US Retail Construction Activity Declines in Third Quarter

New retail building starts fell to their lowest level since 2016 as construction costs continue to rise.

Updated on Oct. 21, 2026 in Construction

US Retail Construction Activity Declines in Third Quarter

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Retail construction in the U.S. slowed during the third quarter of 2026, with the total square footage under development dropping to 58.3 million. New project groundbreakings also fell significantly, reaching 7.7 million square feet compared to 10.7 million in the previous quarter.

Why it matters

Rising input prices and higher borrowing costs have forced developers to scale back new projects. This trend, combined with increased land and construction expenses, has made it difficult to maintain previous levels of retail expansion.

Retail space under construction is now 4% below the 10-year average of 60.7 million square feet. Commercial construction costs rose 1.7% as input prices saw a 2.2% increase in September.

The players

Texas

Texas cities currently lead the nation in retail development with 15.5 million square feet of space under construction.

The details

Developers have significantly reduced new project starts, leaving the current retail construction pipeline at its lowest point in a decade. A heavy concentration of activity remains in a few select areas, with the 15 largest construction pipelines accounting for 56% of all space currently being built nationwide.

Q1 2026 saw 63.3 million square feet of retail space under construction.
Q2 2026 saw 60.6 million square feet of retail space under construction.
September 2026 saw construction input prices rise by 2.2 percent.
Q3 2026 saw 58.3 million square feet of retail space under construction.

Market Landscape

The current downturn reflects a broader contraction in the commercial sector as high interest rates and material costs reshape development pipelines. This shift distances the market from the 10-year average of 60.7 million square feet of retail construction, signaling a cooling period for commercial developers.

Retailers and consumers may face limited availability of new shopping space, potentially keeping rental and leasing costs elevated. These development hurdles could lead to fewer new store openings in local communities as companies adjust to tighter project budgets.

The takeaway

The contraction in retail building suggests that developers are prioritizing cost management over rapid expansion in the current economic climate. Property stakeholders should anticipate a period of limited supply growth as high interest rates continue to influence construction viability.