Continuing a long-term trend, construction of new retail space across the country continues to lag.
According to new data from real estate analytics firm CoStar, roughly 64.2 million square feet of retail space was under construction in the U.S in the first quarter of 2026, down about 8 percent from approximately 70 million square feet a year earlier. This was also well below the 10-year average, which consistently exceeded 90 million square feet during the last expansion cycle, CoStar reported.
“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.”
Three Texas markets led the way in new retail construction 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.
Earlier this year, CoStar had predicted retail vacancies in the country would 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%.
CoStar said some of this is due to changing retail needs. “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.”