Soaring Costs Push the Next Construction Cycle Years Down the Road

A building slowdown driven by costs could hand existing owners a longer run of rent growth.

Nina Dale
October 30, 2026

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Soaring Costs Push the Next Construction Cycle Years Down the Road

Good morning. The next construction boom keeps slipping out of reach, and for once demand isn't the problem. It's the cost of breaking ground, now high enough to stall new projects for years.

🎙️ This Week on No Cap: Former 7-Eleven and Blockbuster CEO Jim Keyes reveals what really led to Blockbuster’s collapse, the deals that could have saved it, and how 7-Eleven reinvented retail.

CRE Trivia 🧠

Which 1853 land deal with Mexico, priced at $10M, added southern Arizona and part of New Mexico to the U.S.?

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Market Snapshot

S&P 500

GSPC

7,720.39

Pct Chg:
-0.30%

FTSE NAREIT

FNER

825.96

Pct Chg:
+2.20%

10Y Treasury

TNX

4.947%

Pct Chg:
-0.098%

CME Term SOFR

1-Month

3.91%

Pct Chg:
-0.00

*Data as of 10/29/2026 market close.

Development

CRE's Construction Pullback Could Extend the Rent Growth Cycle

Shrinking construction pipelines and stubbornly high development costs could set the stage for tighter supply, stronger rents, and a longer growth cycle for CRE investors.

The drop is steep: According to Marcus & Millichap's October outlook, apartment construction is running 50% below its 2023 high and still sliding. Industrial sits 60% under its 2022 peak, and self-storage spending is down 32% from its own recent high.

* Forecast
Sources: Marcus & Millichap Research Services; Bureau of Economic Analysis; Bureau of Labor
Statistics; CoStar Group, Inc.; Federal Reserve; NIC Map® Data and Analysis Service (www.nicmap.
org); RealPage, Inc.; U.S. Census Bureau.

The construction crunch: High interest rates, costly building materials, and rising labor expenses are keeping developers sidelined. Tariffs, immigration policies, and competition from AI and data center projects add pressure, potentially delaying the next building cycle by several years.

Winners and losers: Apartments and industrial properties are still absorbing excess supply, but shrinking pipelines could eventually favor landlords. Retail may face a space shortage, while office continues battling post-pandemic oversupply. Local market conditions will determine who benefits most.

The hidden opportunity: Limited land, restrictive policies, and infrastructure constraints could further slow development. Markets with strong demand and high barriers to new construction may offer investors greater pricing power and less competition.

➥ THE TAKEAWAY

Less building, more bargaining power: As excess inventory gets absorbed, high construction costs could keep new competition at bay, extending the cycle of falling vacancies and rising rents. Investors targeting high-demand, supply-constrained markets may be best positioned to capitalize.

INVESTOR SENTIMENT

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✍️ Editor’s Picks

Claude now sources CRE deals: Terrakotta's Claude Agent is disrupting the CRE industry as we speak. Brokers can now automate LLC skip-tracing, find motivated sellers, and source off-market deals. (sponsored)
AI caution: PIMCO halved its AI and data center debt bets and skirted losses, even as it took a $4B slice of SpaceX financing, a caution flag for data center borrowing costs.
Rate patience: JLL says high rates are delaying deals, not killing them, with capital markets revenue up about 21% over nine months and volumes set to jump once rates steady.
Zone reset: A new Opportunity Zone round runs 2027 through 2036, and one estimate pegs Dallas alone at $250M to $300M of fresh equity a year as maps get redrawn.
Power drag: Rising energy costs are taking a bigger bite out of net operating income, pressuring valuations as owners who can't pass utilities to tenants absorb the hit.

🏘️ Multifamily

Yield leaders: Syracuse topped a ranking of 100 SFR markets with a 9.9% gross yield and the biggest forecast price gain, as small buyers crowd affordable metros.
Bond test: California voters weigh an $11.25B housing bond next week that backers say could help fund more than 1,500 affordable homes by filling gaps other sources can't close.
Lower basis: Rising multifamily loan distress is handing patient buyers a cheaper entry point, even as many lenders keep extending troubled loans rather than forcing sales.

🏭 Industrial

Sales split: Chicago logged $4.4B in industrial sales through September, second only to Dallas' $5B, while the Bay Area jumped 269% in a $74.4B national market.
Casino conversion: Prologis and Gaming & Leisure Properties will turn the 262-acre former Hollywood Casino Joliet into a five-building, 3.8M SF logistics park over about five years.
Amp hunt: AI startup Foundry Robotics swapped an 8K SF San Francisco office for a 126K SF Emeryville lab, chasing the 6,000 amps of power its robotics work demands.

🏬 Retail

Holiday lift: Newmark expects holiday retail sales to rise 5.1% to about $1.82T, and with most dollars still spent in stores, landlords with real storefronts stand to gain.
Mall redo: Lennar plans to buy the 91-acre Boynton Beach Mall and remake it into a townhome-led community, the latest dying mall headed for housing.
Permit snag: Shein warned that a permit delay in Mexico could snarl online orders into the holidays, a reminder of how fragile cross-border e-commerce supply chains remain.
Delivery deal: DoorDash agreed to buy Instacart for about $17B, a tie-up that deepens its grocery reach and reshapes demand for the last-mile and store space both lean on.

🏢 Office

Rents firm: CoStar raised its US office outlook, now seeing vacancy end 2026 at 13.6% with 20M SF of net absorption this year as the market steadies.
Build bias: BXP is favoring development over acquisitions, with CEO Owen Thomas citing cash yields near 8% in Manhattan and above 9% in Washington that buying can't match.
Lab stake: KKR took a 49% stake in Alexandria's San Diego Campus Point megacampus through a $475M investment, a vote of confidence in life sciences' priciest assets.
Layout shift: Microsoft, Citadel, Amazon and Coca-Cola executives said AI is pushing them to rework office layouts toward collaboration, trading heads-down workstations for open, shared space.
Price tag: JPMorgan's new 270 Park Avenue tower is carrying a far bigger price tag than first projected, reviving questions about how to value a one-off trophy headquarters.

🏨 Hospitality

Links listing: A 140-acre, 72-year-old Attleboro golf course between Boston and Providence hit the market for large-scale redevelopment, the latest shuttered course eyed for housing.
Resort trade: Sixth Street bought the 210-room Four Seasons Resort Scottsdale for $372M from Braemar, picking up 13 acres of developable land in a supply-starved luxury market.
Brand sprint: Wyndham's Dazzler Select brand passed more than a dozen open US hotels in its first year, all conversions of independent properties as it chases scale in economy lifestyle.