CoStar: Retail construction activity, new project starts fall in Q3
Retail construction activity slowed down in the third quarter as increased costs continued to put pressure on new development.
According to the latest data from CoStar Group, roughly 58.3 million square feet of retail space was under construction in the U.S. in the third quarter of 2026, down from 60.6 million square feet in the second quarter and 63.3 million square feet in the first quarter. Despite being unchanged from a year prior, the metric remains roughly 4% below its prior 10-year average of 60.7 million square feet.
CoStar noted that new construction starts fell to their lowest quarterly total since at least 2016 in the third quarter. Developers broke ground on about 7.7 million square feet of retail space during the period. This was a notable decrease from 10.7 million square feet in the second quarter.
According to a recent Associated Builders and Contractors (ABC) analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data, overall construction input prices (includes energy, materials and equipment) increased 2.2% in September. Overall commercial construction costs rose 1.7%.
“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. "Elevated land prices, construction costs and borrowing costs have pushed required rents well above prevailing market levels for many retail formats, and flat asking rents during the quarter did little to close that gap. Third-quarter construction data supports our current view that retail supply growth will remain limited for the foreseeable future.”
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Texas continues to lead the way in new retail construction activity, with Dallas-Fort Worth, Houston and Austin collectively accounting for about 15.5 million square feet under construction, which is nearly 27% of the national pipeline. The 15 largest pipelines, which also include Phoenix, Chicago and Las Vegas, account for more than half (56%) of all space under construction.
“Based on current conditions, with construction starts at their lowest level in at least a decade and financing costs moving higher, we expect the pipeline is likely to shrink further before any meaningful recovery takes hold,” added Svec.
