Tier-II and tier-III cities to drive the growth of malls in India

The Covid-19 led economic deceleration has been catastrophic for most sectors, barring a few. Despite slowdowns in consumer spending, low manufacturing output, and global instability, India still remains the world’s fastest-growing economy. According to Kearney Research, the retail market is expected to reach $1.5 trillion by 2030, from $0.8 trillion in 2020, manifesting the strong consumption power of over a billion Indian consumers, as they migrate upwards in the income pyramid. The study has also highlighted how shopping trends in metro cities have influenced the consumer behaviour in tier- II and tier-III cities and hence as a result witnessed a major shift from conventional trader-run standalone shops to larger format retail malls. Retailers are now actively looking at tier II and tier III cities to explore opportunities offered by a large consumer base in India.

Here’s a look at the factors and forces driving the growth of malls in tier- II and tier-III cities.

Shift in consumer buying patterns

India’s thriving and growing retail sector is in large part driven by higher disposable incomes, urbanisation, and middle-class lifestyle changes. The concept and idea of shopping has undergone a massive transformation in terms of format and consumer buying behaviour. Shoppers today prefer bustling centres, huge complexes, and multi-storied malls that offer shopping, entertainment, and food – all under one roof. Many consumers in smaller cities have aspirations to buy branded products and their ability to afford them is increasing. This is helping malls generate good revenues.

Relocation of industry and housing hubs to smaller cities

A number of industries in the service sector has relocated or expanded to tier- II and tier-III cities, including Chandigarh, Jaipur, Lucknow, Bengaluru, Ahmedabad, Hyderabad, Bhubaneshwar, Pune, Jaipur and Trivandrum. Growth of housing hubs in these areas has also resulted in growth of large numbers of malls that allow retail space to investors.

Government investment in infrastructure and rural development

The government is investing in infrastructure, rural development, and public health, ensuring a more robust retail environment, and simplifying policies. Retail growth outside traditional metro areas is exploding. Sales in tier-I cities have been declining, with 8 percent per capita trade activities and GVA growth in tier 1 markets and 10 percent growth in tier- II, -III, and -IV cities.

Cheaper rental and land cost

Availability and cost of retail space is another major consideration in the development of organised retailing. Prime locations in tier-II and -III cities are 30 percent cheaper than their counterparts in the metros. Larger chunks of land are also available in these cities compared with metros, and at lower cost.

A promising future

India’s economic potential lies in the growth of smaller cities that have been witnessing transformation on all fronts – urban housing, infrastructure, offices and retail real estate. Being a key component of this development, tier-II and tier-III cities are showing a promising future growth of malls in the country.