U.S. Retail Construction Activity Pulls Back in First Quarter of 2026

According to CoStar's data, approximately 64.2 million square feet of retail space was under construction in the U.S. during Q1 2026. This figure marks a decrease from roughly 70 million square feet in the same quarter of the previous year and is well below the 10-year average of over 90 million square feet recorded during the last expansion cycle. This downturn signals a significant pullback in retail construction, bringing activity levels closer to those seen in the early stages of the post-pandemic recovery.

Brandon Svec, the national director of retail analytics at CoStar Group, commented on the current state of the retail construction environment, stating, “The pullback in construction reflects a development environment that remains difficult to pencil in most markets.”

Multiple factors contribute to this decline in construction activity, primarily revolving around escalating costs. The sharp increases in land prices, construction costs, and interest rates over recent years have pushed required rents above prevailing market levels for many retail formats. Svec noted that even in regions experiencing strong population growth and leasing demand, the ability to achieve reasonable returns justifying new construction has become increasingly challenging.

Moreover, developers are adopting a more cautious approach following years of heightened awareness regarding supply risks. Retailers are also shifting toward capital disciplined expansion strategies, favoring a more measured approach to growth.

The competition for prime retail locations has intensified, particularly from higher-density residential, industrial, and mixed-use projects. This competition constrains retail development opportunities, especially in infill locations. Additionally, the ongoing competition with e-commerce for consumer spending—particularly in soft goods categories—has led to a preference for smaller retail footprints and selective growth, rather than broad-based expansion strategies.

Among the various U.S. markets, Dallas, Houston, and Austin are at the forefront of construction activity. A significant portion of the retail space under construction in these Texas cities is already pre-leased, demonstrating robust tenant demand for well-located and modern retail spaces.

In contrast, several markets outside the Southern U.S. exhibit higher levels of unleased space. This trend suggests caution among tenants regarding commitments or indicates that the projects in these regions are further along in their delivery timelines.

The findings from CoStar Group underscore the complexities facing the retail construction sector in the U.S. As the market grapples with rising costs, shifting consumer behaviors, and competitive pressures from other development sectors, the outlook for retail construction remains uncertain. The industry is poised for a period of adjustment as stakeholders navigate these challenges and recalibrate their strategies to align with evolving market dynamics.

CoStar Group continues to be a pivotal player in providing insights and analytics that inform the real estate market, helping businesses adapt to the changing landscape. For more information about CoStar Group and its offerings, visit their official website.