Simplified: Sioux Falls is, overall, pretty resilient in the face of some national challenges in the commercial real estate world, according to local brokers at Bender Commercial who presented their 27th Annual Market Outlook on Thursday.
Why it matters
- Understanding national trends can help predict and inform what'll happen in Sioux Falls when it comes to office space, retailers, industrial properties and apartment buildings.
- Overall, the folks at Bender remain optimistic about the commercial real estate market in Sioux Falls despite concerns about inflation and high interest rates. President Reggie Kuipers noted there are a number of things that could affect the market that are well outside local control – from geopolitical challenges to the upcoming presidential election.
- And while the investment and industrial side of things won't impact most Sioux Fallsians, one interesting trend to watch will be "shrinkflation" in retail – in which retailers are looking for smaller physical spaces to be more targeted in a world where many choose to shop online instead of in-person, said broker Rob Kurtenbach.
"I think we're going to see a lot more neighborhood retail centers," Kurtenbach said, contrasting that with the large retail center model like the mall, Dawley Farms or Lake Lorraine.
Tell me more about 2024 predictions
Kuipers predicted Sioux Falls will exceed $1.3 billion in building permits this year with some large project announcements.
Executive Vice President Nick Gustafson predicted that inflation will remain stubborn, meaning interest rates likely won't go down a whole lot.
"It's going to take awhile to normalize," Gustafson said.
Nationally, the office market has struggled a bit as remote and hybrid work appear to be here to stay, Principal Andi Anderson said, noting she expects the hybrid work trend to continue.
- In Sioux Falls, offices have an overall 13% vacancy rate, but the rate is closer to 8% downtown and much higher, about 15%, outside of the central business district.
When it comes to apartments, broker Alex Soundy notes an overall decline in the multi-family real estate market last year, and 2024 numbers will depend a lot on what the Federal Reserve decides to do with interest rates. That said, he's predicting fewer than 1,200 multi-family units will be permitted this year – a number a fair amount lower than what's been permitted the last few years.
On the retail side, Kurtenbach points to the example of Macy's. The company used to look for spaces with 200,000 square feet. Now, they're rolling out a concept with a much smaller footprint of 50,000 square feet.
- He anticipates vacancy rates will remain steady in Sioux Falls, but the future will likely look like more neighborhood shopping centers rather than more large shopping districts.
When it comes to land sales, broker Bradyn Neises noted a trend of increasingly more land sales happening in neighboring communities rather than within Sioux Falls itself – a trend he expects to see continue in 2024.
