May 23, 2022

One look at the line of shoppers stretched out the door over the weekend for the grand opening of Lego store Bricks & Minifigs and it would be hard to assume Sioux Falls retail is doing anything but thriving.

More than 1,000 customers came through the door on opening day from as far as Minot, North Dakota; Mankato, Minnesota; and Kansas City, Missouri.

“We appreciate the support from the communities,” franchisee Jenn Dean said. “As we all know, we are very fortunate to live in such a great community and region of the country. We are simply more excited to keep bringing the Lego joy to everyone and going to work hard to build an amazing store for our customers.”

Dean, who franchised the business with her husband, Ryan, chose a location in the heart of the city’s longtime retail corridor — 41st Street and Kiwanis Avenue — that most recently was Arthur Johnson Shoes.

The fact that the storefront now sells Star Wars collective Legos and built-your-own mini-figurines instead of dress shoes and loafers says a lot about the direction of retail today.

“In many cases, it’s totally different tenants than you saw 15 or 20 years ago,” said Ryan Tysdal of Van Buskirk Cos., who brokered the lease for the space.

“Who would have thought we’re seeing things like swimming lesson tenants inside strip malls, a totally new type of services that just didn’t exist years ago.”

While retail has changed, it’s certainly not met the dire predictions of some as the e-commerce era dawned. Instead, more than two years after the start of the pandemic, many national and regional retailers are in expansion mode.

“Retail has evolved,” Tysdal said. “Many, a majority of, big boxes nationwide are full, and in many cases people were clamoring to buy some of those big boxes for new concepts and projects. There definitely has been clarity brought to the retail sector.”

After skipping one year and doing a scaled-down version last year, the annual retail real estate conference put on by the International Council of Shopping Centers returns this week with a full-scale version, where Sioux Falls brokers will be among the thousands in the midst of deal-making.

“I have triple the number of meetings as a normal year,” Tysdal said. “There’s a lot of interest. Deal flow is very strong. Retailers are in growth mode, but they’re calculated and measured in how they’re growing. I wouldn’t say it’s a wild free-for-all.”

Interest in the Sioux Falls market is strong, industry veterans agreed.

Scott Blount of Lloyd Cos. points to the recent sale of the former Cody’s Smokehouse building at 6104 S. Louise Ave. last week. After less than a few months on the market, it sold to investors in Fargo. Blount now has it listed for a restaurant to lease and said it’s drawing interest from multiple parties.

“We’ve shown it to probably five or six different restaurateurs who are strongly considering it,” he said.

“The fact that they don’t have a tenant but they believe in the market so strong they’re willing to take on that size of a property because they believe they’re going to find a retail tenant speaks volumes about their confidence in our market.”

Many other retailers have shown the same confidence over the past year.

Empire Place is halfway developed in front of The Empire Mall and filled with national and regional retailers new to Sioux Falls, from Chick-fil-A and Chipotle to Face Foundrie and Nautical Bowls.

“We needed like-minded co-tenants that would attract the same clientele,” said Sherri Kanzenbach, who opened the Face Foundrie franchise late last year. “We had a couple others  to choose from, but the newness of this retail area and the heavy traffic were definitely big factors in our choice of location.”

While response from the area has been steady, some Empire Place tenants are closed Sundays, so Kanzenbach said she’s anxiously awaiting others to open and bring more foot traffic.

The business markets itself as an affordable, efficient and approachable facial bar, offering not just facials but brow, lashes and skincare services. It’s an example of the service-oriented retail that has been filling up strip malls nationwide.

“We have found that this community’s love for health and wellness has a strong following,” Kanzenbach said. “These people are really into self-care and understand the importance of giving yourself that time. The one thing we have loved about bringing this concept to Sioux Falls is connecting with like-minded business owners, discovering, supporting and collaborating with the numerous unique small businesses. We’ve been away from the community for 25 years but have continued to watch the city grow and develop into something quite impressive.”

Empire Place tenants Crumbl Cookies and Buff City Soap already have committed to second locations in the city at Dawley Farm Village. SafeSplash Swim School and Freddy’s Frozen Custard & Steakburgers also are new east-side additions.

“I’d say the (Sioux Falls retail) market is stronger than we’ve seen. There’s a lot of activity,” said Raquel Blount of Lloyd Cos., who represents Empire Place.

Her schedule in Las Vegas is “completely solid, very booked, lots of interest,” she said. “I think it’s going to be really productive.”

Retailers looking at the market include quick-service restaurants, soft-goods retailers and some stores currently in the market looking for additional locations, she said.

“And small boutique retail is coming back — it’s just taking time,” she added.

Retail hot spots

The city’s retail market is sitting at what might be called a comfortable level of vacancy — unlike some years when space along key corridors was oversupplied or nearly nonexistent, generally a retailer looking for space today finds some options in every part of town, though not an overwhelming number of them.

The Blounts will be showing locations citywide, from Empire Place to Dawley Farm Village on the east-side, 85th and Minnesota to the Sanford Sports Complex and The Crossroads at 12th Street and Interstate 29.

“We’re excited about the opportunities,” Scott Blount said. “We haven’t gone for two years, so it’ll be interesting to see.”

Tysdal also is marketing sites citywide and sees increased interest in the northwest and northeast.

“I think you’re going to see expansion along Highway 100, both north and south from Dawley Farm,” he said. “We’re seeing some retail interest in the northwest quadrant. There’s not a lot of clarity as to what that looks like in terms of retail development, but there’s rumblings of interest from a few different users, a couple of which I’m meeting with in Vegas.”

Challenges in construction, hiring

National retail deals historically have taken longer than many others, but the current environment is presenting even more hurdles as construction costs and hiring challenges combine to make some deals hit the proverbial pause button.

“Some are moving forward,” Raquel Blount said. “Cost of tenant improvements and build-outs are rising, and that’s pushing rental rates, especially on new construction, that’s the hard thing. The challenge is getting the pricing such that the tenant will lease the space and pay the rent.”

The COVID-19 pandemic “put a whole other layer of complexity,” Ryan Tysdal said. “Just addressing the concept of if there was a future pandemic, what that looks like in a lease agreement and also how that translates to supply chain issues and timing and construction costs.”

It’s that way nationwide, he said.

“Our market is not in a bubble. They’re experiencing that in every market, and we’re navigating it the best we can. I’ve not seen them put things on hold; it’s just more challenging to come to terms.”

Retailers also are addressing the reality that their staffing levels likely won’t return to what they were even a few years ago, he added.

“I think the days of walking into a fast-food restaurant and ordering from a person are probably on their way out,” he said. “You’re going to order from an app or a kiosk.”

And while deals might move forward this week, it’s likely one more step in an elongated process.

“We’re negotiating a deal on the former Hobby Lobby next to Costco and and have been negotiating it just shy of three years, just to give a sense of how long some of these deals can take,” Tysdal said. “There’s not a lot of instant gratification in the commercial real estate world.”