Dec. 30, 2019

First Premier Bank CEO Dana Dykhouse need only look across the street from his current office at his future office for a reminder than 2020 will bring its share of building and business activity.

The five-story future headquarters of First Premier Bank, under construction on the northeast corner of 14th Street and Minnesota Avenue, is expected to open before the end of 2020.

“It’s fun to see it going up,” Dykhouse said. “We get a lot of positive comments from the community. That corner for years needed to be redeveloped. I think people see it as progress, not just for Premier but for Sioux Falls.”

By most any measure, the city is coming off another year of progress.

Building activity surpassed $700 million for the second consecutive year.

Vacancy in most sectors remained within a healthy range.

Unemployment ranged from 2.1 percent to 2.9 percent all year.

When updated population figures are released next year, they likely will show another several thousand new residents.

“We keep hitting a lot of singles,” Dykhouse said. “You look at the jobs created in the last 10 to 15 years and you can’t point to a (new) employer (that has added) more than 500 employees, yet we’ve grown 5,000 jobs a year for 10 years. That means there’s a lot of 10- and 50- and 100-employee businesses, and that’s very healthy for the local economy, and we see that in our customers.”

The big question, of course, is how long the good times can last.

“Business just remains good,” Dykhouse said. “If they say anything, the challenge that remains is just workforce. But it continues to be very good for everybody across the board. It’s not boom times. It’s just that they can see ahead six months to a year and see solid, steady growth in what’s going on. So that’s a real plus.”

Taking stock

As Jim Jarding meets with business clients, the tax partner at Eide Bailly LLP is seeing numbers that back up the notion that it has been a good year.

“For clients locally, I think 2019 is just as good as the last couple years,” he said. “I think companies are doing well from a profitability standpoint. I do a lot of work in construction, and you talk to the contractors and backlogs are good, and people are spending money on infrastructure and real estate development. People have a positive outlook.”

Businesses have enjoyed tax relief in the past two years, he added, though “what they’re doing with it, I honestly don’t know. Some are getting employees bonuses. Some are spending it on infrastructure and business growth. I don’t know that I’ve seen a lot of people do one thing or another.”

Most of his clients aren’t agriculture related. They include construction and manufacturing businesses, auto dealers, and medical and professional service providers.

“And for the most part when you talk to them, they’re comfortable with where they’re at and think the outlook is pretty positive. For 2020, I don’t sense this bubble or pessimistic view that we’re coming into a recession. I don’t hear anybody talking about reducing their forecast or having to lay people off.”

Dykhouse, who does keep tabs on the ag economy, calls it “about break even right now, with a very good safety net under it with the various crop insurance programs and other government programs out there. There’s a safety net that should make things survivable, and if we get new trade deals, there’s potential for some optimism.”

At the Sioux Falls Development Foundation, the pipeline of companies interested in expanding to or within Sioux Falls “is growing,” president and CEO Bob Mundt said. He joined the foundation in 2018.

“We have probably more leads now than we’ve had since I’ve been here,” he said. “But at the same time, we don’t want to rest on our laurels, and we need to make sure we’re targeting the industries we want. We can be selective as to who we recruit … looking at things like wage levels, stability of the company, capital investments and those types of things.”

While he hears some uncertainty in the business community around tariffs and the 2020 election, “for the most part, they’re very positive about what’s coming in 2020,” Mundt said.

Development ahead

In the city’s office of planning and development services, developers and contractors are starting to come in with plans for 2020.

“They’re still optimistic,” director Jeff Eckhoff said. “They’re still looking for a good year.”

The city’s building permits will end 2019 close to 2018’s record. The biggest difference was in apartment construction, which is just about half of what it was last year.

“We’re way ahead in office, a little ahead in manufacturing, but that was the big difference-maker,” Eckhoff said.

Multifamily construction will be coming in 2020 though.

The Cascade, the new mixed-used downtown project from Lloyd Cos., nearly filled its first building after opening it midyear and is experiencing sold interest in the second building, which will open this coming spring, CEO Chris Thorkelson said.

“We are going to be ramping back up on the multifamily side of things, “ he said. “We paused on any new development around the outskirts of the community, and we’ll be kicking off some projects in the spring.”

Signature Cos. also plans to begin multiple apartment projects, including one at The Willows along Arrowhead Parkway near Willow Run Golf Course that ultimately could include up to 400 units, and a 220-unit apartment building at 69th Street and Sycamore Avenue scheduled to open in late summer.

“I think the apartment complexes are going to continue to lease up,” Signature owner Clint Ackerman said. “The Sioux Falls market absorbs a certain number a year, and it will fluctuate. … I honestly don’t see anything we’re involved in taking a downturn. I just see steady growth the next three to four years.”

At Lloyd Cos., 2019 was the company’s biggest year yet in construction and development, Thorkelson said.

“And it continues to go down that path, even into 2020 and carrying into 2021 for us,” he said. “I don’t know that we’re the greatest barometer because we kind of create our own destiny in a lot of ways, but obviously the economy continues to be strong. We have good occupancy throughout our portfolio, commercial and residential.”

Lloyd’s major project for the coming year and then some will be the nearly $200 million downtown Sioux Steel redevelopment. The hope is to begin construction on a new seven-story Canopy hotel early next year as well as on a nine-story mixed-use building if enough space is leased to begin construction.

