Retail Construction Drops to Lowest Level Since 2016

Rising input costs are curbing new developments, leaving retail operators with fewer expansion options for new locations.

Updated on Oct. 21, 2026 in Construction

Isometric editorial illustration of a lone skeletal steel building frame on an empty lot, representing a decline in new commercial construction. — U.S. retail construction project starts fell to their lowest quarterly total since 2016 in Q3, constrained by rising development and borrowing costs. AI Illustration. Upload story photo >

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U.S. retail construction activity slowed during the third quarter of 2026, with new project starts hitting their lowest quarterly total in a decade. This decline affects commercial property developers and retail businesses seeking expansion space as input costs continue to rise.

Why it matters

Rising construction, land, and borrowing costs have driven developers to reduce new project starts, constraining future retail supply growth. Operators should expect continued difficulty in securing new build-to-suit locations as the national pipeline shrinks.

Retail construction projects dropped to 7.7 million square feet in Q3 2026, down from 10.7 million in Q2. Total space under construction now sits at 58.3 million square feet, with 56% of the national pipeline concentrated in just 15 major markets.

The details

Developers are reacting to a combination of rising land and borrowing costs that have forced up the rent levels required to make new projects economically viable. Construction input prices saw a 2.2% increase in September alone, while overall commercial construction costs rose 1.7%. This environment has resulted in a shrinking construction pipeline that leaves fewer options for businesses looking to scale their physical footprint in the near term.

Q1 2026: 63.3 million square feet of retail space was under construction.
Q2 2026: Retail construction space fell to 60.6 million square feet.
September 2026: Construction input prices increased 2.2 percent.
Q3 2026: Retail construction space declined to 58.3 million square feet.

Market Landscape

Current retail development is trending below the historical 10-year average of 60.7 million square feet. This contraction marks a significant shift as high interest rates and input costs continue to dampen expansion across the 15 largest construction markets.

Operators planning new store locations should anticipate higher lease costs as developers account for increased building expenses. Businesses should factor these supply constraints into expansion budgets and long-term site selection timelines.

The takeaway

The shrinking retail pipeline signals a restricted market for new commercial square footage through the end of the year. Business owners should review current lease agreements and consider long-term options before vacancy rates tighten in major markets like Texas.