Tier II and III cities are experiencing a surge in new retail supply, with 25 million sq. ft of retail developments expected to come on stream in next 5 years, according to JLL India. This expansion is driven by growing consumer demand, availability of land and a lack of quality retail developments in these markets until a few years back. Developers are capitalizing on these opportunities to meet the evolving needs of these emerging urban centers.
It is interesting to note that the upcoming mall supply in these cities will be of a significant scale, with a projected average gross leasable area of approximately 375,000 sq ft. Notably, four of these mall projects are particularly large-sized, each having a gross leasable area 1 million square feet.
Most of these urban centers are situated in state capitals or similar large cities with significant potential, serving a broader consumer base that includes many smaller satellite towns. This expansive reach offers developers the opportunity to create mid-scale and large-scale malls, significantly enhancing tenant mix and shopper experience.
Retailer confidence in these cities has grown due to the influx of high-quality supply from established developers. Premium and bridge-to-luxury brands are also venturing into these cities, driven by rising consumer aspirations and new opportunities for store openings. Some of the retailers have also chosen these cities to open their first stores in the country such as Daiso Japan at Elante Mall in Chandigarh and Charles Tyrwhitt at Palladium Ahmedabad.
Developers are also acquiring land parcels in strategic locations in these emerging cities to construct retail projects. In some cases, the developers are planning to develop mixed-use developments which will include retail, F&B, offices and hospitality as part of the developments.
Apart from developers, institutional investors are also focusing on Tier II and III cities for developing retail developments. While prime metro cities (seven major cities viz. Delhi NCR, Mumbai, Pune, Bengaluru, Chennai, Kolkata and Hyderabad) remain the focus of retail real estate investment, a substantial portion of institutionally held assets are now also located in emerging urban centers across India.
The retail real estate landscape is ever evolving, with over 30% of institutionally held retail assets (approx. 9.12 million sq. ft) now located across 12 Tier II and Tier 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 West and Bhubaneswar in East. Developers and Institutional investors are capitalizing on the lower land costs and growing aspirations of consumers in smaller cities, opening shopping malls that offer a mix of national and international brands. With institutional players acquiring assets or partnering for new projects, retailers are also venturing with increased confidence bolstered by the availability of quality and premium grade malls in such locations.
