Marcus & Millichap expects limited new commercial construction to extend rent growth

Marcus & Millichap expects new commercial construction to stay limited until rents rise enough to support current building costs. That could extend the falling-vacancy, rising-rent phase of the cycle longer than it has historically run, the firm says. The call appears in the firm's October 2026 Construction Outlook research brief, which Connect CRE summarized on Oct. 22.

Construction responds to conditions that existed when a project was conceived, so capacity swings between too much and not enough. When supply tightens, vacancies fall and rents rise, which pulls more development forward; too much development then lifts vacancies and pressures rents. Marcus & Millichap notes that asset types do not move in sync and that macro factors and structural shifts can change the pattern.

The brief attributes the current slowdown to three forces, which the extract does not name, and says the resulting pullback is already evident in the pipelines. Marcus & Millichap expects that deferral to push the next building cycle out by several years. The extract does not include the pipeline figures or vacancy, rent-growth or starts estimates behind those claims, so the size of the contraction is not confirmed here.

The brief also flags policy, land availability and land cost, and infrastructure limits such as water and power as further potential restrictions on future supply. Its recommendation to investors is to test demand drivers against that thinning supply and against the barriers to building, a combination it says could create opportunities in existing properties. The analysis draws on Marcus & Millichap Research Services plus data from the Bureau of Economic Analysis, the Bureau of Labor Statistics, CoStar Group, the Federal Reserve, NIC MAP, RealPage and the U.S. Census Bureau.

Trepp's research made the reverse point: high-inflow metros gave back their revenue advantage to the construction their own growth attracted, leaving operators to underwrite deliveries rather than demographics. If starts stay scarce, that delivery pressure weakens and demand-side pricing power may return.

The power and water constraint matters because a market can have land, capital and tenants and still not get a building if the utility cannot serve it. That makes infrastructure capacity a supply barrier not captured in conventional pipeline counts. The brief treats it as a reason existing assets with utility service already in place may hold an advantage over ground-up development.