Retail Construction Recovery Delayed Until Late 2026

Ed Sullivan
Jul 21
5 min read

Updated: Sep 4

Introduction

Retail construction does not get much attention, but it is critical to a recovery in private, nonresidential cement and concrete consumption. It accounts for 65% of total nonresidential cement and concrete consumption[1] and 12% of total cement consumption. Among the key consuming sectors, retail ranks only behind highways and streets - and single-family construction as the leading cement and concrete consumer.

The sector has been in decline for some time. Of the total 5.3% drop in total cement and concrete consumption in 2024, the retail sector accounted for nearly a quarter of the decline. It is hard to visualize a recovery in nonresidential cement consumption without a recovery in this important sector. This report assesses the outlook for retail construction and its role in determining the depths of 2025’s downturn in cement and concrete construction - as well as the timing and strength of recovery that may materialize in 2026 and beyond.

Retail Construction Performance

Retail construction in the United States has been on a general decline since the mid-2000’s. This trend reflects both structural and cyclical factors. The growth of online shopping has prompted varied responses by retailers. Each response has contributed to a structural decline in retail construction. More recently, high interest rates, rising construction costs, and growing business uncertainty have contributed to an adverse business environment.

Together, these factors have resulted in a real dollar decline in retail construction of 10.8% in 2024. Through May of 2025, retail construction is off another 7.1%. There is no indication that the recent trends will reverse soon, particularly in a slowing economy. If these trends stay in place, they represent a powerful factor weighing against a near-term construction recovery.

Structural Change

Retail construction was vibrant up until the early 2000’s. It was dominated by mall construction which were typically anchored by a large “name” chain. The larger and more diverse store offerings, the better. Typically, malls were accented by parking garages (huge consumers of concrete). Retail projects were profitable and often topped a 10% ROI. During this time, retail construction averaged more than $70 billion annually in real dollars (adjusting for inflation).

The emergence and success of online retail sales activity has had a dramatic impact on retail construction. While the internet birthed in the 1980’s, online sales activity did not really take off until four key factors materialized including:

Widespread internet access
Secure payment systems
Friendly browsers
Key demonstrations of the potential for online sales by online pioneers like Amazon, eBay, and Shopify

Online sales did not achieve 5% of total retail sales until 2012. The trend increased steadily and accelerated during COVID. Many shoppers during COVID were forced to overcome hesitancies regarding on-line shopping and give it a try. More often than not, the consumer experience was easy and positive. Currently, 16.2% of all retail sales are conducted online. Its success has come at the expense of brick-and-mortar retail outlets.

This trend has prompted retailers to adjust their strategies. They are moving away from urban in favor of suburban locations, and they are opting for smaller, more flexible shop formats with smaller footprints. Big box store construction is still ongoing, but 2024 saw only 27 stores construction and square footage was the lowest in eight years. Similarly, parking garage construction (included in the retail construction data) has declined significantly. Investment is now skewed toward warehousing and online order fulfillment.

Almost no new mall construction is ongoing. Indeed, the focus for malls is now focused on converting or demolishing underperforming malls. Mall vacancy rates are rising and are the highest among the retail sector at 8.9% versus sub-5% in many other retail types. Finally, many anchor tenants have entered into bankruptcy (e.g., Bed Bath & Beyond, Sears, etc.)

It’s not just malls. Some regions in the United States have long been over retailed. The national market has the highest square footage of retail space per capita in the world. Many developers are focusing on repurposing existing buildings - converting malls into mixed-use spaces or offices - rather than building new stores.

These trends are expected to persist. By the end of the forecast horizon (2029) online retail sales are expected to reach nearly 19% of total retail sales. In recent years retail construction, after adjusting for inflation, has averaged $50 billion. That represents a 29% decline compared to the heydays prior to the emergence of online shopping.

Cyclical Change

The economy is softening. There is some debate regarding the extent and duration of this softness. It is, nevertheless, softening as evidenced by -0.5% growth in first quarter 2025 real GDP. This compares against roughly 3.0% growth generated during mid-2024. Retail construction is highly correlated to overall economic performance.

If economic weakness materializes as expected, it will restrain retail construction activity. Weak growth is often characterized by weak consumer spending. Weak consumer spending implies depressed occupancy rates. Depressed occupancy rates typically prompt property owners to lower leasing rates. The combination of lower occupancy and leasing rates imply lower Net Operating Income (NOI).

The risk of bankruptcy is typically higher during slower growing economies and as a result suggests higher bank lending risks. Credit is often tightened during these periods. Indeed, in the recent Federal Reserve Senior Loan Officer Opinion Survey of Bank Lending Practices [2], nearly 15% of banks have already tightened standards on commercial real estate loans. Further tightening is expected.

Some of the economic weakness is also explained by high prevailing interest rates. Higher rates make it more difficult for projects to achieve the desired return on investment. The combination of lower NOI, tighter lending standards, and high interest rates all signal tough times ahead for retail construction.

During economic downturns, retail construction is hit hard. Since 1980, for every 1% decline in real GDP growth, retail construction eventually contracted nearly 7.5%. One quarter of real GDP decline has already been recorded. Thus far the economy has demonstrated remarkable resilience. May its strength continue. Even the prospects of a downturn, however, will deter some retail construction projects.

Near-Term Outlook

Retail is expected to record another significant decline this year. Adverse momentum is often hard to reverse. For a recovery to materialize in 2026, not only do interest rates have to decline, but the conditions impacting NOI have to improve. That means higher occupancy rates, higher leasing rates, and improved NOI. The combination of lower interest rates and improved NOI is expected to usher in a recovery in retail construction. Unfortunately, that whole process will take time to materialize. No recovery is expected soon, and a more modest decline is expected in 2026.

[1] Included in private nonresidential construction is retail, manufacturing, lodging, office, health care, religious, and education buildings.

[2] Board of Governors of The Federal Reserve System. Senior Loan Officer Opinion Survey of Bank Lending Practices - July 2025.

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