Retail Construction Slows Significantly in 2026

New report shows retail construction down 8% in Q1 2026 compared to prior year

Apr. 8, 2026 at 1:53pm

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A new report from CoStar Group shows that retail construction in the U.S. slowed significantly in the first quarter of 2026, with only 64.2 million square feet of new retail space under construction nationwide, down 8% from the same period in 2025 and well below the 10-year average. Factors like rising land prices, construction costs, and interest rates have made new retail development increasingly challenging, leading developers to remain cautious and retailers to favor smaller footprints and selective growth.

Why it matters

The slowdown in retail construction reflects broader economic uncertainty and challenges facing the retail industry, including competition from e-commerce, supply chain disruptions, and geopolitical tensions. This could limit the availability of new retail space and impact consumer spending in the coming year.

The details

According to the report, the 64.2 million square feet of new retail space under construction in Q1 2026 represents a decline of roughly 8% from 70 million square feet in the first quarter of 2025 and is well below the 10-year average of 90 million square feet. The pullback in construction is attributed to a difficult development environment, with rising land prices, construction costs, and interest rates pushing required rents 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.

  • In the first quarter of 2026, 64.2 million square feet of new retail space was under construction nationwide.
  • This represents a decline of roughly 8% from 70 million square feet in the first quarter of 2025.
  • The 10-year average for retail construction was 90 million square feet.

The players

CoStar Group

A leading provider of commercial real estate information, analytics, and online marketplaces.

Brandon Svec

National director of retail analytics at CoStar Group.

Naveen Jaggi

Executive at JLL, a global commercial real estate services firm.

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What they’re saying

“The pullback in construction reflects a development environment that remains difficult to pencil in most markets.”

— Brandon Svec, National director of retail analytics at CoStar Group

“I have a personal concern that you get to the spring of `26 and, if we have any more global uneasiness around tariffs not being settled and trade wars, it's going to start impacting the consumer. It doesn't matter how much you cut interest rates. If customers don't have money in their pockets and they feel uneasy with their jobs, they won't spend.”

— Naveen Jaggi, Executive at JLL

What’s next

The impact of the recent two-week ceasefire between the U.S. and Israel on fuel prices and consumer spending remains to be seen, as hostilities in the Strait of Hormuz could continue to disrupt supply chains.

The takeaway

The slowdown in retail construction reflects broader economic uncertainty and challenges facing the industry, including competition from e-commerce, supply chain issues, and geopolitical tensions. This could limit the availability of new retail space and impact consumer spending in the coming year, underscoring the need for retailers to adapt their strategies to the evolving market conditions.