Aug. 11, 2025
Sioux Falls could finish 2025 with its second-best building permit year as commercial activity has progressed at a solid pace, according to a midyear market report from Bender Commercial Real Estate Services.
At a macro level, in spite of changing federal policies and geopolitical conflicts, “inflation, unemployment and interest rates have been largely steady throughout 2025,” Bender president Reggie Kuipers said in the report, predicting at least one rate cut this year.
“Rate relief won’t have a large effect on core businesses, but it will have a strong impact on investment real estate,” Kuipers said.
The report took a look at how activity is trending by sector.
Land market
Unimproved land sales saw a strong start to 2025 with more than 500 acres purchased in the metro area, including two large deals — 302 acres adjacent to Bakker Crossing Golf Course on the northwest edge of Harrisburg and 164 acres in northeast Sioux Falls.
However, as population growth slows from the high of recent years, demand could follow. An auction for development land in Harrisburg also failed to to sell after bidding stalled below market value, Bender’s Bradyn Neises said.
“In my view, the positives outweigh the negatives,” he said, adding that the population growth pattern seems to be returning to sustainable pre-COVID levels.
“Rising building permit valuations for new residential and commercial projects suggest continued confidence in our community. While developers may become more selective, I expect they will continue acquiring development land throughout the Sioux Falls metro area.”
He predicts total land sales will approach 1,000 acres this year.
On the improved land side, the retail sector is showing strength, Neises said.
“Retailers continue to seek land opportunities in neighborhood districts throughout the Sioux Falls metro area, and the outlook remains positive for another solid year of retail land transactions.”
Industrial land saw 14 sales in the first half of the year, mostly in Tea and Harrisburg given the limited number of industrial lots in Sioux Falls. Office land is tracking about average, while multifamily land “experienced a notable slowdown,” he said.
Office market
The Sioux Falls office market vacancy rate sits at 12.2 percent midyear, compared with 11.6 percent at the start of the year and below the national average that has been estimated as high as a record 20.6 percent.
Downtown office space is in considerable demand at 5.5 percent vacancy versus 14.8 percent outside of downtown.
Some large blocks of office space have come on the market in the past year; “however, the interest in some of these buildings has been strong,” Bender’s Andi Anderson said.
“We are seeing buyers and investors think outside the box with conversions and repurposing of former call centers. We are also seeing owners have a better understanding that the per-square-foot price needs to be lower for purchasers in order for these renovations to work. All of this is good news, and I expect we will continue to see buildings absorbed throughout the next six months.”
Retail market
Sioux Falls retail property sales are more than double last year through the first half of 2025, totaling $30.08 million through June compared with $13.38 million for the same time last year.
“This strong sales activity is especially noteworthy considering interest rates have remained elevated,” Bender’s Rob Kurtenbach said.
“Despite tighter lending conditions, buyer appetite has clearly returned — possibly signaling renewed confidence in the long-term stability and income potential of retail properties.”
Retail locally is seeing more attention “on well-located, second-generation space and renewed interest from both regional users and national brands looking for a footprint in a stable Midwest growth market,” he added.
Kurtenbach cited a recent report from Colliers that shows more than 56 percent of U.S. retailers plan to expand their physical space in the next five years, while 15 percent expect to reduce their footprint.
Sioux Falls retail vacancy is at 8.4 percent at midyear, compared with 9 percent at the start of the year and 6.6 percent in both 2023 and 2024 at the midyear.
“While overall leasing activity has softened slightly compared to last year, quality space is still at a premium,” Kurtenbach said. “This continued investment in physical locations reinforces the idea that brick-and-mortar isn’t just surviving — it’s evolving. Retailers are betting big that well-located, well-designed stores will continue to drive both foot traffic and online engagement.”
Industrial market
For the first time since 2018, the Sioux Falls industrial market experienced a negative net absorption, posting a 9,221-square-foot decline through mid-2025.
“This represents a 101 percent reversal from the positive absorption recorded at midyear 2024 and signals a slowdown in leasing velocity,” Bender’s Rob Fagnan said.
The vacancy rate has risen to 4.25 percent — its highest mark in five years. That compares to 3.7 percent at the start of the year.
“This uptick is largely driven by an increase in available space rather than a lack of demand as new deliveries outpace absorption,” Fagnan said.
“The available space on the market is a diverse mix — ranging from small contractor bays to larger warehouse and distribution centers and spanning Class A to Class C product types — reflecting a market that is recalibrating after several years of exceptional performance. Conversely, ‘for sale’ inventory remains extremely limited, sustaining strong competition and continued upward pressure on pricing for owner-user properties.”
As of midyear 2025, the market encompasses 1,504 industrial properties totaling 32.8 million square feet.
The first half of the year brought 217,703 square feet of new inventory, a 364 percent increase from the same period in 2024.
“This expansion reflects occupier confidence but also sets the stage for a more competitive leasing environment in the second half of the year,” Fagnan said.
“While 2025 has presented early headwinds, there’s still plenty of runway ahead. The second half of the year could benefit from pent-up user demand and the wider use of leasing concessions to help accelerate deals.”
Tariffs have become a wildcard in the industrial conversation, he added.
“On one hand, they’ve added complexity and cost to construction and materials sourcing. On the other, they’re sparking relocation discussions among international manufacturers exploring U.S.-based operations — and Sioux Falls is increasingly on their radar. Whether this translates into deal flow or merely site selection activity remains to be seen.”
Multifamily market
Sioux Falls’ multifamily housing market is seeing a noticeable decline in vacancy among stabilized properties, dropping to 10.14 percent in January compared with 5.52 percent in July, according to the South Dakota Multi-Housing Association’s latest report.
“This sharp decline signals strong absorption and growing renter demand, which is a positive sign for the overall market,” Bender’s Alex Soundy said.
However, the reported vacancy figure does not include 1,306 newly constructed units currently in lease-up, he added.
“This distinction is important as it suggests that while new Class A developments are still working to stabilize, Class B and C properties are seeing especially strong leasing activity, which reflects the underlying strength and health of the more established segments of the market.”
Investment market
In the investment market, it’s easy to predict that apartment, retail, land and industrial sales will surpass 2024 transaction volume, Bender’s Nick Gustafson said.
“Both buyers and sellers have adapted to an era of higher interest rates and modified their valuation strategies. A potential federal funds rate cut will turbocharge activity going into late 2025, early 2026,” he said.
“If one ignores breathless business headlines trying to keep up with Washington, D.C.’s latest bill, announced tariff or scandal, things feel pretty good in Sioux Falls. Investors and most sellers have adapted to the new higher interest rate environment, and deals are happening at a healthy pace.”