Clinic recently completed a new$30 million campus to provide critical trauma care. • Technology- Bozeman is a hub for technology and research and development companies that have both started in or moved to Montana. Major employers range from companies focusing on software development to photonics R&D and manufacturing. Photonics and optical technology are an important technological cluster, as are technology firms such as Oracle, Workiva,Aurora, Zoot Enterprises, and numerous other startups.The new MonArk Quantum Foundry, a partnership between MSU and the University of Arkansas, is advancing quantum technologies (using the quantum states of subatomic particles in computing). It is funded with more than $20 million in grants through a program designed to make the United States a leader in the next quantum revolution as part of the National Science Foundation's 10 Big Ideas." • Manufacturing -There are numerous manufacturing firms in Greater Bozeman ranging from outdoor companies (Simms Fishing, Mystery Ranch) to optical technology, cryogenics, materials science, electronics, and aerospace, and even a Gibson Guitar factory. Economic & Planning Systems, Inc. 3 • Retail and Hospitality- Bozeman retailers serve at least a 50-mile trade area, making it the premier retail,services, arts and entertainment, and health care hub in Southwest Montana. Downtown Bozeman is a vibrant main street with independent shops, restaurants, and breweries serving locals and visitors. • Creative Arts-The City has many businesses that provide goods and services based on intellectual property and individual creativity.These businesses include publishing, film,TV, media, design,technology, performing arts, and museums and galleries. • Montana State University Innovation Campus-The MSUIC hosts the only SCIF (Secure Compartmental Information Facility) in the State of Montana and facilitates classified research for both government agencies and the private sector. Bozeman Yellowstone International Airport In 2023, Bozeman Yellowstone International Airport (BZN) handled a record-breaking 2,464,325 passengers, marking an 8.8% increase from the previous year's record of 2,264,424. BZN served as the choice for an estimated 43%of air travelers to or out of Montana in 2023,solidifying its position as a crucial transportation hub in the state. BZN also plays a significant role in supporting the region's tourism and recreation economy, providing access to outdoor recreation, guide companies, and the Big Sky and Bridger Bowl ski areas, as well as business travel.Additionally, BZN offers direct flights to numerous metropolitan destinations. Seattle/TacOTa Portland O Bozeman Yellowstone International Airport(BZN)- �-\ Boston Minneapolis/St.Paul �\\ /JFK Chicago-,OR Newa Salt Lake City San Francisco I Denver Was gto AD) t) Leas�/egas Los Angeles+ Nas Rville 0 ran pe�County _ Cha San Biego_. Phoenix/MesaIan DallaNs-DAL Dallas/Fort Wort Austin ) HouS Fo erdale 4 Bozeman 2024Q2 Economic and Market Update Comparison Cities The presence of a major university, close proximity to outdoor recreation,significant population growth in recent years, and a high quality of life make Bozeman comparable to several other western cities,such as Missoula, MT; Fort Collins, CO; Boulder, CO; Bend, OR and Billings, MT (Table 3). Bozeman has the highest median household income of the Montana comparison cities— Billings and Missoula—at $74,000 compared to $69,700 (Billings) and $59,800 (Missoula). Among homeowners, Bozeman's household income is considerable higher at nearly $105,000.This is higher than in Billings, Missoula and Bend, but still below incomes in Fort Collins and Boulder;this is expected given the larger economy in these cities. In each community,the number of students as a percentage of population is significant. In Bozeman,students equate to an estimated 28.1 percent of the population similar to Boulder. In Fort Collins,the largest of the comparison cities,the student population equates to about 19.5 percent of the population.The large student population has an impact on the rental housing supply and Bozeman is interested in additional multifamily and student housing. Economic & Planning Systems, Inc. 5 Table 3. Peer City Summary Description ®® MT CoCo •Bend,Missoula, Fort Collins, Boulder, Demographics Population 60,425 122,177 77,256 172,581 107,656 108,598 Median Age 29 39 36 33 31 40 %Renter Households 451.7% 35.2% 49.6% 46.3% 51.2% 35.0% Median Household Income Owner $104,824 $86,396 $93,281 $119,910 $141,693 $104,026 Renter Th $56,715 $43,396 $42,479 $52,473 $45,189 $61,203 All Households $74,113 $69,692 $59,783 $78,977 $80,243 $82,671 County Employment' #of Wage and Salary Jobs(2023) 61,935 77,621 55,049 136,098 165,027 81,940 Top 3 Sectors #1 Hotel/ Health Care Health Care Retail Prof.and Tech. Health Care Restaurant Svcs. #2 Retail Wholesale Retail Hotel/ Health Care Retail Trade Restaurant #3 Construction Hotel/ Hotel/ Health Care Manufacturing Hotel/ Restaurant Restaurant Restaurant Top 3 Growth Sectors('18223) Hotel/ Hotel/ Prof.and Tech. Prof.and Tech. Prof.and Tech. #1 Health Care Restaurant Restaurant Svcs. Svcs. Svcs. #2 Health Care Health Care Health Care Health Care Manufacturing Prof.and Tech.Svcs. #3 Construction Construction Construction Wholesale WholesaleTrade Trade Construction Higher Education Montana Montana Colorado Oregon State Major Colleges/Universities State State University of State University University- University University Montana University of Colorado Cascades Billings Enrollment(Fall 2023) 16,976 4,092 9,995 33,648 37,153 1,313 %of Total Population -7 28.1% 3.3% 12.9% 19.5% 34.5% 1.2% Source:U.S.Census ACS 2022 5-year,QCEW,Economic&Planning Systems Employment data is at the county level for wage and salary jobs only.There are closer to 100,000 total jobs in Gallatin County when self-employed and some government jobs are included. 