Commercial Real Estate Stabilizes After Pandemic, But Property Tax Shock Hits Missoula Landlords

The commercial real estate industry is exhaling after years of pandemic-induced chaos, but the relief comes with a caveat: stability doesn't mean prosperity. From Missoula's industrial warehouses to Manhattan's office towers, the market is finding its footing in 2026—just as new pressures from property taxes, national debt, and shifting work patterns threaten to upend the fragile equilibrium.

In Missoula, Montana, the picture is particularly stark. According to a market report presented by Sterling Commercial Real Estate this week, some commercial property owners saw their tax bills jump 50% in the past year, according to KPAX News. Matt Mellott, managing principal at Sterling, described the market as "steady but cautious," a phrase that captures the national mood. Missoula's unemployment rate sits at a healthy 3.1%, and the average weekly wage reached $1,160 as of November 2025. But total employment dipped slightly, with losses concentrated in manufacturing, hospitality, and professional services—sectors that typically drive demand for commercial space.

The office sector tells a story of incremental adjustment rather than transformation. Missoula's office vacancy rate barely budged in 2025, holding at 7.66%, while rent per square foot climbed nearly 3% to $19.32. Sale prices rose 8% to $233 per square foot, but the average size of office spaces sold plummeted 46% to just 3,800 square feet—a sign that buyers are thinking smaller and more cautiously. This mirrors broader national trends tracked by CBRE's Office Occupier Sentiment Survey, which continues to monitor how hybrid work strategies reshape landlord portfolios and tenant expectations.

Retail took a harder hit. Vacancy remained tight at 3.87%, but rent collapsed nearly 20% to $19 per square foot, and sale prices fell 17.5% to $295 per square foot. The retail sector's struggles reflect ongoing uncertainty about consumer behavior and the lasting impact of e-commerce acceleration during the pandemic. Industrial real estate, meanwhile, saw the most dramatic shift: vacancies spiked 9.33 percentage points to 14.4% after companies like UFP in Milltown and Yellowstone vacated their spaces. The size of industrial properties sold shrank 44%, with prices landing at $158 per square foot.

Multifamily housing presented a paradox. Average rents jumped 10.5% to just over $1,530 per month, yet sale prices for multifamily properties dropped nearly 20% to $154,700 per unit. This disconnect suggests landlords are extracting more income from existing tenants even as investors value those income streams less generously—a reflection of higher financing costs and uncertainty about future demand. Commercial land sales, by contrast, surged 300% to 16 transactions in 2025, though the average lot size shrank 76% to 6.8 acres from 28.4 acres, indicating a preference for smaller, more manageable developments.

The national data landscape that industry professionals rely on to make sense of these shifts has never been richer. Commercial Property Executive's 2026 roundup of essential market reports highlights the tools that editors and analysts turn to for clarity. CBRE's Lending Momentum Index tracks capital flows across asset classes. Cushman & Wakefield's MarketBeat reports provide granular metro-level data. The Urban Land Institute and PwC's annual Emerging Trends in Real Estate report distills sentiment from industry leaders into forward-looking analysis. The Mortgage Bankers Association's quarterly originations reports offer a pulse check on debt markets, while Yardi Matrix's publications dive deep into multifamily, office, industrial, and niche sectors like student housing and self-storage.

These resources reveal a market grappling with conflicting signals. Altus Group's quarterly investment and transactions report allows researchers to slice data by region, asset class, and pricing trends, exposing pockets of strength and weakness. Marcus & Millichap's research covers cycle turns and pricing trends across U.S. and Canadian metros. Deloitte's CRE outlook, built on surveys of C-suite executives globally, points to AI adoption as a key theme for 2026—a trend also captured in CBRE's North America Data Centers Trends report, which tracks how primary markets shift and colocation demand evolves.

But beneath the data lies a fundamental tension: the cost of capital. Mellott, the Missoula broker, pointed to national debt as the elephant in the room. "When the debt is through the roof, the bottom line is it results in inflation," he told KPAX News. "It's a main contributor to inflation happening and then inflation is killer. It hurts the personal working class, it hurts, it's the worst thing you can do. You're basically taxing them through devaluing their money." Financing costs directly track the national debt, and as long as Washington fails to address fiscal imbalances, commercial real estate investors will face elevated borrowing costs that make new projects harder to pencil.

The property tax shock in Missoula underscores how local policy can amplify national headwinds. Mellott called on state leadership to address infrastructure constraints—wastewater, roads, water systems—that drive up development costs and squeeze affordability. "What I'm hoping for is that the state takes some initiative and shows some leadership in terms of trying to figure out how to address some of the constraints on our markets to be able to get the affordability piece worked out," he said. Without intervention, the market faces what he described as "a bit of a slugfest" in 2026.

The stabilization narrative that dominates industry reports obscures a more complex reality: commercial real estate is no longer in crisis, but it's not thriving either. Office attendance data from Placer.ai's monthly updates shows workplaces are being used, but not at pre-pandemic levels. Conversions of office buildings to residential use, tracked extensively by CBRE, offer one path forward, but the economics remain challenging. Family offices are diving deeper into commercial real estate with a twist, according to Commercial Observer, suggesting that institutional capital is hunting for value in unconventional places.

The U.S. economy lost 92,000 jobs in February, pushing unemployment to 4.4%, according to Commercial Observer. Construction added jobs, resembling July 2025 levels, but broader employment trends remain uneven. Against this backdrop, commercial real estate is finding its equilibrium—not through exuberance, but through cautious recalibration. Landlords are adjusting rents, investors are repricing assets, and developers are thinking smaller.

The question for 2026 is whether this equilibrium can hold. Property tax increases, elevated financing costs, and uncertain demand create a precarious foundation. The industry has stabilized, but it hasn't solved the affordability crisis or figured out how to make new development pencil in a higher-rate environment. For now, steady but cautious is the best anyone can hope for—and even that feels like a victory after the chaos of recent years.