Smaller Indian cities are emerging as the new hotspots for retail real estate development, with Tier II and III cities set to see a major uptick in retail supply. According to a recent report by JLL, a global commercial real estate and investment management company, these small cities will add 25 million sq. ft. of retail space in the next five years. This surge will be fuelled by growing consumer demand, land availability, and a growing outlook for high-quality retail infrastructure.
This surge, while being driven by the larger urban expansion, highlights a significant shift in developers’ focus. “Developers are capitalising on these opportunities to meet the evolving needs of urban consumers,” JLL said.
A significant factor in this growth is the growth in scale of upcoming projects. Mall supply in these cities is expected to expand significantly with a projected average gross leasable area of approximately 375,000 sq ft. Four of these projects are particularly large-sized, each having a gross leasable area of 1 million square feet.
Regional Expansion Patterns
North India is spearheading this retail growth, with Ludhiana, Jaipur, and Lucknow taking the centre-stage. The region alone accounts for 44 per cent of the total upcoming retail supply in Tier-II and Tier-III cities with both established and new developers shaping the retail future. Following closely behind is South India, which makes up 30 per cent of this supply, with Coimbatore and Trivandrum as key spots.
Eastern India, which is considered a tepid market in terms of real estate growth is also seeing a surge, particularly in Guwahati which is supposed to contribute to 4.5 million sq. ft. of retail space. Meanwhile, cities in Western India, such as Ahmedabad, Surat, and Goa are gaining ground with large-scale, high-quality projects, bringing these markets into the fold of modern retail development.
Is Consumer Confidence Rising?
One of the most compelling aspects of this retail boom in smaller cities is the growing confidence among retail customers. Many brands, including the premium and bridge-to-luxury labels, are moving into these cities, driven by rising consumer aspirations. According to the report, some retailers like Daiso Japan and Charles Tyrwhitt, have even chosen these cities for their stores in India which highlights the growing importance of these niche markets.
The changing retail dynamics have not only attracted retailers but also motivated developers to expand strategically.
Rahul Arora, head - retail services and office leasing advisory, senior managing director (Karnataka, Kerala) India, JLL, said: “In recent years, leading real estate developers have acquired land parcels in Tier-II and Tier-III cities for retail development projects.”
In some cases, the developers are planning to develop mixed-use developments which will include retail, food and beverages (F&B), offices, and hospitality as part of the developments.
Growing Institutional Investments
Institutional investors have also taken note of this retail revolution. While India’s prime metro cities remain the primary focus for retail real estate investment, a substantial share – over 30 per cent of institutionally held retail assets are now located in Tier-II and Tier-III cities, which includes smaller but popular markets such as Amritsar, Mysuru, Surat, Indore, and Bhubaneswar.
For such investors, the factor of lower land costs and growing consumer demand in smaller cities is hard to resist. These factors, combined with a desire to diversify their portfolios, have led to a surge in the acquisition of retail spaces in these emerging cities. As a result, retail customers can now operate with greater confidence, knowing that high-quality, premium-grade malls are coming to their home markets.
As more malls and mixed-use projects come online, these cities are likely to continue their rise as key players in India’s retail growth story, offering new avenues for both developers and retailers to thrive.