6 Bozeman 2024Q2 Economic and Market Update 2. Economy Economic Trends Bozeman and Gallatin County have a diverse economy driven by key segments that distinguish it from other midsize cities. While retail trade and hotels and restaurants are large sectors, Bozeman and Gallatin County also have significant numbers of jobs in construction, health care, professional and technical services, manufacturing,finance and insurance, and business services (admin./waste mgt. services) (Figure 2).The largest employers in Bozeman, include Montana State University and Bozeman Health Deaconess Regional Medical Center. Large education and healthcare sectors ("eds" and meds") create economic stability and new firms. Per the U.S. Bureau of Economic Analysis (BEA),there were approximately 73,303 private wage and salary jobs in the County and at least 105,000 total jobs including proprietors and government (including MSU), in 2022. Over half of the jobs in the County are within the City of Bozeman.A key industry cluster in Bozeman is photonics with over 1,000 workers spanning multiple industries (approximately 0.3 percent of the U.S. photonics industry'). Figure 2. Private Wage and Salary Employment,Bozeman and Gallatin County,2023 ■Gallatin Bozeman Total Jobs 0 2,000 4,000 6,000 8,000 10,000 Hotel/Restaurant 5,720 10,380 Retail 6,329 9,338 Construction 2,437 7,436 Health Care 6 5,953 7,261 Prof.&Tech.Services 3,144 5,479 Manufacturing 1,662 3,731 Admin/Waste Mgmt 1,106 2,718 Other 723 2,711 1, Wholesale Trade 755 2,304 Arts/Rec 901 2,095 Finance MMMM 1,928 1,259 Real Estate 4- 1,769 Transportation MMMOM 1,412 Education MMIM 977 Ag./Forest/Hunting 11� 913 Information IIIIIIIIIIIIIIIIIIIN47176 Management M 257 Mining/Oil M 208 Utilities 0118 Unclassified 185 Source:Montana DLI,BLS QCEW,Economic&Planning Systems 1 https://www.montanaphotonics.org/ Economic & Planning Systems, Inc. 7 Between 2018 and 2023, Gallatin County added 11,741 private wage and salary jobs (4.3 percent per year),with Bozeman capturing approximately 42 percent of the growth. Employment growth in the county was driven by the following industries: Hotels& Restaurants,Construction, Health Care, and Retail (Figure 3).Within Bozeman,the job sectors that have added the most jobs since 2018 are Retail, Health Care, and Hotel & Restaurants.The State of Montana added 40,000 jobs from 2018-2023. Bozeman and Gallatin County accounted for 30 percent of the state's job growth. Figure 3. Private Employment Growth,Bozeman and Gallatin County,2018-2023 ■Gallatin ■Bozeman Total Jobs -200 300 800 1300 1800 2300 2800 Hotel/Restaurant 2473 Construction 1599 Health Care 1 1312 Retail 12 0 Prof.&Tech.Services 1057 Arts/Recrl 662 Real Estate _576 Admin/Waste Mgmt Wholesale Trade -45 455 Finance 397 Ag./Forest/Hunting irTF111111111111111 0359 327 Other 755 Manufacturing MWIV 8 Education r?f= 182 Transportation -27 r 105 Unclassified 72 Information R 69 Management !4' Mining/Oil ■31 Utilities 1 12 Source:Montana DLI,BLS QCEW,Economic&Planning Systems Bozeman and Gallatin Figure 4. Annual Change in Private Employment,2018-2023 County experienced only Changein minor job impacts from Employment ■Gallatin ■Bozeman the COVID-19 pandemic. 5,000 From 2019-2020,the 4,000 data recorded a small increase in jobs in the 3,000 County as a whole, and a loss of 1,460 jobs in 2,000 Bozeman.There has been a strong recovery 1,000 since the pandemic 0 and since 2021, Gallatin County has added -1,000 roughly 11,200 jobs,47.3 percent of which were -2,000 2018-19 2019-20 2020-21 zozl-zz 2022-23 located in Bozeman. Source:QCEW,Montana DLI,Economic&Planning Systems 8 Bozeman 2024Q2 Economic and Market Update Unemployment rates in Bozeman and Gallatin County have steadily decreased since 2010,with a notable spike in 2020 due to COVID-19 (Figure 5). Since then,the rates have rebounded,with current figures at 2.3 percent for Gallatin County and 2.2 percent for Bozeman.Although these rates have risen from the historical lows of 1.9 percent in the County and 1.8 percent in Bozeman in 2022,this modest increase is beneficial. Extremely low unemployment can lead to adverse effects such as inflation, labor shortages, and decreased productivity. Figure S. Unemployment Rate,2010-2024 Unemployment Rate —Montana —Gallatin —Bozeman 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 YTD Source:BLS,-,Economic&Planning Systems GALLATIN COUNTY TOP PRIVATE EMPLOYERS, 2023 INDUSTRY/ NUMBER OF DESCRIPTION EMPLOYMENT TYPE EMPLOYEES Bozeman Deaconess Hospital Health Care 1,000 and over Big Sky Resort Ski Resort 500 to 999 Town &Country Foods Retail Trade 500 to 999 Bozeman Health Medical Group Health Care 250 to 499 Bridger Bowl Ski Resort 250 to 499 Costco Retail Trade 250 to 499 Kenyon Noble Lumber&Hardware Retail Trade 250 to 499 Lone Mountain Land Company Construction 250 to 499 Montage Big Sky Hotel/Restaurant 250 to 499 Oracle America Technology 250 to 499 Ressler Motors Retail Trade 250 to 499 Town Pump Retail Trade 250 to 499 Wal Mart Retail Trade 250 to 499 Albertsons Retail Trade 100 to 249 Community Food Co-Op Retail Trade 100 to 249 Gibson Brands Manufacturing 100 to 249 Glacier Bancorp Finance/Insurance 100 to 249 McDonalds Restaurant 100 to 249 Murdoch's Ranch &Home Supply Retail Trade 100 to 249 Williams Plumbing &Heating Construction 100 to 249 Zoot Enterprises Technology 100 to 249 Source:Montana Department of Labor and Employment,Economic&Planning Systems Economic & Planning Systems, Inc. 9 Wages The region continues to experience strong wage growth.Average annual wages in Gallatin County increased at a rate of 7.5 percent per year between 2018 and 2023 (Table 4). Inflation in the Bozeman market during this time period was 23.4 percent,or approximately 4.7 percent annually. The fastest growing sectors in Gallatin County are Hospitality (including hotels and restaurants), Construction, and Healthcare. Since 2018, Hotels& Restaurants have expanded significantly, adding 2,473 jobs. In 2023,the average annual wage in this sector