“I think there’s a lot of excitement about the future of downtown,” Thorkelson said. “The community is so supportive of the downtown area, which ultimately makes its success. And it’s nice because businesses are relocating and reinvesting in their businesses downtown or bringing their business in and setting up shop downtown.”

The coming year also will bring construction of Railyard Flats, the first new construction on the former downtown rail yard, which will be a mix of 42 apartments, office and retail.

There could be others not far behind, Eckhoff said.

“It’s been amazing to me, through the summer, the inquires we got about property downtown,” he said. “I think all the activity that’s going on is part of that. It catches people’s attention, in town and out of town.”

Outside downtown, expect continued construction at Lake Lorraine.

Hyatt Place is on pace to open about midyear, and Dave & Buster’s has started putting up walls with plans for a 2020 opening.

“We just put the space immediately to the other side of the hotel under contract for a retail user – more spec space – so someone will come in and do something there,” Lake Lorraine co-developer Mike Van Buskirk of Van Buskirk Cos. said.

Aloft hotel also is expected to break ground in 2020, he said.

“We’ve had more restaurants looking,” he added. “The building we put up along the interstate is getting more attention. Child’s Play Toys, the word I’ve gotten is it really went well, and we’re definitely seeing more interest because of that. We’re probably about 30 or 40 percent rented.”

Interest for development next year “seems to be all over,” Eckhoff said.

The city brought in nearly 900 acres in preliminary subdivision plans this year, compared with about 400 last year. Those plans likely will result in building activity next year or in subsequent years.

“We feel like three-quarters of that is residential – 13 different developments from 20 to 200 acres, and they’re all over town,” Eckhoff said. “And there’s some smaller commercial.”

Housing market

After starting the year up to 20 percent behind 2018 in home sales, the Sioux Falls market rebounded to end the year down about 5 percent, with prices up about 3 percent, according to longtime Realtor Tony Ratchford, who leads The Tony Ratchford Group at Keller Williams Realty Sioux Falls.

“The month of December is slower; this could be seasonal, early cold weather and perhaps some political news and holiday distractions affecting activity,” he said. “Every price range has moved toward a buyer’s market, although most haven’t reached that level.”

Persistently low inventory has been a factor throughout the year. The market ended November with about a three-month supply of homes on the market.

“There gets to be a point where it is so low people just refuse to put their house on the market because they’re afraid if they sell the house, they can’t do something,” Ratchford said. “There is a fine line. We ran on the edge of that pretty much all year.”

People are waiting longer in life to buy a first home, he added. When they do, “I think they’re more conservative than they used to be,” he said. ”We’ve seen more single incomes in households from married couples than in quite awhile. They live on one income, or they live conservatively.”

January is historically among the strongest months in real estate, so it will be an indicator for 2020, Ratchford said.

“We think the energy from this fall will continue,” he said. “Spending is up, wages up, savings up, consumer confidence is high, and the city continues to grow. We expect the market in 2020 to be as good as 2019, and I think it’ll probably be even better if we have enough inventory. Every price bracket should do well.”

There is “no way the Feds can raise rates; therefore, mortgages should remain the same,” he added.

At First Premier, Dykhouse agreed.

“We talk about it all the time. I’m just shocked. It’s like there’s an entire generation of businesspeople who haven’t seen rates above 5 percent,” he said.

“But we just see it continuing to be low. We had a huge year in our mortgage market again because of refinancing again. I thought it was done. But we had over 100 percent increase in mortgages, and at least half were refinancing.”

The builders his bank is financing “can’t build starter homes fast enough,” he added.

Workforce challenge

Sustaining the city’s momentum will take more people, according to many who follow the business community.

“The one thing I hear from a business standpoint, which is a common theme, is the lack of employees. The ability to recruit and retain tends to be the biggest hindrance,” said Jarding at Eide Bailly.

“Hospitality, construction, you name it – when I talk to people and say ‘How’s business?’ it’s usually that business is good and people are saying ‘I wish I had more employees, so I didn’t have to turn work away.’ I don’t think it’s necessarily an industry thing.”

Wages have been pushing up, Dykhouse said.

“They always said you had to legislate a $15-an-hour minimum wage. I think it’s going to happen naturally because we’re all headed there fairly quickly,” he said. “The market will cause that, and I think you’ll see that in the next year there will be upward pressure on wages. We’ve seen it already.”

Pay is only part of the equation though. Technology is supplementing efforts too.

“We have many more customers today than 10 years ago but fewer employees because so much, even in the credit card and banking industry, has become automated,” Dykhouse said. “So automation has reduced the number of people needed but expanded the output individuals can do.”

The bank is far from alone in its approach, said Mundt at the Development Foundation.

“The workforce issue is real,” he said. “And they’re looking at new technologies and new ways to get the work done. They’re really putting a lot of emphasis on human resources and the types of environments they need to create to attract talent.”

That also figures into how the Development Foundation is approaching its work, he said – closely tying economic development to workforce development.

“We’re not going to say no (to a new employer), but we have to be honest that if you’re paying $12 per hour, you’re probably going to have a hard time,” he said. “One of the things we’re really focused on is where are our skill shortages in the industries we have here and in the industries we’re trying to recruit – matching our talent recruitment with our business recruitment, so if we bring in a tech company, we have people here to fill those jobs.”