T
he Sioux Falls commercial real estate market is poised for growth, with most sectors showing strong occupancy rates compared to the national average. According to the annual Bender Market Outlook, retail, office, and industrial properties are all performing well, despite a backdrop of national disruption caused by policy changes and tariffs.

    Reggie Kuipers, president of Bender Commercial Real Estate Services, notes that the underlying US economy appears robust, but with pro-business policies putting upward pressure on inflation. He predicts 2025 will be a turbulent year, with short-term pain leading to long-term gain.

    The Sioux Falls economy is "chugging along," with increased growth in the broader metro area. Building permits per capita rank the city just above middle of the pack in regional comparison. Kuipers notes that while there's a glut of large office spaces and apartments to backfill, other sectors are healthy, and he predicts 2025 will be the second-highest year for building permits in Sioux Falls history.

    Data centers are emerging as a trend in commercial real estate, driven by the need for robust computing power to support artificial intelligence technology. Companies like Amazon, Alphabet, and Microsoft are looking for facilities with access to fiber internet, water, and power, particularly in rural areas with alternative energy sources.

    The national office market set a record high vacancy rate of 20.9% in 2024, but Sioux Falls' overall office vacancy rate remains below the national average at 11.6%. The city's downtown area has tight space despite new office towers, while suburban areas have higher vacancy rates.

    The retail real estate market remains strong in Sioux Falls, with an overall vacancy rate of 9% and a significant increase in property sales compared to last year. Online retail continues to capture a growing share of the market, but the city is expected to see retail interest in areas like the Veterans Parkway corridor and future 85th Street interchange.

    The industrial sector is watching closely the impact of tariffs on manufacturing, transportation, warehousing, and product distribution across the US. Locally, the market has shown mixed signals, with vacancy rates edging up to 3.7% by the end of 2024, but new construction and absorption remaining strong.

    The metro land market in 2024 was strong, with increased land purchases in neighboring communities due to Sioux Falls development constraints. The city is working on greater flexibility in development opportunities and pushing for more infrastructure investment to support growth.

    After two record-setting years, the multifamily market experienced a significant downward shift in 2024, with permits down to 1,244 units. Conventional vacancy rates rose to 10.14%, but rent growth remained flat due to increased concessions. Despite financing challenges, Sioux Falls saw $87 million in multifamily sales across 22 transactions.

    Investment sales volume remains below records set in 2021 but is rebounding nicely. Interest rates and global trade uncertainty continue to be restraining inputs, but investors are well capitalized and sitting on substantial cash. Sellers are adjusting to new valuations, and robust transactions are predicted for 2025.