U.S. Retail: Growth Markets vs. Mature Markets

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Overview

Retail construction followed a different post-pandemic path than other asset types like multifamily and industrial. While those sectors experienced national supply booms, retail construction remained muted—constrained by capital allocation to other sectors, the retail apocalypse narrative hangover, elevated construction costs, high interest rates, and an increasing relative scarcity of prime sites. Vacancy and availability fell and remained low (both currently under 5%) due to resilient demand and reduced new supply as customers remain generally more committed to in-person shopping than many had predicted.

The three charts below illustrate the general trends seen in growth markets vs. mature markets over the last 20 years, using groups of five MSAs for each group, selected to be representative of the larger group of growing metros, mostly in the south and mature cities located on the coasts plus Chicago.

Growth MSAs: Austin, Dallas-Fort Worth, Phoenix, Tampa, Nashville

Mature MSAs: New York City, Boston, Chicago, Los Angeles, San Francisco

The supply growth spurt of the mid-to-late 2000’s was a national dynamic but was more prominent in the growth metros, reaching an average five-city blend of almost 4% of then-current inventory in 2007. Rapid supply delivery led to a rise to almost 9% vacancy by 2010 followed by a period of reduced supply, consistent absorption and falling vacancy through the current day (with a few blips and bumps along the way including the pandemic).

Retail Vacancy & Construction Rate — Growth vs. Mature Markets

Retail Construction Rate — Growth vs. Mature Markets

Retail Net Absorption — Growth vs. Mature Markets

A few individual metros have dominated the national retail supply numbers, especially over the last few years. Overall, our select growth markets began to diverge from national averages and mature markets around 2021, both in aggregate SF and as a percentage of existing inventory.

Retail Inventory Growth by Market

Retail Construction Pipeline

Key Observations (CoStar, March 2026)

Construction concentration across markets

The two charts below show the dominance of a handful of metros vs. national retail construction averages. The four major Texas metros (DFW, Houston, Austin, San Antonio) comprise 35% of current construction intensity (TTM deliveries plus current under construction). The top eight markets make up more than half of the national total by the same measure.

Retail Construction Intensity* by Market (March 2026)

Retail Construction Concentration by Market (March 2026)

Context & Discussion

Growth vs. Mature MSAs: Converging outcomes, different paths

The headline vacancy rates for growth and mature retail markets converged by 2025 to within half a percentage point (4.2% vs. 4.7%).[1] Growth markets arrived at low vacancy by building aggressively and absorbing the new space. Their delivery rate averaged 0.92% of inventory in 2025, with net absorption of +7.1 million SF across five metros.[1] Mature markets arrived at a similar vacancy by building almost nothing—and still losing tenants. Net deliveries were negative (−0.04% of inventory), meaning demolitions and conversions outpaced new construction, yet net absorption was also negative at −3.8 million SF.[1]

This pattern is the inverse of what played out in multifamily and industrial during the same period. In those sectors, growth markets overbuilt relative to near-term demand, vacancy spiked, and the narrative centered on supply risk. In retail, growth markets are both building more and running tighter than mature markets on every operating metric except absolute rent level.

Factors influencing retail construction vs. other assets

Several structural factors explain why retail did not experience the construction boom that characterized multifamily and industrial from 2020 through 2024.

Capital allocation during the MF and industrial boom absorbed most development dollars. Multifamily and industrial were consensus investment theses from 2020 to 2023, attracting the bulk of institutional construction capital. Retail, still carrying the stigma of the “retail apocalypse” narrative, was not competing effectively for that capital even as its fundamentals quietly improved.

The e-commerce narrative itself imposed a delayed planning cycle. Lenders and equity investors reduced exposure to speculative retail development during the 2015–2020 period, and the pandemic intensified that risk aversion. Even after in-store retail spending recovered and e-commerce penetration stabilized near 16% of total retail sales, the development community remained cautious.[4]

Construction costs added a further constraint. The PPI for new nonresidential building construction rose approximately 40% from mid-2019 through the end of 2025, nearly double the 23% increase in consumer prices over the same period.[2] Industrial building construction costs rose even faster, at approximately 47%.[2] Combined with construction loan rates in the 7–9% range during 2023–2024, development yields compressed to the point where only pre-leased projects in high-growth markets could achieve acceptable returns.[3]

Finally, retail is arguably the most location-specific commercial real estate asset type. Retail requires high-traffic intersections, appropriate co-tenancy, road visibility, and adequate parking—a set of constraints that produces far fewer viable development sites per square mile than any other asset class. In mature markets where the best intersections have been built out for decades, new retail construction faces a physical scarcity that does not exist for multifamily or industrial.

Construction picking up in select markets

Despite these constraints, the growth-market pipeline has accelerated. Under construction as a share of inventory doubled in growth markets from 0.62% in 2020 to 1.31% in 2025.[1] DFW alone has 7.1 million SF under construction—more than the entire mature-market group combined (3.2 million SF across NYC, Chicago, LA, Boston, and SF).[1]

The concentration is extreme. Among the 45 MSAs with 75 million SF or more of retail inventory, the top four markets (DFW, Houston, Phoenix, Austin) account for 39.6% of the total pipeline. The top eight account for 52%.[1] The first traditional gateway city in the ranking is Chicago at #9, with 2.2 million SF—less than one-fifth of DFW’s total.[1] This geographic concentration reflects the same population-follows-jobs-follows-construction logic visible in the multifamily and industrial data, but at a much smaller absolute scale.

Current pipeline levels remain well below the pre-GFC boom, when growth markets routinely delivered 2.5–3.5% of inventory annually.[1] Even DFW’s elevated 2.68% construction intensity is below the 2006–2008 average for the growth group as a whole.

What to Watch

The central question is whether the growth-market construction pickup represents healthy demand-driven development or the early stage of a supply cycle that could push vacancy higher.

Factors favoring continued absorption:

• Population growth in Sun Belt metros continues to outpace the national average, supporting retail demand (see Domestic Migration)
• E-commerce penetration has stabilized, reducing the structural headwind to physical retail (see E-Commerce & Retail)
• Current delivery rates (0.92% of inventory) are well below the pre-GFC levels (2.5–3.5%) that produced vacancy spikes[1]
• Vacancy in growth markets (4.2%) is near historical lows, providing a buffer against moderate oversupply[1]

Headwinds to watch:

• DFW and Phoenix pipelines are concentrated and accelerating; localized oversupply risk is higher than group averages suggest[1]
• Construction cost inflation continues at approximately 4.4% annually for nonresidential buildings, with tariff uncertainty adding upward pressure[2][5]
• Interest rates remain elevated, compressing development spreads and limiting the pool of feasible projects[3]
• Mature-market negative absorption could signal broader consumer spending shifts rather than purely geographic reallocation[1]

Sources to Track Retail Construction in 2026:

Source	Next Release	Date	Notes
BLS PPI: Nonresidential Building Construction (FRED WPU801)	December 2025 data	January 30, 2026	Tracks construction cost trajectory; key input to development feasibility
Census Bureau: Construction Spending	December 2025 data	February 27, 2026	Commercial construction spending by category; signals capital allocation shifts
CoStar: MSA-Level Retail Analytics	Q1 2026 update	Expected April 2026	Delivery and absorption data for growth-market pipeline tracking
Federal Reserve: FOMC Statements	March 2026 meeting	March 18–19, 2026	Rate path directly affects construction loan pricing and development feasibility