reached $33,619, marking a 9.3 percent increase in the past five years. Construction also saw substantial growth,with 1,599 new jobs and an average wage of$74,839, an increase of 6.4 percent over the same period. Meanwhile,the Healthcare sector added 1,312 jobs,with an average wage of$62,386, reflecting a 5.0 percent increase since 2018. These trends highlight the dynamic economic development in Gallatin County, driven by increased demand for services and infrastructure as the area continues to grow and attract new residents.The rising wages in these sectors not only indicate economic vitality but also suggest a response by employers to high housing costs. Table 4. Job and Wage Growth,Top Sectors,Gallatin County,2018-2023 2018-2023 Job Annual Wage Description Growth 2018 Avg.Wage 2023 Avg.Wage Growth All Jobs/Sectors 11,749 $43,572 $62,429 7.5% Hotel Restaurant 2,473 $21,522 $33,619 9.3% Construction 1,599 $54,990 $74,839 6.4% Health Care 1,312 $48,894 $62,386 5.0% Retail 1,200 $32,698 $45,997 7.1% Prof.&Tech.Services 1,057 $72,413 $115,317 9.8% Arts Recreation 1 662 $24,484 $32,536 5.9% Source:Bureau of Labor Statistics QCEW;Economic&Planning Systems Table S. Changes in Jobs and Wages for Key Sectors,Gallatin County,2018-2023 Description Actual Change All Jobs Sectors 52,012 $45,615 50,673 $51,100 55,403 $54,801 58,482 $58,645 61,935 $62,429 Hotel Restaurant 8,178 $22,659 6,911 $24,329 8,239 $28,197 8,925 $30,528 10,380 $33,619 Construction 6,083 $56,908 6,401 $59,923 6,783 $65,210 6,956 $71,702 7,436 $74,839 Health Care 6,019 $52,018 5,993 $56,062 6,554 $54,144 6,901 $60,672 7,261 $62,386 Retail 8,329 $34,416 8,190 $37,987 8,814 $41,235 9,101 $44,516 9,338 $45,997 Prof.&Tech.Services 4,667 $75,359 4,828 $87,406 5,109 $88,177 5,272 $97,540 5,479 $115,317 Arts/Recreation 1,579 $24,456 1,457 $28,552 1,647 $30,168 1,862 $32,649 2,095 $32,536 0 MMM Description Wage ����� Percentage Change All Jobs Sectors 3.6% 4.7% -2.6%F 12.0% 9.3% 72% 5.6% 70% 5.9% 6.5% Hotel Restaurant 3.3% 5.0% -15.5% 7.4% 19.2% 15.9% 8.3% 8.3% 16.3% 10.1% Construction 4.0% 3.4% 5.2% 5.3% 6.0% 8.8% 2.6% 10.0% 6.9% 4.4% Health Care 1.2% 6.0% -0.4% 7.8% 9.4% -3.4% 5.3% 12.1% 5.2% 2.8% Retail 2.3% 5.0% -1.7% 10.4% 7.6% 8.5% 3.3% 8.0% 2.6% 3.3% Prof.&Tech.Services 5.2% 3.9% 3.4% 16.0% 5.8% 0.9% 3.2% 10.6% 3.9% 18.2% Arts Recreation 1 9.2% 1 4.6% -7.7% 1 16.7% 1 13.0% 1 5.7% 1 13.1% 1 8.2% j 2.5% -0.3% Source:Bureau of Labor Statistics QCEW;Economic&Planning Systems 10 Bozeman 2024Q2 Economic and Market Update Given that Hotels& Restaurants is the fastest-growing job sector in Gallatin County, it is expected that the first wage quartile (the lowest 25 percent of earners) would see substantial growth. Of the 11,741 jobs added between 2018 and 2023, 4,844, or 41 percent, were in this quartile,with annual wages at or below approximately$52,000, equivalent to $25 per hour (Figure 6). The second quartile, representing the next 25 percent of wage earners with annual salaries between $53,000 and $65,000, accounts for 22 percent of the jobs added.This wage bracket typically includes positions in Manufacturing,Administrative Services, Healthcare or Social Services, and Agriculture.The third quartile, covering the 50th to 75th percentile with salaries ranging from $65,000 to $91,000, contributed 24 percent of the new jobs,with roles in sectors such as Mining, Management, Construction, and Real Estate.The fourth quartile,which includes the highest wage earners earning over $91,000 annually, added the fewest jobs, comprising 13 percent of the total.This quartile typically includes positions in Information Technology, Professional and Technical Services, Utilities, and Finance. Figure 6. Change in Employment by Wage Quartile,Gallatin County,2018-2023 Changein Employment 41% 4 5,000 4,844 4,000 24% 22% 2,777 3,000 2,559 13% 2,000 1,569 1,000 0 0-25%($0-$52,461) 25-50%($52,461-$64,560) 50-75%($64,560-$90,862) 75-100%($90,852- Source:BLS QCEW,Economic&Planning Systems $130,882) Economic & Planning Systems, Inc. 11 Workforce The regional workforce is highly skilled and well educated.Approximately 63.3 percent of Bozeman's workforce has a bachelor's degree or higher (Table 6). Of its peer cities, only Boulder, CO exceeds Bozeman in this ranking,with 79.2 percent of its population having a bachelor's degree or higher.The presence of MSU and the high concentration of professional and high skill jobs-such as technology and health care-are drivers of the highly educated local workforce. Places with a high quality of life are also able to attract skilled labor as highly educated skilled workers have more choices and flexibility in where they choose to work and live. Table 6. Population 25+ by Educational Attainment, Bozeman,2023 Education Level Population 25+ 37,126 85,044 66,313 78,297 112,463 53,942 High School or Less, No Diploma 2.3% 4.3% 2.4% 3.7% 2.7% 3.7% High School Graduate or Equivalent 12.9% 28.9% 5.7% 16.1% 13.9% 18.4% Some College, No Degree 15.1% 20.3% 8.4% 19.4% 14.1% 18.5% Associate's Degree 6.4% 8.5% 4.3% 10.7% 8.7% 8.7% Bachelor's Degree 39.5% 26.2% 39.4% 30.0% 36.1% 32.0% Graduate/Professional Degree 23.8% 11.7% 39.8% 20.1% 24.6% 18.8% Total 100% 100% 100% 100% 100% 100% Bachelor's Degree or Higher 63.3% 37.9% 79.2% 50.1% 60.P/0 50.P/0 Source:U.S.Census;ESRI Business Analyst;Economic&Planning Systems 12 Bozeman 2024Q2 Economic and Market Update 3. Commercial Real Estate This chapter provides an overview of the commercial real estate trends and conditions in Bozeman and Gallatin County.This analysis includes a summary of the total inventory, rental rates,vacancy rates, and deliveries. Commercial real estate data comes from CoStar, a subscription real estate database and market information service. CoStar relies on broker-reported data and as a result, it frequently updates its information, and historical data may change as more detailed information becomes available. Office Market Trends From 2010 to the second