Retail Boom: Tier II & III Cities To Add 25 Million Sq. Ft. Of Mall Space In 5 Years, North India Leads With 44% Of New Developments, Says JLL Report

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.

“North India dominates the upcoming retail supply in Tier II and III cities, accounting for 44% of the total. 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," said Dr Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.

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.

Developers are also acquiring land parcels in strategic locations in these emerging cities to construct retail projects.

“In recent years, leading real estate developers have acquired land parcels in Tier II and III cities for retail development projects. Driven by growing consumer demand established developers have acquired land in these emerging cities.” said Rahul Arora, Head - Retail Services & Office Leasing Advisory, Senior Managing Director (Karnataka, Kerala) India, JLL.

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 such as Mumbai, Pune, Delhi NCR, Bengaluru emain 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 Ahmedabad, Surat, Indore and Nagpur in the West and Bhubaneswar in the East.