When determining commercial real estate strategies, many investors focus on demand. However, Marcus & Millichap’s October 2026 Construction Outlook research brief said that demand tells only half the story. Long-term supply trends also affect vacancy and rent growth, so supply outlooks should play a prominent role in CRE planning.

Construction tends to lag market conditions, leading to movement between too much and not enough capacity. When supply tightens, vacancies drop, and rents increase, prompting more development. Too much development can lead to increased vacancies and pressure on rents.

Marcus & Millichap said that not all asset types move in sync; each has its own cycle. Additionally, macro factors and structural shifts can impact the pattern of those cycles.

Additionally, three forces have been impacting current development activity:

• Higher interest rates have pushed up financing costs and made fewer projects feasible.
• Tariffs and elevated shipping costs are keeping building material prices high.
• Labor costs are under pressure from immigration policy and from strong demand tied to AI and data center development.

With costs elevated, the firm expects new projects to stay limited until rents rise enough to support construction economics. That slowdown could make the falling vacancy and rising rent phase of the cycle last longer than it has historically.

The pullback is already evident in the pipelines:

• Apartments: units under construction are down 50% from their 2023 peak and still falling.
• Industrial: space under construction has dropped 60% from its 2022 peak, and continues to contract.
• Self-storage: construction investment is down 32% from its 2023 peak.
• Seniors housing and medical office: both are seeing similar declines.
• Retail and office: construction remains limited, and higher building costs will likely push back the next development cycle in both sectors.

The above could delay the next building cycle by several years, leading to a longer stretch of falling vacancies and rising rents.

Marcus & Millichap recommended that investors seeking commercial real estate opportunities consider demand drivers against falling supply and barriers to new construction. The brief also said that policy, land availability and cost, and infrastructure constraints such as water and power could further restrict future supply, which could create opportunities with existing properties.

The brief used data from Marcus & Millichap Research Services, the Bureau of Economic Analysis, the Bureau of Labor Statistics, CoStar Group, the Federal Reserve, NIC MAP, RealPage and the U.S. Census Bureau.

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