Tier II and III Cities Being Fueled by Surge in New Retail Developments
India’s tier II and III cities are experiencing a boom in the retail sector, with a staggering 25 million square feet of retail developments expected to be completed over the next five years, according to JLL India.
Capitalizing on Opportunities in Emerging Urban Centers
Driving this surge in retail developments are the growing consumer demand, availability of land, and the previously unmet need for quality retail establishments in these markets. Developers are capitalizing on these opportunities to cater to the evolving needs of these emerging urban centers.
Expansion on a Large Scale
What’s particularly interesting about this retail expansion is the scale of the upcoming mall supply. On average, these malls are projected to have a gross leasable area of approximately 375,000 square feet. Notably, four of these mall projects are expected to be especially sizable, each boasting a gross leasable area of 1 million square feet.
The majority of these urban centers are located in state capitals or similarly large cities with significant growth potential. They serve as the hub for a broader consumer base that includes smaller satellite towns. With such extensive reach, developers have the opportunity to create mid-scale and large-scale malls that significantly enhance the tenant mix and shopper experience.
Retailer Confidence and a Lifestyle Upgrade
Retailers have shown increased confidence in these cities due to the arrival of high-quality retail offerings from established developers. Premium and bridge-to-luxury brands are also venturing into these markets, driven by the rising consumer aspirations and newly created openings for stores. In fact, some retailers have selected these tier II and III cities as the location for their first-ever store in the country, including Daiso Japan at Elante Mall in Chandigarh and Charles Tyrwhitt at Palladium Ahmedabad.
The Rise of Mixed-Use Developments
Developers are going beyond single-use retail buildings and handpicking strategic locations in these emerging cities for construction projects. Some developers are even planning to create mixed-use developments that combine retail, food and beverage, office spaces, and hospitality facilities. This approach will not only elevate the retail experience but also create vibrant lifestyle hubs within these cities.
Interest from Institutional Investors
It isn’t just developers who are excited about the potential of tier II and III cities. Institutional investors are also focusing on these emerging urban centers, recognizing the attractiveness of developing retail projects in these areas. While the major metro cities such as Delhi NCR, Mumbai, Pune, Bengaluru, Chennai, Kolkata, and Hyderabad still dominate retail real estate investment, a substantial portion of institutionally held assets are now spread across 12 tier II and III cities nationwide.
Realizing Growth Potential Outside Major Metro Cities
Over 30% (approximately 9.12 million square feet) of institutionally held retail assets are now scattered across the 12 tier II and III cities. These cities include Amritsar, Chandigarh, Ludhiana, Udaipur, and Mohali in the north; Mysuru and Mangaluru in the south; Ahmedabad, Surat, Indore, and Nagpur in the west, and Bhubaneswar in the east.
Developers and institutional investors are harnessing the lower land costs and growing aspirations of consumers in smaller cities. By opening shopping malls that offer a mix of national and international brands, they are tapping into the potential this untapped market presents. With institutional players acquiring assets or partnering for new projects, retailers are also venturing into these cities with increased confidence, bolstered by the availability of high-quality and premium-grade malls in such locations.
As the retail real estate landscape evolves further, tier II and III cities are emerging as the new battlegrounds for growth and expansion, ushering in a new era of retail development and retail experiences in India.