quarter of 2024, Gallatin County's office space grew by approximately 1.03 million square feet, averaging roughly 76,000 square feet annually. This growth trend has continued recently,with an estimated 184,000 square feet added from 2020. Net inventory growth is calculated by subtracting demolitions or conversions from new construction (Table 7). Bozeman is the central hub for office space with Gallatin County, holding 80.3 percent of the entire county's current office inventory. Since 2010 Bozeman has captured 74.4 percent of new office construction in Gallatin County, and 88.1 percent of the new office construction in the county since 2020. Average office lease rates in Bozeman have more than doubled since 2010, rising from $11.71 to $26.25 per square foot, reflecting a 6.2 percent annual increase. Over the past decade, office vacancy rates in Gallatin County and Bozeman have consistently stayed below 4.0 percent. Currently,vacancy rates are 3.2 percent in Bozeman and 3.0 percent in Gallatin County.This combination of rising lease rates and low vacancy rates underscores the strong demand for office space in the area, indicating a thriving and expanding commercial real estate market. Data on office construction, or "deliveries," can offer more detailed insights into market activity. From 2010 to Q2 2024,74.0 percent of all new office space in Gallatin County was delivered within Bozeman's city limits. Since 2020,this figure has risen to 84.2 percent. (Figure 7).This concentration of new office MEN development highlights Bozeman's growing role as the primary center for office space in the county, reflecting its increasing economic vitality and appeal to businesses. Economic & Planning Systems, Inc. 13 Table 7. Office Summary,2010-2024 Q2 e Inventory Bozeman 2,434,168 3,038,994 3,066,863 3,176,076 3,191,686 3,201,088 Gallatin County 2,955,324 3,801,987 3,829,856 3,940,459 3,980,069 3,986,069 Bozeman as Pct.of County 82.4% 79.9% 80.1% 80.6% 80.2% 80.3% Avg.Rent Bozeman $11.71 $21.61 $21.63 $22.92 $25.20 $26.25 Gallatin County $11.78 $20.98 $20.97 $22.30 $24.74 $25.69 Avg.Vacancy Bozeman 3.0% 2.7% 3.0% 1.6% 3.4% 3.2% Gallatin County 2.8% 2.4% 2.6% 1.4% 3.1% 3.0% Change 2010-2024 e e Description Total Inventory Bozeman 766,9201 56,809 2.0% 162,094 46,313 1.5% Gallatin County 1,0 00,745 76,351 2.2% 184,082 52,595 1.4% Pct. of County 74.4% 88.1% Avg.Rent Bozeman $14.55 $1.08 6.2% $4.64 $1.33 5.7% Gallatin County $13.91 $1.031 5.9% 1 $4.71 $1.35 6.0% Source:CoStar;Economic&Planning Systems Figure 7. Office Deliveries,2010-2024 Q2 ■Bozeman ■Rest of Gallatin County Sq.Ft. 300,000 250,000 200,000 150,000 100,000 50,000 , ■ - , , 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Source:Costar;Economic&Planning Systems 14 Bozeman 2024Q2 Economic and Market Update Some notable office and office/mixed use projects built since 2022 are listed below (Table 8).These newer buildings have higher rents averaging almost$32 per square foot,which is higher than the market average of$26 per square foot. Table 8. Recent office Development,Bozeman Avg Rent Description Address Year Built RBA per sq.ft. Notable Deliveries Aspen Crossing 505 W Aspen St 2022 64,000 --- DA Davidson,VA Clinic 1101 E Main St 2022 33,213 $30.00 Security Title Building 116029 2022 12,000 $31.00 155 Mill Town Loop Unit A 155 Mill Town Loop Unit A 2022 1,390 $29.46 The Oz 2952 Technology Blvd W 2023 15,610 $32.60 1450 Twin Lakes Ave- Building 1 1450 Twin Lakes Ave 2023 24,000 $40.59 4351 Fallon St 4351 Fallon St 2024 6,000 27.00 Total/Weighted Average 156,2131 $33.12 Source:Costar;Economic&Planning Systems Notable Project Mountain View- Located at the intersection of N. Tracy and W. Lamme / Street, in the North Central Development area of l Downtown Bozeman, Mountain Viewwill feature` %I 1 up to 100,000 square it 1 feet of new Class A office it GY space and 15,000 square ( I ' feet of ground-floor retail.Additionally,the upper floors will have 30 residential,for sale units, Photo Courtesy:Costar including a mix of 1- and 2-bedroom condos. Economic& Planning Systems, Inc. 15 Industrial/Flex Market Between 2010 and Q2 2024, industrial space in Gallatin County grew by roughly 970,000 square feet, averaging 72,000 square feet per year (Table 9). Bozeman contributed only 3.3 percent of this growth,with industrial expansion there slowing significantly. Since 2020, Bozeman has added roughly 4,280 square feet of new industrial or flex space, averaging about 1,200 square feet per year. In contrast,the rest of the county added 333,500 square feet during the same period,with Bozeman's market share of this growth at just 1.3 percent. Lower land costs outside Bozeman, particularly in Four Corners and Belgrade, are driving industrial growth in these areas. Nevertheless, Bozeman remains a key location for higher-value industrial uses and flex/R&D space due to its strategic location and robust infrastructure. Since 2010, Gallatin County's rental rates have risen by 4.6%annually,while Bozeman's rates have declined by 1.3% per year.As of Q2 2024, CoStar reports industrial rents in Bozeman at$9.00 per square foot, compared to $13.18 in the rest of the county. Despite these differences, both Bozeman and the county have maintained low vacancy rates, currently 0.9% in Bozeman and 2.3% in the county,suggesting demand for more industrial and flex space. Table 9. Industrial/Flex Summary,2010-2024 Q2 Description Inventory Bozeman 967,192 995,386 995,386 995,386 997,9051 999,666 Gallatin County 3,395,253 4.031.339 4,081,955 4.0 66.955 4,332,862 4,364,839 Bozeman as Pct.of County 28.5% 24.7% 24.4% 24.3% 23.0% 22.9% Avg.Rent Bozeman $10.67 $1744 $22.32 $21.14 $15.81 $9.00 Gallatin County $7.20 $12.73 $14.04 $16.90 $14.50 $13.18 Avg.Vacancy Bozeman 1.2% 2.0% 0.1% 2.9% 1.7% 0.9% Gallatin County 2.6% 1.4% 0.6% 1.0% 1.6% 2.3% Description Total Ann.