CoStar: Retail space construction down year over year in Q1
Commercial real estate construction remained low to start the year, continuing a long-term trend.
New data from real estate analytics firm CoStar found that in the first quarter of 2026, roughly 64.2 million square feet of retail space was under construction in the U.S., down from approximately 70 million square feet a year earlier. The first quarter total was also well below the 10-year average, which consistently exceeded 90 million square feet during the last expansion cycle.
“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 marketing 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.”
Among the markets that are constructing new retail properties, Texas leads the way, with Dallas, Houston and Austin all exceeding 3 million square feet of space under construction. Phoenix is not far behind, with more than 2.5 million square feet under construction.
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In contrast, several markets outside the South show higher levels of unleased space, though Las Vegas, Charlotte, N.C., Atlanta, Orlando and Chicago all exceeded 1 million square feet of new construction as of April.
Earlier this year, CoStar predicted that U.S. retail vacancy is expected to rise minimally in the first half of 2026 before falling slightly during the latter half of the year and into 2027. The outlook is consistent with CoStar’s previous forecast, which had U.S. retail vacancy peaking at just under 4.4%.
“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.”
