Tier 2 and 3 Cities Set For Big Retail Expansion

The growing demand by the lifestyle conscious consumers for quality retail developments in Tier 2 and 3  cities has made  real estate developers capitalise on the high potential in these emerging cities, with retail expansion set to scale newer heights over the next 5 years.

 According to a latest report by JLL India, Tier 2 and 3 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. 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  of 1 million square feet.

“North India dominates the upcoming retail supply in Tier 2 and 3 cities, accounting for 44% of the total supply in these cities. Ludhiana, Jaipur, and Lucknow are the key cities driving this growth. In this region, a diverse mix of established and emerging regional developers are driving supply. This is followed by Southern India with a share of 30% with cities such as Coimbatore, Mallapuram, Thrissur and Trivandrum leading the supply. The eastern region will see a significant supply of 4.5 million sq ft, primarily led by Guwahati. In West India, major developers are coming up with large-scale, high-quality retail projects in cities such as Goa, Surat, and Ahmedabad” ,according to Dr. Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.

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.According to Rahul Arora, Head, Retail Services & Office Leasing Advisory, Senior Managing Director (Karnataka, Kerala) JLL India,in recent years, leading real estate developers have acquired land parcels  for retail development projects in  notable cities  including Jaipur, Lucknow, and Mohali in the northern region; Ahmedabad and Surat in the west; and Coimbatore in the south. 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 2 and 3 cities for  retail developments. While prime metro cities of 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 at about  9.12 million sq. ft now located across 12 Tier 2 and Tier 3 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.