Developers Shift Focus To Tier-II And III Cities To Tap Demand For Retail Supply Space

Developers are eyeing the Tier-II and Tier-III cities for new retail supply. Therefore it is expected that the next round of retail space supply will come from these cities. And that’s not without reasons. The 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, which sector experts also subscribe. 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 five years, says a recent study conducted by JLL India. Interestingly, going by the projected figures, north India dominates the upcoming retail supply in Tier II and III cities, accounting for 44 per cent 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 is driving supply. This is followed by the southern states with a share of 30 per cent with cities like 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 the west, major developers are coming up with large-scale, high-quality retail projects in Goa, Surat, and Ahmedabad. It is also pertinent 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. What’s more, four of these mall projects are particularly large-sized, with each having a gross leasable area one million square feet. Quite significantly, it is not just from the perspectives of the developers, but even from the standpoint of the retailers, these cities are gaining increasing importance. Retailers’ confidence in them 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, thanks to 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. Little wonder therefore that leading 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 their development strategies. More importantly, apart from developers, institutional investors are also focusing on Tier II and III cities for developing retail developments. While prime metro cities, the seven major cities 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. Focus, therefore, will clearly be on the Tier-II, Tier-III cities, in the days to come as regards modern retail space developments.