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'We're on the radar' for national retailers

May 25, 2016

At one point, there were hundreds of shoppers lined up outside the door of Aldi as the grocery chain held its grand opening in Sioux Falls.

A day earlier, customers had started streaming into the city’s fourth Walmart as soon as its doors opened.

“It was just so exciting that they were so well-received and supported,” said Raquel Blount of Lloyd Cos., who helped put both deals together. “It really shows our market needs these alternatives, and both concepts have such fresh looks and bright, open concepts.”

The past year has resulted in several new national retailers coming to Sioux Falls, and the wave of growth likely isn’t done.

This week, several area commercial real estate representatives are selling the city and specific locations to a wide range of national retailers in Las Vegas at RECON, the world’s largest retail real estate convention.

The conversation around Sioux Falls also is shifting because the population of the city’s metro area reached 250,000 people in the past year and the promise of lifting federal flood-related restrictions on building appears it will open up coveted land for retail redevelopment.

“Call it credibility,” broker Ron Nelson of Nelson Property Consultants said of the population marker. “There are just certain benchmarks that when people search towns with a (metro area) of 250,000 they will only go look at those towns. Now, we are on the radar where we weren’t before.”

Retailers tout market

Aldi, a discount grocery chain, also will open its second store in Sioux Falls this year. The first one on South Louise Avenue opened May 12, and the second near Foss Avenue and Arrowhead Parkway is scheduled for later this summer.

“Sioux Falls is a vibrant and growing retail market,” said Matt Lilla, a division vice president for Aldi, adding that sites are selected based on “population density, proximity to competition, cost of the property and traffic patterns.”

In the past year, several new national names have entered the market:

  • Duluth Trading Co. opened downtown on Phillips Avenue.
  • Einstein Bros. Bagels came into the market in three co-branded stores with Caribou Coffee.
  • Moe’s Southwest Grill opened at 41st Street and Western Avenue.
  • Popeyes Louisiana Kitchen is building two stores, starting with one that’s under construction on East 10th Street.
  • Red Robin opened at The Empire Mall.

Existing national names also are expanding. Greg Puls, franchisee for five Subway stores in Sioux Falls, opened his latest in April at 85th Street and Louise Avenue.

“It’s a very good area,” he said. “I was surprised how fast (customers started coming). We just kind of opened the door.”

The Subway look has been updated with an more upscale decor and a drive-thru featuring a touchscreen. Puls, a franchisee for 26 years, said Sioux Falls is a “very strong” retail market.

In spite of having another Subway at 69th Street and Minnesota Avenue and one he doesn’t own inside the new Walmart at 85th and Minnesota, he thinks his new southwest store “could end up being one of the top stores in town for volume. It just has that feel.”

Dan Roberts, manager of the new Walmart and a Sioux Falls native, also is bullish on the local retail market.

“Sioux Falls, in my mind, is a hub for shopping, and it’s not just the residents,” he said. “I’ve talked to people from Canton and Beresford and Lennox and Rock Rapids, all the surrounding communities, that are excited about it (the new store) because it cuts potentially 30 minutes off their drive time versus one of our other stores, which is a great value to us.”

Shopping hot spots

Retail activity is citywide, but some intersections and developments are particularly in demand.

A market survey released earlier this year by Bender Commercial Real Estate Services reported 4.7 percent vacancy citywide with some areas around The Empire Mall showing little to no space available.

“There’s probably more inventory (now), and most of it has been filled or is going to be pre-leased and filled,” Bender partner Reggie Kuipers said. “It seems to be hot still.”

The area of Louise Avenue between 49th and 57th streets has drawn significant activity already this year:

  • A new retail center built on the site of a former apartment is full, with tenants including the franchise Pancheros Mexican Grill and local retailer Treasures From the Heart.
  • Popeyes plans to build its second Sioux Falls restaurant across the street along with a new location for Sioux Falls Federal Credit Union.
  • Caribou and Einstein plan to open another co-branded store later this year next to Five Guys Burgers and Fries.

Blount started marketing a new redevelopment option in the area at the RECON event. Crescent Center will be a two-story building on Louise south of 57th that will sit on the current Security Credit Corp. property and be a potential fit for new national retailers, she said.

“It’s an underutilized site. This will be 17,000 square feet, two-story, modern-looking with glass, and retail shops on the main floor and highly visible office on the second floor with a patio area for seating.”

In another hot spot, retail activity is clustering at 85th and Minnesota.

The six lots on the same corner as Walmart are under contract, including two to a bank, two planned as strip malls, one for Burger King and another envisioned as a future restaurant site.

One retail center will include Wireless World, a nail salon and Scooter’s Coffee.

