Oct. 11, 2018

When accountant Susan Fitzgibbons started her firm last year, she considered leasing an office but decided to work from home first.

One year later and ready for a physical location, she was surprised to find how the market had tightened.

“When we looked last summer, I think there were a lot more options,” she said. “It seems like they have built a lot of it (new office space) in the last year, so I thought there would be quite a bit available, and there wasn’t.”

She’s right on both counts. The amount of new office space available has increased, and the availability of offices like she needed also has shrunk.

Offices with less than 2,000 square feet, especially in south Sioux Falls, are in dwindling supply, according to Raquel Blount of Lloyd Cos., who helped Fitzgibbons find her space.

“We’ve seen a dramatic rise in office activity,” Blount said. “I think the early cold weather has people thinking about their next office move and wanting to be in place before the holidays.”

After looking at three locations, Fitzgibbons leased a 650-square-foot space at Donegal Centre, 4301 W. 57th St. It has two privates offices with a reception desk, and she plans to sublease one of the offices until she needs it.

“This one happened to be perfect,” she said. “I’d like to grow some but not have an office that’s going to grow exponentially. And I live on the south side, so I wanted to be in that area. This fit what I wanted exactly.”

Tenants increasingly have been drawn to south Sioux Falls, Blount said. In many cases, it’s because they live nearby or like the ease of access off Interstate 229.

That was the case for Gerald Kruger, market leader for Ag Resource Management, a national provider of agribusiness loans and crop insurance that is expanding to Sioux Falls.

His four-person office opens at 3020 W. 57th St. on Nov. 1.

“From our perspective … it was really the visibility and accessibility,” he said. “We probably looked at six different locations. This particular one had a turning left lane and right lane, and there’s no boulevard. And if you say 57th Street near The Empire Mall, most people understand.”

His broker, Alexis Konstant of Lloyd Cos., said she also has been busy with office deals.

“That’s the majority of what I’ve been working on,” she said. “There are a lot where this is their first office, they’re branching out on their own, and there are quite a few looking to expand their businesses. All the spaces smaller than 2,000 square feet are going off the market quicker.”

Both new construction and existing space in south Sioux Falls are filling up.

The Pinnacle office building near 69th Street and Western Avenue is down to 1,500 square feet left on its second floor after UBS leased most of it.

The firm is moving from its longtime location at 4009 W. 49th St. into 3,800 square feet early next year.

“They were looking for Class A new construction, which is similar to some of their newer offices across the country,” said Rob Fagnan of Bender Commercial Real Estate Services, who represented UBS.

“We’ve been looking for a couple years, and with all the new spec office construction that’s come into the market in the past year, it helped them in looking at space.”

In the midsize office ranges, though, there are more options. Fagnan recently searched available properties between 3,000 and 5,000 square feet and came up with more than 100 options.

“I told my landlord if you want to compete you have to stand out because there are so many options in that range,” he said. “The majority of people in the south end want to be south of the interstate. They want to be at 69th Street or down as far as 85th Street, and he got aggressive on his pricing, and we got a lease out (on part of the space) … and I’m working to finalize another deal next to it.”

The new buildings for both Hegg Realtors and Keller Williams Realty Sioux Falls also put a lot of existing office space back on the market earlier this year, but much of it has been absorbed, said Gregg Brown of NAI Sioux Falls, who leased all the Hegg space scattered across town.

“Basically by the time they moved into their new building, it all got gobbled up,” he said.

“But when you get into 2,500 to 5,000 square feet, you compete against guys who want to own their own (space). I’ve got some smaller suites that are new build-outs under 5,000 square feet, and those typically move quick and just haven’t.”

As businesses grow, though, larger offices are seeing increased demand.

“We’ve had a lot of activity on showings of 10,000 square feet and up,” Blount said.

“We’re seeing people up size or downsize and emergence of new companies and new businesses moving to the area. Some of the deals I’ve done have even been in the cryptocurrency industry, new call center activity and expansion of existing local businesses.”