# Inventory Bozeman 32,474 2,405 0.2% 4,280 1,223 0.1% Gallatin County 969.586 71,821 1.9% 333.500 95,286 2.3% Pct. of County 3.3% 1.3% Avg.Rent Bozeman -$1.67 -$0.12 -1.3% -$8.44 -$2.41 -17.2% Gallatin County $5.98 $0.441 4.6% 1 $0.451 $0.13 1.0% Source:CoStar;Economic&Planning Systems 16 Bozeman 2024Q2 Economic and Market Update There is a gap in the flex and R&D market as there is not enough lab and wet lab space to support the nascent bioscience sector.These buildings are difficult to be built speculatively. In Gallatin County, 804,315 square feet of industrial space were delivered since 2010 (Figure 8). Of these deliveries, 7.1 percent were built in Bozeman. Figure 8. Industrial Deliveries,2010-2024 Q2 ■Bozeman ■Rest of Gallatin County Sq.Ft. 300,000 250,000 200,000 150,000 100,000 50,000 0 , , ■ — mill 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Source:Costar;Economic&Planning Systems Q2 The majority of recent industrial and flex construction in the area has been outside the city in the Four Corners area of Gallatin County (Table 10). Table 10. Recent Industrial/Flex Projects Year Avg Rent Description Address Region Built RBA per sq.ft. Notable Deliveries BZ Materials 125-127 Ginger Bear Ln Four Corners 2022 6,109 $6.64 Revive Salon,Aurore Bakery, Hybrid Motion, LLC 141 Baxter Lane West Four Corners 2023 34,000 $6.24 Swiss Plaza Condo 2994-3016 N 27th Ave Bozeman 2023 2,494 $5.78 7401 Shedhorn Flex/Warehousing 7401 Shedhorn Dr Four Corners 2024 18,830 $18.00 Total/Weighted Average Four Corners 61,433 $9.87 Source:Costar;Economic&Planning Systems Economic & Planning Systems, Inc. 17 Notable Projects North Loop Rail Served Industrial Park- A 250-acre area in north Bozeman, located east of 1-90 and west of Frontage Road, is1 undergoing significant development.The Phase I infrastructure is now complete,with ]z three parcels officially closed.These parcels 3. will house a large-scale building supply 3b company and a Wyndham ECHO economy 4b �b extended-stay hotel.Additional planned uses include a 520-unit workforce housing ' community, a 150,000-square-foot modular manufacturing facility, and three Class A industrial warehouse/distribution buildings totaling 287,000 square feet. Phase 11 consists of three tracts totaling 36.11 acres,zoned for a rail-served industrial use. Nelson Meadows Business Park-This master planned commercial subdivision located in northwest Bozeman, at the o v corner of Nelson Road and Frontage Road, © © o © o v v v v v is currently under construction.The site is . ,I comprised of 27 building lots that vary in F ; size from 0.7 acres to 5.27 acres.This prime I location for businesses will connect Bozeman ® v to Yellowstone International Airport, offering unparalleled visibility from 1-90 and Frontage ® v Road,just west of the 19th Ave interchange, and will be serviced by city utilities. v ®0 ivy 18 Bozeman 2024Q2 Economic and Market Update Retail Market Bozeman is the regional trade hub for Southwest Montana and serves a roughly 50-mile radius. Gallatin County has an estimated 6.5 million square feet of retail inventory,71.8 percent or 4.67 million square feet of which is located within Bozeman (Table 11).Average retail rents are similar in both the City and County at approximately$19.59 per square foot, and $20.67 per square foot respectively. Retail rents grew slowly at about 2.6 percent per year in Gallatin County, and by only 0.8 percent per year in Bozeman from 2010 to present day.Vacancy rates for retail space in Bozeman and Gallatin County have been notably low since 2010 and are currently 1.9 and 1.5 percent respectively. Table 11. Retail Summary,2010-2024 Q2 Description 2010 6 1 e Inventory Bozeman 4,231,243 4,540,908 4,611,908 4,643,626 4,665,626 4,665,626 Gallatin County 5,841,515 6,314,130 6,385,130 6,416,848 6,502,103 6.5 22.103 Bozeman as Pct.of County 72.4% 71.9% 72.2% 72.4% 71.8% 71.8% Avg.Rent Bozeman $1757 $20.35 $21.18 $21.32 $20.01 $19.59 Gallatin County $14.63 $20.23 $21.38 $21.23 $19.83 $20.67 Avg.Vacancy Bozeman 1 1.8% 2.3% 1.6% 1.5% 1.3% 1.9% Gallatin County 2.0% 2.1% 1.5% 1.2% 1.1% 1 1.5% Change 2010-2024 e e Inventory Bozeman 434,383 32,177 0.7% 124,718 35,634 0.8% Gallatin County 660,588 48,932 0.8% 187,973 53,707 0.8% Pct.of County 65.8% 66.3% Avg.Rent Bozeman $2.03 $0.15 0.8% -$0.75 -$0.22 -1.1% Gallatin County $6.04 $0.45 2.6% $0.45 $0.131 0.6% Source:CoStar,Economic&Planning Systems Economic& Planning Systems, Inc. 19 Between 2010 and Q2 2024, Bozeman delivered roughly 631,000 square feet of retail space (Figure 9) or 52,578 square feet per year.Just over 200,000 square feet of this was in 2011 when two large car dealerships were built on S. Cottonwood. Bozeman continues to have 79 percent market share in new retail construction. Recent new retail projects include the first Whole Foods and a new WinCo Foods supermarket. Figure 9. Retail Deliveries,2010-2024 Q2 ■Bozeman ■Rest of Gallatin County Sq.Ft. 300,000 250,000 200,000 150,000 100,000 50,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Source:Costar;Economic&Planning Systems Table 12. Recent Retail Projects, Bozeman Avg Rent Description Address Year Built RBA per sq.ft. Notable Deliveries WinCo Foods 2913 Max Ave 2021 75,000 --- Whole Foods 2905 W Main St 2022 31,718 $24.36 Total/Average 106,718 $24.36 Source:Costar;Economic&Planning Systems 20 Bozeman 2024Q2 Economic and Market Update Bozeman's retail inventory is comprised of a wide variety of national grocery chains, big box retailers, and smaller local stores.There are 10 full-service supermarkets in Bozeman (including the Walmart Supercenter) plus several smaller specialty food stores and independent grocers such as the Community Food Co-op. Bozeman also has several national general merchandise and home improvement anchor retailers including Costco, Target, Home Depot, Lowe's, Kohl's, and Macy's. BOZEMAN RETAIL INVENTORY DESCRIPTION STORE TYPE DESCRIPTION STORE TYPE AVG.SQ.FT. AVG.SQ.FT. Supermarkets and Grocery Stores Shoppers'Goods Walmart 200,550 Costco 114,512 Target 107,694 Kohl's 57,045 WinCo Foods 