Sioux Falls, South Dakota, is a city that has been steadily growing and evolving over the past decade. Making it an attractive destination for real estate investors looking to enter the multifamily housing market. This market analysis aims to provide insights into the opportunities and challenges of investing in multifamily housing in Sioux Falls. It will cover the city's economic indicators, demographic trends, and real estate market conditions.
Economic Indicators:
Employment and Job Market:
Sioux Falls’ job market is rated second in the nation, boasting the lowest unemployment of metropolitan areas in the US at 1.8%. This is due to the strong and diversified job market, driven by the healthcare, financial services, manufacturing, and retail sectors. Its low unemployment rate and a steady stream of job opportunities make it an appealing destination for new residents, creating demand for housing. According to Policom Corp’s annual analysis of overall economic strength, Sioux Falls came in third behind only Nashville, TN, and Austin, TX.
Population Growth:
The city has a population of 208,900 and has been consistently growing at an average rate of 1.7% YoY, beating the national average of 0.6%. The population is expected to grow by 10% over the next 5 years. This population growth is an essential driver for the multifamily housing market, as more residents require additional housing options.
Income Levels:
Sioux Falls benefits from a relatively strong and stable economy, leading to a median household income of $71,246, which is higher than the national average of $68,345. With higher incomes, residents are more likely to afford multifamily housing, contributing to the demand for these properties.
Demographic Trends:
Millennials and Baby Boomers:
Sioux Falls has a diverse demographic makeup, with millennials and baby boomers being two significant population groups. Millennials are often renters, preferring multifamily housing due to its convenience and affordability. On the other hand, aging baby boomers may seek downsizing options, potentially increasing demand for multifamily housing with amenities suitable for their needs.
Young Professionals:
Sioux Falls has a thriving healthcare sector, attracting many young professionals to the city. These professionals often prefer rental housing, which contributes to the demand for multifamily properties.
Real Estate Market Conditions:
Low Vacancy Rates and Rising Rents:
Due to the consistent delivery of new units to the market, the vacancy rate has been slowly increasing and is currently at 5.6%. Despite the rise in vacancy rates, the market has seen a small increase in rents for 2023 of 1.7% compared to 7.6% last year.
New Developments:
Sioux Falls has seen an increase in multifamily housing construction in recent years, which reflects growing investor interest. Last year around 3000 units were added to the market and permits were granted to construct an additional 3,343 units. Most of these new developments are on the outskirts of the city.
Investing in multifamily housing in Sioux Falls, South Dakota, presents compelling opportunities due to the city's robust job market, population growth, and favorable economic conditions. While competition is increasing there is still a lot of opportunity for new construction and value-add deals.
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