“I have three other offers on it, which would be enough to fill it,” Blount said. “It’s really become a hot growth area, and that’s why we’re so thrilled to see how strong the opening was for Walmart.”

Ryan Tysdal of Lloyd Cos., who put the Burger King deal together and is leasing the other strip mall on the site, called the retail interest in the area unparalleled.

“For brokers who don’t deal in Sioux Falls regularly, they think east side and west side, but if they’ve blinked they might have missed what’s happening at 85th and Minnesota,” he said. “The interest and demand is outpacing the speed at which we can get all the plans done, so it’s very positive. The leasing outlook is very favorable.”

Burger King plans to open soon and construction of the next strip mall could happen this year, he said.

“We’ll move quickly to do deals because that area is growing rapidly, unlike anything we’ve ever seen before.”

Across 85th Street, Subaru of Sioux Falls plans to open its new dealership in August. Nelson, who represents the adjacent commercial land, has one parcel under contract with a national fast-food retailer and another in negotiations.

“We’ve got extremely good activity and interest, opportunities we’re carefully analyzing that are compatible with the area,” Nelson said.

The east side also is continuing its momentum. A national retailer is expected to announce a second location soon in space north of Burlington in the retail area of Dawley Farm Village, and a new national restaurant to the market is expected to build there.

“Our plan would be to start construction by August,” Blount said. “And there is another national from the mall that would like to be out there.”

She also is close to landing two tenants for a new building next to the Aldi that’s under construction nearby.

The franchisees of Buffalo Wild Wings still own property at Dawley and have submitted plans to the city for a restaurant there but haven’t announced any time frame for construction.

At RECON, Ryan Ammann of NAI Sioux Falls will be marketing remaining space owned by those franchisees.

“It’s yet to be determined when that square footage will be available, but we’re looking at around a 4,200-square-foot building,” he said. “That has been proposed all along.”

He also is marketing a redevelopment site just west of Walmart of Arrowhead Parkway that could be a fit for national retail.

“We haven’t solidified a layout yet. There’s a few options, including selling and developing build-to-suit,” he said. “I think we’re going to see folks take a look at our expanding market and really look at this as more than a singular-location town.”

Flood of potential

Some of the biggest retail news might be yet to come.

The city expects to receive a letter of final determination from the Federal Emergency Management Agency in July that will share when new flood maps will be available. A corresponding city ordinance is scheduled to go before the City Council for approval next month, so building permits can be offered in an area that previously was precluded from building because it was considered in a flood hazard area.

That includes a wealth of property in the Meadows on the River area as well as the campus of The Empire Mall.

“That whole corridor changes,” said Jeff Schmitt, the city’s chief zoning official. “Everybody will gobble up those spaces.”

Brokers agreed.

“It’s what we’ve been waiting for. It really opens up opportunities for sites with redevelopment, remodels and expansion,” Blount said. “Previously, if a new, larger national retailer wanted to come into the market, there wasn’t space near or around the mall. This opens up that opportunity, and I think you will start to see new, national names come into the market.”

Some deals are nearing completion because of new certainty around the flood issues, Tysdal said.

“It opens up doors that have been closed for a very long time,” he said. “I’m on the tail end of a deal with a brand-new national retailer to the market … and the flood plain has been a holdup in getting them here. I’ve got them and (another) user next to them, and the deals are coming to fruition.”

The Empire Mall has been anticipating flood restrictions being lifted for a while, too, general manager Dennis Gilliam said.

“Hopefully, by the end of the year, we’re able to do more things with our property along with everybody else in the neighborhood,” he said. “We continue to have requests from national retailers to build or become part of our contiguous mall.”

Red Robin and Sephora are recent examples of operations wanting to attach to the front of the mall, Gilliam said. “Those will continue to happen over time. That is becoming more the norm.”

Sioux Falls Ford also plans to start construction of its new dealership near Lowe’s this year, opening up property on the mall campus once the dealership relocates.

“When Ford moves, all these dominoes start falling, and it’s great for Lake Lorraine,” Schmitt said.

The Lake Lorraine area, which already has experienced significant construction this year, is close to announcing its first national retail deals. The property is between Interstate 29 and Marion Road, south of 26th Street.

“We’re going to be in heavy lease negotiations in the next month,” said developer Steve Van Buskirk of Van Buskirk Cos. “We’re already doing dirt work out there, and I think we’ll be in full swing by September.”

There are commitments on 180,000 square feet from big-box or so-called junior-box retailers, he said. The next step is landing enough smaller stores and restaurants for the remaining 200,000 square feet of retail planned at Lake Lorraine.

“That’s going to be a more Main Street-type look,” he said. “That’s the next step.”

Courtesy of Jodi Schwan, Sioux Falls Business Journal