Retail construction activity declined during the first quarter of 2026, according to new data from CoStar Group (NASDAQ: CSGP).
During the first three months of the year, approximately 64.2 million square feet of retail space was under construction. This is down from approximately 70 million square feet one year earlier and considerably lower than the 10-year average, which consistently exceeded 90 million square feet during the last expansion cycle.
CoStar Group noted that current construction volumes are near levels last seen in the early stages of the post-pandemic recovery.
“The pullback in construction reflects a development environment that remains difficult to pencil in most markets,” said Brandon Svec, national director of retail analytics at CoStar Group. “The sharp rise in land prices, construction costs, and interest rates over the past several years has pushed required rents well above prevailing market levels for many retail formats. Even in markets with strong population growth and leasing demand, achieving returns that justify ground up construction has become increasingly challenging.”
“Beyond cost pressures, developers remain cautious following years of heightened supply risk awareness, while retailers continue to favor measured, capital disciplined expansion strategies,” added Svec. “Competition for sites from higher density residential, industrial, and mixed-use projects further constrains retail development opportunities, particularly in infill locations. At the same time, ongoing competition with ecommerce for consumer spending, especially within soft goods categories, has reinforced a preference for smaller footprints and selective growth rather than broad-based expansion.”
Three Texas markets – Dallas, Houston and Austin – recorded the greatest level of activity, with much of the space under construction being pre-leased.
0 Comments