75,000 Macy's 51,828 Rosauers Foods&Drug Center 60,045 Sportsman's Warehouse 44,018 Safeway 56,117 Hobby Lobby 41,796 Smith's 55,000 Bob Ward's Sports&Outdoors 30,495 Albertsons 53,746 Ross Dress For Less 30,130 Whole Foods Market 31,718 REI 25,177 Town and Country Foods 26,449 Barnes&Noble 25,000 Town and Country Foods 20,404 Joann 25,000 Building Material and Garden Staples 22,194 Lowe's 99,440 T.J. Maxx 21,064 The Home Depot 95,337 Michaels 20,372 Kenyon Noble Lumber and Hardware 57,375 Universal Athletic 20,000 Murdoch's Ranch &Home Supply 48,904 Ashley HomeStore 30,800 Ace Hardware 24,302 Commercial Metals 24,275 Harbor Freight Tools 19,582 Source:Costar;Economic&Planning Systems Economic & Planning Systems, Inc. 21 Notable Projects Gallatin Crossing-The redevelopment of the Gallatin Valley Mall, -� rebranded as Gallatin Crossing, is a significant retail repositioning project currently in progress. Notably, new tenantsthat opened in 2023 are Whole Foods Market, Intermountain Health (previously SCL Health), and a J. Crew Factory store. The redevelopment strategy includes an additional 15,000 square feet of retail space,with a general concept of creating public gathering space, a main street feel, and a broad mix of tenants, including healthcare, and entertainment. Ferguson Farm is a commercial district covering approximately 50 acres on Bozeman's west side, located at the intersection of S. Cottonwood and Huff ine (U.S.191). Phase I,which is now complete, includes the Icon Apartments, a 336-unit residential INK Schedulicity, (rim. a global company headquartered in .■;- - -- - '::" Bozeman; and The Market, a 21,000-square-foot food hall featuring specialty retailers. Phase II is planned for an additional 31 acres east of the existing phase,with the potential to accommodate 850,000 square feet of commercial space, including a hotel. Block 3x- Block 3X, part of the North Central development,will feature four commercial buildings between W. Beall and W.Villard Street. Designed with pedestrian alleys, courtyards, and green spaces, it aims to become a vibrant hub for dining,shopping, working, art walks, and festivals.The developer also plans for up to 200 residential units available for lease. 22 Bozeman 2024Q2 Economic and Market Update 4. Housing This chapter provides an overview of the housing market in Bozeman, including an analysis of building permit trends, home prices,the rental market, and key indicators of housing affordability. More detail can be found in the Gallatin County Housing Needs Assessment. Construction Bozeman's housing market has seen strong, continuous growth in recent years.The City has issued an average of1,161 permits each year since 2018 (Table 13). From 2018 to the end of 2023, multifamily residences - including apartments and condominiums- have accounted for 54.4 percent of housing construction in Bozeman. Single-family attached housing,such as townhomes,duplexes,triplexes, and fourplexes, has been the second- largest contributor, representing 26.8 percent of new construction. Meanwhile,single-family detached homes have made up 16.9 percent of the new construction,with a total of 1,180 units added since 2018.The remaining 1.9 percent of new dwelling units consists of accessory dwelling units (ADUs). Table 13. Bozeman Permit Trends,2018-2023 Single Family 299 217 197 195 116 F 1561 1,180774.-43./. Duplex 92 98 94 106 40 152 582 Triplex 45 33 42 39 51 87 297 50 Fourplex 136 84 88 92 68 100 568 95 8.2% Detached Accessory Dwelling Unit 20 28 9 25 26 22 130 22 1.9% Multifamily/Condo 593 546 734 866 337 714 3,790 632 54.4% Townhome 66 95 81 60 81 37 420 70 6.0% Total 1,251 1,101 1,245 1,383 719 1,268 6,967 1,161 100.0% Source:City of Bozeman;Economic&Planning Systems Economic& Planning Systems, Inc. 23 Housing Prices Bozeman continues to have strong home price appreciation even in the higher interest rate climate,with the current median price for a single-family residence at$784,500.The most significant year-over-year increase occurred between 2020 and 2021,with a nearly 30 percent rise (Table 14).This rapid appreciation is partly attributed to amenity migration from large metropolitan areas during the COVID-19 pandemic. Since 2016, Bozeman has seen an average annual increase of11 percent in median sale prices. Similarly,surrounding communities and the entire county have witnessed comparable trends,with prices effectively doubling over the past six years. Other areas saw some declines in the median price. This sharp price increase poses challenges for affordability,workforce attraction and retention, and overall quality of life. For investors, it signals strong demand, limited supply, and opportunities for development in a robust market.The City is exploring ways to responsibly expand housing supply while preserving community health and wellbeing. The City has incentives for affordable and workforce housing up to 120 percent of AMI including: • Funding for gap closure; • Density bonus program; • Tax increment financing through its comprehensive urban renewal program. Table 14. Home Price Trends,2019-2024 Q2 Median Sales Price Bozeman $460,000 $540,000 $700,000 $799,000 $770,000 $784,500 $324,500 12.6% Belgrade $340,950 $375,000 $535,000 $577,720 $605,700 $579,000 $238,050 12.5% Greater Manhattan $416,000 $564,750 $640,000 $737,500 $713,100 $650,000 $234,000 10.4% Gallatin County $397,500 $439,900 $685,000 $790,000 $792,000 $820,000 $422,500 175% YOY%Change Bozeman 7.6% 174% 29.6% 14.1% -3.6% 1.9% Belgrade 6.5% 10.0% 42.7% 8.0% 4.8% -4.4% Greater Manhattan 6.9% 35.8% 13.3% 15.2% -3.3% -8.8% Gallatin County 6.1% 10.7% 55.7% 15.3% 0.3% 3.5% Source:Gallatin Association of Realtors;Economic&Planning Systems 24 Bozeman 2024Q2 Economic and Market Update Apartment Market In Q2 2024, Bozeman had 6,036 apartment units in its inventory (Table 15). Since 2020,the city has added an average of 493 apartment units per year.These totals account only for units in