India's Tier II and III cities are witnessing rapid growth in retail real estate, with 25 million square feet of new developments projected over the next five years. Rising consumer demand, the availability of land, and a lack of quality retail spaces in these areas drive this expansion. Developers are creating large-scale malls, offering a diverse mix of national and international brands. Institutional investors are increasingly targeting these emerging markets, resulting in a surge of high-quality retail projects. This shift highlights the growing importance of smaller cities in India's evolving retail landscape.
Retail real estate in India's Tier II and III cities is rapidly expanding, with developers set to deliver 25 million square feet of new retail spaces over the next five years, according to JLL India. Rising consumer demand, increased land availability, and a historical lack of high-quality retail infrastructure are driving this growth. Developers are taking advantage of this opportunity to address the evolving needs of rapidly growing urban areas, primarily state capitals or major cities with considerable regional influence.
The scale of the new retail supply in these cities is impressive, with an average gross leasable area of around 375,000 square feet. Moreover, four of these projects stand out for their sheer size, each boasting more than 1 million square feet of leasable space. This provides an ideal platform for developers to create mid- and large-scale malls that significantly enhance the shopping experience with a diverse tenant mix, further elevating the appeal of these developments to both retailers and consumers.
The increasing confidence among retailers is evident, as more brands-particularly those in the premium and bridge-to-luxury segments-are expanding into Tier II and III cities. Rising consumer aspirations and the availability of high-quality retail spaces motivate these brands. Some notable global retailers have even chosen these cities for their Indian market debuts. For instance, Daiso Japan opened its first store at Elante Mall in Chandigarh, while Charles Tyrwhitt launched its flagship outlet in Palladium Ahmedabad.
Developers have also started acquiring prime land parcels in these emerging cities, with strategic plans to build large retail centers. In some cases, they are creating mixed-use developments that combine retail with food and beverage outlets, offices, and hospitality, thereby enhancing the commercial potential of these projects. This trend underscores the long-term growth potential of retail in smaller cities, as developers aim to create destinations that serve as multi-functional hubs for shoppers and businesses alike.
In addition to developers, institutional investors are increasingly turning their attention to Tier II and III cities. While the top seven metropolitan areas-Delhi NCR, Mumbai, Pune, Bengaluru, Chennai, Kolkata, and Hyderabad-remain the main focus of retail investment, a substantial portion of institutional assets, accounting for roughly 30%, is now located in smaller urban centers. These cities, including Chandigarh, Mysuru, Indore, and Surat, offer significant potential for growth, as lower land costs and growing consumer demand attract both developers and investors.
The evolution of the retail landscape in India's Tier II and III cities is transforming the real estate sector. Developers and institutional investors are responding to the changing aspirations of consumers in these regions by creating large-scale shopping malls that house a diverse array of national and international brands. As more premium retail spaces emerge, retailers are confidently entering these markets, fuelling the rapid expansion of retail across India's growing cities.
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