Nov. 10, 2022

More than six months after announcing, both major industrial projects starting construction in northwest Sioux Falls without tenants are still looking for some – though deals could be close.

Griffith Park, an 80-acre parcel east of Career Avenue and north of 60th Street North, is being developed by North Dakota-based Enclave Cos., which also is developing the 287-unit Millstone Commons apartment complex on the east side of Sioux Falls.

The company plans two industrial buildings at Griffith Park. It began the development with one lease in hand, a Fortune 500 company that will occupy the 97,000-square-foot building known as Alloy Two. The tenant hasn’t announced its move, but it will be a relocation from another site in Sioux Falls.

Alloy One, which is 145,000 square feet, also has started construction but doesn’t have a tenant.

“The interest in that spec building has been reasonable for the timing of the project, considering it’s still early on,” said Marcus Mahlen of NAI Sioux Falls, who has the property listed. “We have a few tenants who have expressed interest. We also have a few buyers expressing interest in it as well.”

The building is flexible space and can be subdivided into roughly one-quarter of the total size, he said.

Both buildings are on track to open late spring or early summer next year.

“Construction is well underway,” Mahlen said. “The foundations and footings are in, and the concrete pad was poured a few weeks ago. 62nd Street North is fully completed as well as of a few months ago. The site is ready for development through the winter as they begin to tilt up the walls.”

There’s also room for an Alloy Three, which could get built next year and offer up to 75,000 square feet.

The Griffith Park development also includes several retail lots along 60th Street North. One of them is the Aldi grocery store expected to open soon.

“Other developments in Griffith Park are going well,” Mahlen said. “There’s been quite a bit of interest and a few offers on the 60th Street retail frontage land, but no deal has come together yet. The developer is considering options on what they’d like to see along 61st Street north of Aldi.”

Also in northwest Sioux Falls, another North Dakota developer is constructing spec industrial space that ultimately could include three buildings.

Great Hall Properties of Fargo is developing The Docks a half-mile southwest of Foundation Park on 52 acres near Interstate 90 and Marion Road.

“We’re on track with our original 2023 timeline,” said Chris Tyre, the company’s development specialist. “We’ve got the entire site graded and prepped for the other two buildings in the future and could move quite rapidly on those when we decide.”

The first 200,000-square-foot-building will see wall panels and steel beginning to go up in the next few weeks.

“The site will be changing. It will look like a building is going up,” Tyre said.

“Ultimately, we’ve designed these buildings in a way … that they could be demised into 50,000 square feet for four end users. Ideally, someone comes in and takes the whole thing. We’ve experienced some demand for half of it, some groups searching for 200,000 (square feet) or more, so it’s been a wide array. Leasing activity is still strong, manufacturing is still growing, and demand is skyrocketing … so outside of your coastal port cities in the areas we’ve seen, it hasn’t slowed down. There’s historically low vacancy and businesses that need expansion.”

The shell is expected to be done by the first quarter of next year. Once it fills with tenants, Great Hall Properties will decide whether to build again on spec or wait for a tenant doing a build-to-suit project, he said.

Interest has been a mix of manufacturing and warehousing, said Rob Fagnan, a partner at Bender Commercial Real Estate Services who represents the property.

“And a lot of the manufacturing is light, clean, efficient manufacturing,” he said. “Other than these couple projects, there just hasn’t been much coming online for industrial.”

There’s still interest from businesses looking for 100,000 to 300,000 square feet “not just specifically in our market but even within our region,” Fagnan continued.

“We’ve had conversations with private equity groups out of Kansas City, Chicago, Wisconsin, California all wanting to come here, and they just love our market, our state and the amenities that we have. They look at us as a little hidden gem. And there are some we talked to three or six months ago that now all of a sudden have gone quiet on us, so there’s just a lot of moving parts within the industry that are affecting the decision-making of people.”

But there’s still not anything close to a surplus of available industrial space.

One new project listed by Bender is called Rubicon Crossing in the Sioux Falls Development Foundation’s Park VII in northwest Sioux Falls, where the building’s owner-occupant added square footage for a future tenant.

It meets “a void currently in the market” for space in the 20,000- to 50,000-square-foot range, Fagnan said.

“The vacancy is so low there’s just nothing. The challenge is the (existing) buildings are functionally obsolete or built on a postage stamp, so there’s little room for parking or truck-turning radiuses, and companies want to get away from functional obsolescence and lack of parking. They’ve come onto the market because companies have outgrown their existing facilities, which is a positive thing … but those are the buildings coming available.”

At the same time, Sioux Falls is moving away from the stereotypical old metal building with low side walls to now having “more clear height in these buildings and tilt-up concrete,” Fagnan continued. “We’re finally starting to grow up and see that type of quality product come into the market. National tenants are wanting a different type of product, and we’re finally seeing that start to get built in our market.”