Retail construction holds near post-pandemic lows

Article originally posted on CoStar on July 13, 2026

Retail space availability is historically tight across most U.S. markets, with low vacancy, limited second-generation space and steady tenant demand contributing to rent increases.

Under normal conditions, that backdrop would be expected to trigger a pickup in new construction. Instead, retail space development was largely flat in the second quarter, underscoring the extent to which supply growth has decoupled from demand fundamentals.

As of the end of the second quarter, roughly 72.1 million square feet of retail space was under construction nationally, little changed from the first quarter and up less than 1% from a year earlier. While the retail construction pipeline has stabilized after pulling back sharply from pre-pandemic levels, the amount of new store space under construction remains below the 10-year average of roughly 78.9 million square feet and far below the levels seen during the middle of the last decade, when the quarterly pipeline averaged more than 100 million square feet.

The limited construction activity reflects the economic conditions that make it difficult to justify new construction in most markets. The sharp rise in land prices, construction costs and interest rates over the past several years pushed the rents required to cover development costs well 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 remains challenging.

Beyond cost pressures, developers remain cautious following years of heightened awareness of supply risks, while retailers continue to favor measured, capital-disciplined expansion strategies. Competition for available development 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 e-commerce for consumer spending, especially in soft goods categories, has reinforced retailers’ preference for smaller footprints and pursuing incremental growth in select markets rather than broad-based expansion.

Meanwhile, construction activity remains concentrated in a narrow set of retail segments, reflecting where development economics and tenant demand still align.

General retail formats account for roughly 50.4 million square feet, or nearly 70% of all space under construction, though that total is down about 1% from a year earlier. Neighborhood centers, which are often anchored by grocery, drug stores or other essential service tenants, represent roughly 10.7 million square feet of retail space under construction, down more than 3% year over year. Strip centers account for about 4.0 million square feet of space under construction, down more than 9% year-over-year.

On the other end of the spectrum, regional mall construction remains modest in absolute terms. Still, the segment is surprisingly one of the few seeing growth, with nearly 3.9 million square feet under construction, up about 55% from a year earlier. However, much of that construction is tied to redevelopment, expansions or nontraditional uses rather than new enclosed-mall space.

Geographically, new retail construction remains heavily concentrated within a limited number of markets. The 15 locations with the most space under construction account for nearly 47% of the national pipeline, with the largest concentrations skewing toward high-growth regions and lower-cost development markets.

The state of Texas continues to dominate the top of the list, with Dallas, Houston and Austin collectively accounting for more than 15 million square feet of retail space under construction or just over 21% of the national pipeline. Roughly 7.7 million square feet is under construction in Dallas alone, followed by Houston at 4.2 million square feet and Austin at 3.3 million square feet. These retail markets have benefited from population growth, corporate relocation and relatively favorable zoning and entitlement environments, allowing select projects to move forward even amid elevated construction costs.