May 20, 2024

Who would have thought a long-vacant former Hobby Lobby would evolve into a sort of commercial real estate unicorn?

But that became the situation for the 50,000-square-foot big-box space along 41st Street near Grange Avenue.

“It has been an absolute feeding frenzy for that space,” said Ryan Tysdal of Van Buskirk Cos., who has it listed.

“I had four offers at once.”

The interest came from furniture and grocery stores to family entertainment and home improvement businesses. A deal hopefully is going to be announced soon, Tysdal said.

“It’s the only box space like it in the market,” he said. “It’s prime 41st Street property anchored by a high-performing Costco, so 41st Street continues to be a powerhouse for retailers.”

While he’s nearing a deal on the space, other retail activity has been slow-going so far this year.

This week, several Sioux Falls-based commercial brokers will work on deals at the annual ICSC convention in Las Vegas, though “the scheduling is lighter, for sure,” said Raquel Blount, vice president of commercial real estate at Lloyd Cos.

“Everyone is budget-conscious right now, and COVID taught everybody you can jump on Zoom.”

The days of boutiques, shoe stores, pet shops, sporting goods stores and even dollar stores pursuing deals appear to be largely on hold.

Interest from retailers has been concentrated among convenience stores and gas stations, smoke shops and quick-service restaurants.

The next wave of new national retail in Sioux Falls hasn’t quite arrived yet. In part, it’s lack of available space — as Tysdal said, there are few options for large national retailers in the city’s core retail areas. The former Bed, Bath & Beyond at Empire East quickly filled with an Ashley furniture store. The former Chuck E. Cheese on South Louise Avenue offers one option, but the size doesn’t fit some national retailers’ needs.

Newer growth areas such as northeast Sioux Falls, the Veterans Parkway corridor, what remains for space at Lake Lorraine and the Sanford Sports Complex are drawing attention, but construction costs and the need to put deals together with multiple retailers to make it all work can be a hinderance.

“New construction is tough right now with interest rates and construction costs, so it’s back to infilling vacant spaces, which is good too,” Blount said. “And then hopefully, we have that next surge of new retail.”

At Foss Fields, a development north of Menards in northeast Sioux Falls, there’s “significant interest,” Tysdal said, adding deals could be ready to announce sometime this year.

“National retailers follow other national retailers,” he said. “And in many cases, our market has grown to the size we have all these junior boxes on the west side duplicating their footprint to better serve the community.”

South of Menards, Dawley Farm Village has almost filled the area of the development north of 18th Street with retail and has some capacity for additional retail south of there.

With the east side’s population growth, “you’re going to see a wave of restaurants coming to the east side,” Tysdal predicts. “We’re starting to see glimmers of that. You need the population and the retailers, and then they come. We’re going to start seeing more restaurants, specifically along Veterans Parkway.”

Quick-service restaurants are looking throughout the city, including many that already have a presence here, said Kristen Zueger, a commercial broker at Lloyd Cos., who is meeting with several in Las Vegas.

“Subway is one that is growing, looking for more viable sites,” she said. “They’ve been in town twice in the first quarter. … So they’ve got interested franchisees, and they have sites they are interested in considering, but a lot goes into those considerations like any retailer,” she said.

Culver’s and Dairy Queen also are growing concepts, she said.

“In most of these cases, it’s land that people are looking at,” Zueger said. “Even the Subways are looking at land and not existing space. They want to do stand-alones versus in-line.”

There also continues to be new franchised concepts looking at the market, she said.

“You would think in the case of Sioux Falls that we are pretty well served with the franchises that are here, but there are new ones looking to come into the market, or they were once here and are looking at coming back.”

The UPS Store on 41st Street, which will be vacant soon with a move to Dawley Farm Village, is drawing interest from national retailers “due to location and visibility there,” she said.

Zueger also is planning to meet with some hotel franchises that “are looking at sites along I-29 and then the future 85th Street interchange,” she said.

“The other one I’ve seen a lot lately are some interstate convenience stores — not truck stops, but convenience stores with gas pumps along interstates primarily, so I have some of those meetings set.”

On the west side, there is growing interest in the Ellis Road corridor, where Starbucks has opened and McDonald’s is under construction. On the south side, the area at 85th Street and Minnesota Avenue has filled in with retail, and there are conversations starting about the area around 85th Street and Cliff Avenue.

National grocery deals would “be great, but there just isn’t anything available (for existing space) that they’ll take,” Blount said. “So that’s the problem.”

When retailers can’t find available space or make the numbers work in Sioux Falls, they are seeing opportunities in other South Dakota cities, Tysdal said.

He points to communities with a population of 10,000 or more as attracting some national attention: Aberdeen, Brookings, Mitchell, Pierre, Watertown and Yankton.

“They’re all these old shopping malls that have been converted to power centers,” he said. “It provides an affordable way to enter those tertiary markets that have historically been underserved by many national retailers.”

He points to a former Herberger’s department store in Aberdeen, which filled with Harbor Freight and Marshalls. T.J. Maxx opened in Brookings last year in a former JCPenney space.

“It usually involves subdividing larger boxes or combining smaller interior space because all these properties were in prime areas, but indoor shopping malls may not be the highest and best use any longer,” he said. “But they do create the ability to bring some of these sought-after national brands throughout South Dakota.”