Feb. 20, 2020

By Rob Swenson, for SiouxFalls.Business

Retail traffic patterns in Sioux Falls are shifting literally and dramatically.

Traffic counts between Kiwanis and Louise avenues in the heart of the West 41st Street commercial strip dropped 47 percent between 2015 and 2019, according to city data quoted Thursday by Rob Kurtenbach, a broker associate from Bender Commercial Real Estate Services.

Kurtenbach, who specializes in the retail property market, was among the presenters at Bender Commercial’s 23rd Annual Market Outlook held at the Washington Pavilion. The commercial real estate firm’s annual assessment of the local economy and the health of property markets attracted 275 business and civic leaders. Nearly 125 other people followed an online stream.

“41st Street used to be kind of where it’s at if you were in the retail world, and there still are some viable retailers there,” Kurtenbach said. “But it’s changing.”

Traffic counts have declined to varying degrees in all segments of 41st between Minnesota Avenue and Interstate 29, but the drop between Kiwanis and Louise has been the biggest. That’s near The Empire Mall, which has long been a major regional attraction.

Part of the reason for the traffic drop appears to be that motorists are accessing different streets to get to their destinations. Also, shopping options such as Lake Lorraine on the west side and Dawley Farm Village on the east side are growing.

Meanwhile, online shopping alternatives – Amazon in particular – continue to gobble up a large share of the retail market across the United States. “Amazon has completely changed the retail game,” Kurtenbach said.

Nevertheless, he sees exciting retail growth in areas such the site of Sioux Steel, which is relocating its plant from the Falls Park neighborhood, and the former locations of Gage Brothers Concrete Products and Sioux Falls Ford Lincoln.

Overall, Bender principals and associates expect the coming year to be a good one, both economically and in commercial real estate markets.

“2020 is going to be a solid year, but not a great year,” said Michael Bender, company founder and principal. “It’s going to be solid but not record-setting.”

The limited availability of new workers is the biggest factor slowing the development of Sioux Falls in areas such as job growth and building construction, Bender said. Despite the limitation, Sioux Falls continues to grow.

In terms of the value of building permits the city issues for construction projects, for example, Sioux Falls outpaced several of its regional peer cities last year.

Last year’s total value of permits for construction projects reached $771.5 million in Sioux Falls. But institutional projects, such as the new Jefferson High School, valued at $68.3 million, and Ben Reifel Middle School at $27.8 million were significant contributors to the total.

A new headquarters for First Premier Bank that is being built at 14th Street and Minnesota Avenue might be the most prominent business project underway in the city. For permitting purposes, it was valued at $23.4 million.

Bank president Dave Rozenboom was among the business leaders who attended the 2020 Market Outlook presentations.

“There are a lot of reasons for continued optimism in our community, driven by job opportunities and construction project growth,” Rozenboom said after hearing the presentations. “Sioux Falls has benefited from a very diverse economy so that we aren’t reliant on any one industry.”

Bender pointed out during a presentation on state and national economies that employment growth in South Dakota is running at 1.9 percent, compared with a national growth rate of 1.6 percent. The growth rate in Sioux Falls is running even higher – 2.7 percent, according to the U.S. Bureau of Labor Statistics.

Notably, half of the 8,400 jobs created in South Dakota last year were in the Sioux Falls area. About 4,200 jobs were created in the metropolitan area, despite the ongoing difficulty that some employers have in attracting and retaining good workers.

Based on land sales, broker associate Bradyn Neises foresees slower growth on the city’s west side and steady growth on the east side. Meantime, growth in southern Sioux Falls essentially has shifted and become the growth of northern Harrisburg, he said.

Nick Gustafson, a principal and property investment specialist, said 2019 was “a record year, a monster year” for real estate sales. “We are in an unprecedented year 10 of a bull market,” he said.

Rob Fagnan, a Bender principal who specializes in the industrial market, pointed out an emerging transportation trend that could significantly change the way products are moved across the country. With truck drivers getting harder to find, shippers are looking favorably again at trains as an alternative.

To its credit, Sioux Falls and Brandon have invested in industrial parks in recent years with improved rail-loading potential. “I think we’ll look back in a decade and say that was a good investment,” he said. “Look for that industry to grow.”

Business game-changers going forward will include the continued deployment of 5G telecommunications technology, Bender said. By improving online tools such as blockchain technology, 5G will affect everything from how business is conducted to how people educate and entertain themselves, he said.

“There’s going to be a revolution that’s going to take place,” Bender said. “It’s going to be a huge, huge game-changer.”