SIOUX FALLS, S.D. (KELO) — There’s some potentially negative factors that could impact the 2025 economic outlook but there is also healthy market news for the city of Sioux Falls and the Sioux Falls metropolitan area, according to a Tuesday market outlook presentation by Bender Commercial.

The presentation covered general economics as well as specific outlooks for commercial, land, retail, residential and other market areas. Potential negative factors include planned tariffs, taxes, inflation and others.

House votes to pause CO2 pipeline construction

It’s a mixed bag when it comes to multi-family housing investment, said Alex Soundy. In the long term, Soundy said, he was bullish on multi-family housing but he expects vacancy rates to rise in 2025 and cost for materials and construction to remain high.

The vacancy rate from the South Dakota Multi-Housing Association is 10.14% in multi-family units. But, that rate doesn’t include all of the newly built units, Soundy said. When those are added in, the vacancy rate is more like 14.33%

“We simply overbuilt in 2022 and 2023,” Soundy said.

But, if multi-family housing owners need to refinance they may find high interest rates and maximum loan amounts that could prompt them to sell. If that happens, it could create an opportunity for investors, Soundy said.

Rob Kurtenbach said retail vacancy rates in Sioux Falls are below the national average.

“Overall our vacancy rate is in a pretty good spot at 9%,” Kurtenbach said. The national rate is 10.3%.

Rates are expected to go down in 2025, he said.

Retail investment is likely in what Kurtenbach said are the next regional centers at the 85th Street and I-29 corridor and Veterans Parkway, both on the south side of Sioux Falls.

Although there are local and national closures of retailers and restaurants, in general, restaurants are building back from the sluggish market during the pandemic, Kurtenbach said.

He expects retail vacancy rates to dip in 2025, but the loss of a larger retailer could impact that, Kurtenbach said.

Owners of farmland or unimproved land around Sioux Falls may want to pay attention to the growth in data centers.

A data center serves as a storage center related to artificial intelligence. The building houses equipment and needs a significant energy source.

“It’s starting to make its way to our market,” Kurtenbach said. Because of the need for so much energy, they are often located in rural areas because have power sources, he said. Most often, data center developers are looking for 200 to 300 acres.

Finding 200 to 300 acres in Sioux Falls could be a challenge.

Bradyn Neises said Brandon, Harrisburg and Tea continue to increase their share of unimproved land transactions compared to Sioux Falls. He expects unimproved land sales to total around 800 acres in the city in 2025.

The city of Sioux Falls has made some changes to encourage investment such as density zones which allow more construction in a smaller than traditional area, Neises said.

Businesses looking for office space could have a more difficult time finding it in downtown Sioux Falls than what is described as the suburban area. The vacancy rate is 5.9% for the downtown while the suburban rate is 13.9%.

The space available in large blocks of 10,000 square feet or more accounts for 75% of all vacancies, said Andi Anderson. If that 75% is removed, the office vacancy rate drops to 3.1%, Anderson said.

Anderson predicts that in 2025 there will be announcements about conversions of vacant call centers.

Possible tariffs are having a local effect, said Rob Fagnan. Since the start of the year in Sioux Falls, three companies have “decided to pump the brakes” on plans as they wait “for the dust to settle,” Fagnan said.

Yet, the purchasing manager’s index which monitors activity in production, new orders and related indicates that nationally, some industries are moving forward, Fagnan said.

The vacancy rate for industrial sites is 3.59% in Sioux Falls and he expects that to decrease in 2025. Lease rates should also decline after several years of aggressive increases, he said.

There will also be new construction in 2025.