April 28, 2023

It was three years ago, maybe even this week, and I still remember it like it happened yesterday.

The walls of our downtown office were closing in on me, a few weeks into the COVID-19 pandemic, and I needed to get outside.

It was one of the first nice days of spring, but as I walked the heart of Phillips Avenue, I didn’t feel any better.

I felt so much worse.

I had never seen the downtown sidewalks so empty. It was an eerie kind of quiet, with no business doors open. The few faces I saw on the street weren’t familiar. They were unfamiliar enough to make me a little uneasy. I remember commenting back at the office how fast it felt like a human void had been filled — office workers and downtown patrons replaced by a handful of what I could best describe as loiterers.

This was not the downtown Sioux Falls I knew and loved, and thankfully it didn’t take long for the vibrancy and business activity to return.

That’s not the case everywhere, however.

“It’s night-and-day different here from downtown Minneapolis, for sure, and I’m certain other markets as well,” commercial real estate broker Kristen Zueger of Lloyd Cos. told me when I asked her for input into this topic.

She lived in the Twin Cities for many years, visits regularly and has many contacts there.

“Downtown is really struggling, people not wanting to go back to the office,” Zueger said. “Everybody really, I think, ended up working from home far longer, and I think it just stuck. I think it’s going to be very difficult to come back from that anywhere downtown.”

To her point, in recent weeks AT&T announced it’s moving hundreds of workers who were based at its downtown Minneapolis office tower to more suburban Bloomington. Last month, it was CBRE — one of the nation’s largest commercial brokerage companies — that announced it wasn’t renewing its downtown lease.

According to Minneapolis Public Radio, more than 150,000 workers no longer go to offices in Minneapolis and about 50,000 no longer go into work in St. Paul.

This also isn’t an anomaly. According to Investopedia, U.S. office vacancy rates averaged a record 16.9 percent at the end of the first quarter, up from the 12.4 percent average vacancy rate in the first quarter of 2020.

There are conversations in many markets about turning downtown office buildings into apartments, but let’s think about that: People generally live downtown because they enjoy being close to where they work and close to downtown’s other amenities like dining, bars and sports or entertainment venues.

Now consider this: In Minneapolis, “they’re having a lot more issues with safety that they haven’t had, and it’s really moving into areas that surprised me,” Zueger said. “Nicollet Mall, even.”

When she went to a Minnesota Twins game last summer, the hotel staff suggested the family walk a certain route and avoid certain streets, she said.

“I never would have thought that,” she said. “I lived downtown. I walked everywhere. I grocery shopped downtown. I think unfortunately they’re going to take a long time to come back. And in Sioux Falls, when you talk to the brokers here who come (from Minneapolis) to work on deals, and we have a few right now we’re working on downtown, they just keep saying: ‘It’s so vibrant. Your parking lots are full. There are people walking downtown.’ And that’s how it used to be in downtown Minneapolis.”

That’s also something to never be taken for granted. In recent weeks, we’ve announced new office leases for FNBO bank and the insurance brokerage firm Holmes Murphy & Associates at The Steel District. These are both new offices to downtown. They join C&B Operations in establishing a downtown office there. Then there’s The Bancorp, which will move from south Sioux Falls to Cherapa Place later this year, plus Eide Bailly, ISG and MarketBeat, which are expanding into offices there.

Office interest “is still very robust,” Zueger said. “And not only there, but I’m seeing it at River Centre. We have showings there sometimes a couple times a week, and that’s a lot of space. People are looking at the Lumber Exchange building. They’re probably looking at whatever (downtown office) space is available. But they’re looking.”

These offices have a substantial impact on the broader downtown economy and environment that’s hard to even quantify. I still see a lighter lunch crowd when I dine out during the week downtown, as it’s clear that office staffing levels are not quite back to pre-2020 levels. But they definitely are improving, and they’re going to get even better with these new additions.

There’s a ripple effect, good and bad, that happens downtown. I don’t think it’s overstated to say that as goes the office sector, so goes the rest of downtown. In Minneapolis, longtime restaurant Rock Bottom Brewery  is among multiple closures in the last couple of years. Marshalls department store closed early this year.

When you make a decision about where to locate your office — and how to manage your team using it — you’re making a community decision just as you’re making an individual business decision.

I was struck by how Doug Muth, senior vice president and market leader/shareholder at Holmes Murphy, described his firm’s decision to move downtown.

“We love the energy of downtown,” he said, adding he’s excited by the prospect of highlighting the city for visiting colleagues and clients.

But the decision to locate on the edge of Falls Park is just as much about the mental health of his team, he said.

“We really believe in that. So for us, in the winter our new building will offer access to a fitness center, and in the summer we really think the walkability to downtown and around Falls Park is huge. That was another big reason we made this decision. We already have employees telling us they can picture coming in to work for the day and with the Levitt next door spending all day down there, so they really love the idea of being part of that.”

So many elements play into an employee’s “work life.” The culture, the team and the opportunities of the job itself clearly are key. But don’t underestimate the setting. I think a host of businesses are about to prove how much a downtown office environment can benefit a team. And, thankfully, our broader community is about to share in the gain.