apartment buildings and exclude other types of rented homes.This means that 78.5 percent of the multifamily inventory in Gallatin County is within Bozeman's city limits, as tracked by CoStar. From 2010 to Q2 2024, Bozeman delivered 3,448 apartment units (Figure 10),which is 84.5 percent of the added growth during that time in Gallatin County. On average,vacancy rates have been consistently low over the past decade. Because the rental market in Bozeman is undersupplied,the vacancy rates have followed a pattern of increasing when new inventory enters the market, and then quickly decreasing as the units are quickly absorbed,thus explaining the high vacancy rates in 2015, and the current rate of 9.9 percent.While Bozeman's current vacancy rate is up significantly compared to 2020,given that Bozeman just delivered an estimated 550 units to the market in the first half of 2024, it is likely that these rates will normalize by the end of the year based on strong job growth and past patterns in the vacancy rate. Table 15. Multifamily Summary,2010-2024 Q2 Description 20101 2020 20211��@ e Inventory Bozeman 2,588 4,312 4,495 5,010 5,486 6,036 Gallatin County 3,609 5 409 5,593 6,276 7,141 7 991 Bozeman as Pct.of County 71.70/6 79.7% 80.4% 79.8% 76.8% 78.5% Avg.Rent Bozeman $1,455 $1,717 $1,847 $1,968 $1,989 $1,979 Gallatin County $1,474 $1,735 $1,860 $1,979 $1,988 $1,971 Avg.Vacancy Bozeman 5.7% 5.8% 4.0% 4.9% 7.1% 9.9% Gallatin County 5.3% 4.9% 1 3.6% 4.9% 9.3% 11.2% Change 2010-2024 e e Description Inventory Bozeman 3,448 255 6.5% 1,724 493 10.1% Gallatin County 4. 882 302 5.8% 2.282 652 10.6% Pct.of County 84.5% 75.5% Avg.Rent Bozeman $523.751 $38.80 2.3% $261.25 $74.641 4.1% Gallatin County $497501 $36.85 2.2% $235.75 $67.361 3.7% Source:Co$tar;Economic&Planning Systems Economic& Planning Systems, Inc. 25 Figure 10. Multifamily Deliveries,2010-2024 Q2 ■ Bozeman ■ Rest of Gallatin County Units 1,000 900 800 700 600 500 400 300 200 100 — ■ ■ — ' 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Source:Costar;E con omic&PlanningSystems Notable Projects From 2023 to the second quarter of 2024, --__1111------ Bozeman delivered eight major (50+ units) apartment buildings,seven of which are market rate and one rent restricted.The sole rent restricted apartment building, �.- The Annex of Bozeman, has a total of 134 units, and an average effective rent of $2,207 per unit. It combines workforce Northwest Crossing rental housing, and student housing with rents restricted to households earning between 80 and 120 percent of AMI. - ► : > �Y Of the market rate apartments, average rents range from $1,898 to $2,906 per unit. The largest of these apartment buildings with 326 units, Northwest Crossing, built in 2024, has an average rent of$2,455 and an average unit size of 1,082 square feet. Built in 2023,the second largest building,with The Oxbow 268 units,The Oxbow has an average rent lop of$2,278 per unit and an average unit size of 887 square feet.And the third largest building, built in 2024, is The Edison at Bozeman Gateway.This building consists of 231 units,with an average rent of$2,273 and an average size of 858 square feet. The Edison at Bozeman Gateway 26 Bozeman 2024Q2 Economic and Market Update Table 16. Recent Multifamily Development, Bozeman Year Avg. Rent Notable Deliveries Address Built Units Mo. Market Rate Northwest Crossing 1595 Twin Lakes Ave 2024 326 $2,455 The Oxbow 4650 W Garfield St 2023 268 $2,278 The Edison at Bozeman Gateway 3100 Technology Blvd W 2024 231 $2,273 Avion Apartments 2235 Tschache Ln 2024 216 $1,898 19th and Graf Apartment Homes 2900 S 21 st Ave 2023 195 $2,353 Blackwood Cottages 1502 Scotch Pine Ln 2023 121 $2,906 Haymaker 1624 W Babcock St 2023 95 $2,191 7th and Aspen (mixed income, under construction) 7th Ave and Aspen St -- 96 $1,440 Bronkens (mixed income, under construction) 707 E. Peach Street -- 110 2 665 Total/Weighted Average 1,658 $2,296 Affordable/Rent Subsidized The Annex of Bozeman 1800 22nd St 2023 134 $2,207 Timber Ridge Apartments 2725 Tschache Ln 2023 30 $928 North 3rd (under construction) North 3rd btwn W Peach &Tamarack -- 216 $1,428 Total/Weighted Average 3801 $1,663 Source:CoStar;Economic&Planning Systems 7eh and Aspen— Located on 71h Avenue 4 " between Aspen Street and West Peach Street,71h and Aspen is a two-phase :� = project that is proposing 96 affordable housing units. Phase 1 is an affordable rental development utilizing the federal Low Income Housing Tax Credit (LIHTC) program. Phase 1 includes 46 units with 17 units at 50%AMI and 29 units at 60% AMI. Phase 2 has 50 units that are income- restricted to 80%AMI for 30 years. Rents for Phase 1 are projected to range from $986 per month for a 1-bedroom unit to$1,368 per month for a 3-bedroom unit. Rents for Phase 2 are projected to range from $1,683 per month for a 1-bedroom unit to$2,103 per month for a 3-bedroom unit. North V— Located on North 3rd Avenue between West Peach Street and West +> ` Tamarack Street North 3rd is a 216-unit r affordable housing project that recently began construction in early 2024.All 216 units are income-restricted to 60%AMI.The project consists of 801-bedroom units, 84 H 2-bedroom units,48 3-bedroom units, and 4 4-bedroom units. Rents are projected to range from $1,226 per month for a 1-bedroom unit to $1,856 per month for a 4-bedroom unit. Economic& Planning Systems, Inc. 27 Bronkens- Located at 707 East Peach Street, Bronkens is a project that involves the redevelopment of a 2.1- acre site formerly utilized for beverage distribution. " :. B The project will contain 110 f1_ housing units including 42 -� 1-bedroom townhome units -9 and 68 multifamily units.The oil multifamily units will 46 market rate 1-bedroom units,eight market rate 2-bedroom units,11 Photo Courtesy:Bozeman Real Estate Group affordable 1-bedroom units at 80%AMI, and three affordable 1-bedroom units at 120%AMI. Rents are projected to range from $1,590 per month for an affordable 1-bedroom