While activity still trails earlier results, construction ticked up for the second quarter. CoStar, an online real estate marketplace, said during the quarter about 72.1 million square feet of retail space was under construction across the U.S., a 0.9% increase year over year. Still, it trails the 10-year average of roughly 78.9 million square feet.
The new results show certain areas of the country continue to outperform the overall results, with new retail construction heavily concentrated in 15 markets. They account for about 47 percent of the national construction results. Three Texas cities — Dallas, Houston and Austin — account for 21 percent of activity, coming in at 15 million square feet of the building pipeline.
CoStar said other active markets are in the Sun Belt as well as select, fast-growing markets, including Phoenix, Las Vegas, Chicago, Charlotte, Atlanta, Miami and Denver.
Still, the overall building market remains challenging, the company said. Brandon Svec, CoStar’s national director of retail analytics, said that the limited amount of construction activity “reflects a development environment that remains difficult to pencil in most markets.
“The sharp rise in land prices, construction costs and interest rates over the past several years has pushed required rents well above prevailing market levels for many retail formats,” Svec said in an interview. “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 supply risk awareness, while retailers continue to favor measured, capital-disciplined expansion strategies.”
