Sioux Falls is the largest city in South Dakota, located in the southeastern part of the state. The city sits on the Big Sioux River and is bisected by Interstate 90. The city is a thriving metropolis with a population of over 280,000 people. Home to a diverse economy with many different industries represented, Sioux Falls consistently ranks as one of the best places to live in the United States and thus is also a great place to invest in commercial real estate.
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The Sioux Falls MSA encompasses areas in Lincoln, Minnehaha, McCook, and Turner counties, located in the southeastern corner of the state bordering Minnesota and Iowa. The MSA earns its name from its nearby waterfall landmark, known for its national parks and the active lifestyle of its residents. Nicknamed the “Best Little City in America,” Sioux Falls serves as Minnehaha County’s seat and the largest, most populous city in South Dakota.
The State of Commercial Real Estate in Sioux Falls
The location of Sioux Falls makes it a prime spot for businesses and residents alike. The city rests at the heart of America and has easy access to both coasts. Additionally, many major highways run through or near Sioux Falls, making transportation and shipping very easy. The city is also home to Sioux Falls Regional Airport, which offers direct flights to many major cities across the country.
Sioux Falls residents enjoy a high quality of life, with a low cost of living, job opportunities, and plentiful amenities. There are many different parks and trails for residents to enjoy, as well as a variety of shopping, dining, and entertainment options. Additionally, the city has excellent schools and medical facilities.
Investing in commercial real estate in Sioux Falls, SD, is a superb choice. The city’s economy is strong and growing, and there is a constant demand for office space and other commercial properties. Additionally, the city has a very low vacancy rate for commercial real estate, driving up valuations and potentially making investing in Sioux Falls a wise decision.
Sioux Falls Regional Breakdown
Sioux Falls projects to be one of the fastest-growing metro areas between now and 2060, ahead of Sunbelt hotspots like Atlanta, Jacksonville, and Reno. Staticians predict the population of the metro area to grow by more than 53%, expanding to 438,400 residents versus 285,700 in 2022:
- Metropolitan Sioux Falls is home to nearly 282,000, with 192,683 residing in the city.
- The city’s population surged by 25% over the past ten years, and has increased by 2% over the past year alone, according to the most recent Census.
- Forbes ranks Sioux Falls as one of the best places for business and careers and one of the best places to retire.
- The cost of living is 2% below the national average.
- Per capita income is $41,852, and median household income is $75,946 – about 20% higher than the amount in South Dakota.
- About 40% of the population is between the ages of 20 and 49.
Sioux Falls Job Market
Economic opportunity is one of the reasons why more residents and businesses will be coming to the metro area over the next couple of decades, according to 24/7 Wall St. via The Center Square. Employment projects to grow by nearly 70% by 2060, along with a surge in personal per capita income:
- The total GDP of Sioux Falls is nearly $23.4 billion, growing by about 64% over the past decade.
- The unemployment rate in the metro area is 2.0%, according to the U.S. Bureau of Labor Statistics (as of August 2022).
- Over 7,000 jobs have been added over the past 12 months, with the labor force now at 162,070.
- Job sectors showing the biggest recent employment gains include construction, professional and business services, leisure and hospitality, and education and health services.
- Key industries in Sioux Falls are distribution and logistics, advanced manufacturing; health, bio, and life sciences; cyber security and information technology, and finance and banking.
- Sioux Falls has 13 organizations with 1,000 or more employees, including Sanford Health, Avera Health, Sioux Falls School District, Smithfield Foods, Hy-Vee Food Stores, and Wells Fargo.
- Augustana University, the University of Sioux Falls, and Sioux Falls Seminary are among the nine institutions of higher education in the metropolitan area.
- Nearly 94% of the residents are high school graduates, while 37% hold a bachelor’s degree or higher, about 20% more than the rate in South Dakota, according to Census Reporter.
- The region’s transportation infrastructure is extensive and well-developed, with easy access from coast to coast, including two interstate highways, rail lines, a regional airport, and the state’s only Port of Entry.
Sioux Falls Industrial Market
Vacancy in the Sioux Falls industrial market is at the lowest point ever, down to about 1% through the middle of this year. According to a recent article on Sioux Falls Business, the continued growth of e-commerce and the reshoring of manufacturing should directly benefit the city, driving up the price per square foot for both the leasing and sales markets:
- Total industrial inventory: 14,014,936 SF
- Average asking rent: $7.30/SF per year, NNN
- Vacancy rate: 1.1%
- Absorption: 169,487 SF over the past 12 months
- New construction: 35,030 delivered over the past 12 months, with 665,820 SF under construction
- Investment sales trends: Median sales price $83/SF, market cap rate 8.9%
Sioux Falls Office Market
According to Bender Commercial, the office occupancy rate in Sioux Falls real estate is higher than it was pre-COVID, even though over 450,000 square feet of new office space was added to the market over the past three years. Overall occupancy of office space in Sioux Falls, South Dakota is 95%, versus a national office occupancy rate of about 88% (as of mid-year 2022).
Here are the most recent commercial metro statistics for the region, according to the NAR’s Commercial Real Estate Market Conditions Index and Bender Commercial:
- Total office inventory: 10,104,619 SF
- Overall average asking rents: $19.60/SF per year, full service gross
- Rent growth: 2.1% year-over-year
- Vacancy rate: 4.9%
- Absorption: 167,739 SF over the past 12 months
- Leasing activity: 500,000 SF (Q2 2022)
- Key leases by tenant: C & B Operations 43,550 SF, Little Tykes University 5,862 SF, Mammoth Sports Construction 5,811 SF
- New construction: 4,918 SF delivered over the past 12 months, with no new office space currently under construction
- Investment sales trends: $3 million in acquisitions in Q1 2022, sales price $131/SF, market cap rate 9.1%
Sioux Falls Retail Market
National and regional retailers are driving the demand for retail space in Sioux Falls, pushing the midyear vacancy rate down to under 8% versus 12.5% at the beginning of the year. Kwik Trip has recently announced plans to enter the market, Starbucks is expanding with several new locations, and discount grocery chain Aldi is opening another location in the northern part of the city:
- Total retail inventory: 14,951,916 SF
- Average asking rent: $15.40/SF per year, NNN
- Vacancy rate: 2.7%
- Absorption: 204,033 SF over the past 12 months
- New construction: 177,079 SF delivered through Q1 2022, with 21,841 SF under construction
- Investment sales trends: $8 million in Q1 2022, transaction sales price $275/SF, market cap rate 7.5%
- Median household income: $75,946, with 70% of households earning $50K per year or more
Sioux Falls Multifamily Market
Multifamily construction in Sioux Falls is at a record-breaking level and shows no signs of slowing down. According to a recent report by the Federal Reserve Bank of Minneapolis, Sioux Falls saw a 183% increase in the number of multifamily units in 2021 compared to 2019. The number of multifamily units permitted already surpassed the total number of units last year, as of mid-year 2022:
- Total housing units: 120,316
- Renter occupied: 33%
- Multifamily inventory: 20,835 units
- Market asking rent: $991
- Rent growth: 8.1% year-over-year
- Vacancy rate: 3.7%
- Market cap rate: 6.4%
- Median household income: $75,946
- Per capita income: $41,852