unit to$3,500 per month for a market rate 2-bedroom unit. 28 Bozeman 2024Q2 Economic and Market Update Affordability The rapid rise in housing prices and interest rates has made it difficult for many people to enter the market. In 2019, a household earning a pproximately116 percent of the HUD area median income (AMI) could afford the median-priced home.Today, a household would need to earn 208 percent of the AMI to afford the current median home price of $784,500.This significant price increase is driven by a combination of limited housing inventory, rising construction costs, and an influx of people moving to the area during the pandemic. Increasing the housing supply will be crucial in addressing the shortage of affordable and workforce housing. Table 17. Required Annual Income to Afford Median Home Price,2019-2024 Q2 Median Home Price $460,000 $540,000 $700,000 $799,000 $770,000 $784,500 Mortgaged Amount 5.0% (less:downpayment) down prat $437,000 $513,000 $665,000 $759,050 $731,500 $745,275 Mortgage Interest Rate 3.9%int. 3.1%int. 3.0%int. 5.3%int. 6.6%int. 6.8%int. Loan Term 30-years 30-years 30-years 30-years 30-years 30-years Monthly Costs Mortgage Payment(Monthly) $2,061 $2,191 $2,804 $4,215 $4,672 $4,859 $1,500/ Less:Insurance Year $125 $125 $125 $125 $125 $125 Less:Property Taxes 1.0% $383 $450 $583 $666 $642 $654 $500/ Less:Miscellaneous Year 42 42 42 42 42 42 Total Monthly Housing Costs $2,611 $2,807 $3,554 $5,048 $5,480 $5,679 Required Annual Income 30% $104,448 $112,290 $142,147 $201,902 $219,205 $227,162 100%AMI for Family of 4 $90,300 $90,400 $88,900 $104,700 $126,400 $109,000 AMI for Family of 4 116% 124% 160% 193% 173% 208% [1]rounded to nearest major AMI category Source:US Census;Economic&Planning Systems Economic& Planning Systems, Inc. 29 In 2016 the income levels needed to afford the median priced home were at 100 to 120 percent of AMI (Figure 11). In 2024 there are income gaps at all levels of AMI. Households earning 180 percent of AMI ($196,200) would still need to earn another $30,962 per year to afford the median priced home (Figure 12). Figure 11. Income Gap to Afford Median Priced Home,Bozeman,2019 $160,000 ■AMI(4-person household) ■Gap $140,000 $120,000 $104,448 Income Required to Afford Median Home Price(2019) •, o $100,000 5 � a o $80,000 t w 0 o _ $60,000 $40,000 $20,000 $0 80% 100% 120% 150% 180% AMI(4-person household) Figure 12. Income Gap to Afford Median Priced Home,Bozeman,2024 $250,000 ■AMI(4-person household) ■Gap $218,515 Income Required to Afford Median Home Price(2023) $200,000 $189,600 v E o $150,000 c $151,680 0 L $126,400 N _ $100,000 $50,000 $0 80% 100% 120% 150% 180% AMI(4-person household) In housing policy, a household is defined as cost burdened when they are paying more than 30 percent of their income towards rent or mortgage payments.Among renters there is a large amount of cost burdened households- nearly half of all renters (48 percent).About a quarter of Bozeman homeowners are cost burdened and the American Community Survey estimates these households declined slightly from 2010 through 2019. The data mostly reflect people who already own their homes and have not caught up with new buyers in the market at the higher prices noted above. 30 Bozeman 2024Q2 Economic and Market Update Housing Demand In this section, a housing demand projection is presented to guide the City and real estate stakeholders on the anticipated growth and housing needs in Bozeman.The projection connects job growth with housing demand, estimating that approximately 1,100 housing units are required annually (Table 18) to match a forecasted job growth rate of 2.0 percent per year, a more conservative projection compared to the 4.3 percent annual growth experienced over the past five years.To keep up with job growth,there needs to be at least 800 new housing units constructed in the city each year. However,there are additional strong market demand drivers to consider. We have added 25 percent to the demand forecast to account for part-time residents (12.5%) and remote workers not counted in local jobs data (12.S%).These factors add about 300 more units to the demand projection increasing it to 1,100 units per year (Table 18). The expected mix of construction over the next 10 years is based on the past 10 year construction activity. We estimate that about 20 percent of the construction will be in single family detached homes, another 25 percent in "missing middle"types including townhomes,duplexes-fourplexes, and ADUs.The majority of construction has been in multifamily condominiums and apartments,which we project to be 55 percent of construction going forward (Table 19). Table 18. Bozeman Housing Demand Projection Description 2023 2033 Total Annual Total Jobs-Gallatin County W%1. 110,000 134,100 24,100 2,410 Less: Proprietor JobsOvercounti'1 -10.0% -11,000 -13,410 -2,410 -241 Employed People 1.10 jobs/empl. 90,000 109,718 19,718 1,972 Employed Households 1.30 jobs/household 69,230 84,400 15,170 1,517 Normal Vacancy Adjustment 5% 3,640 4 440 Housing Units-Gallatin County 72,870 88,840 15,970 1,597 Baseline Demand-Bozeman Bozeman Market Share 1 50.0% 1 36,4401 44,4201 7,9801 798 Other Market Influences Part Time Residence Adjustment 10% 939 In-migration and remote worker adjustment 10% 1,104 Total Adjustment 30% Counting of partnerships and LLCs in Bureau of Economic Analysis data often results in double counting of employees. Source:Economic&Planning Systems Table 19. Bozeman Housing Unit Projection Description 2024-2028 2029-2033 Total Annual New Unit Demand in Bozeman 1,104/yr. 5,522 5,522 11,045 1,104 Bozeman Construction Projection Single Family(Detached) 20.0% 1,104 1,104 3,209 221 Townhome/Triplex/Duplex 25.0% 1,381 1,381 2,761 276 Multifamily 55.0% 3, 337 3,037 6,075 607 Total 100.0% 4,926 4,926 11,045 1,104 Mobile homes and other miscellaneous housing types are not included Source:Economic&Planning Systems Economic& Planning Systems, Inc. 31