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The Growing Urban Sprawl is likely to Spread Beyond Tier I Cities in 2023

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Sandeep Kumar
Sandeep Kumar
A multimedia journalist with over eleven years of experience in print and digital media, Sandeep Kumar is assistant editor with Images Group. Books, retail, sports and cinema are an inextricable part of his life.

Apart from the Tier I cities, the ten key cities which saw retail and real estate development were Chandigarh, Jaipur, Ahmedabad, Kochi, Thiruvananthapuram, Lucknow, Indore, Bhubaneshwar, Visakhapatnam, and Coimbatore

New Delhi: Tier II cities continued to play a vital role in adding to the growth of India’s retail real estate infrastructure in the year 2022. The Tier III cities which are stealing the limelight currently are Baroda, Badaun, Indore, Nagpur Udaipur and Ghaziabad. The shopping centre industry witnessed an expansion of 10.15 million sq. ft. space in form of new malls in Tier I, II and III cities this year with another 7.25 million sq. ft. space expected to be added in the year 2023.

Chennai and Bengaluru were the major Tier I cities with real estate development updates. Apart from the tier 1 cities, the ten key cities which saw retail and real estate development were Chandigarh, Jaipur, Ahmedabad, Kochi, Thiruvananthapuram, Lucknow, Indore, Bhubaneshwar, Visakhapatnam, and Coimbatore.

The majority of Tier II cities have established high streets, but recently malls have been launched in these towns by developers including Phoenix Mills Ltd., Nexus Malls, K Raheja Corp., and Lulu Group. Leading developers like Omaxe Ltd., Trehan Iris, Vatika Ltd., and Smartworld Developers are too witnessing healthy traction and are optimistic about its prospects. A bullish outlook prevails for retail leasing as the malls across India have had signiƩ cant sign-ups in the last couple of months. 

Major Highlights

The biggest highlight of the year was the successful entry of UAE-based retail conglomerate LuLu Group in North India, with the launch of LuLu Mall, Lucknow. Built at an investment of `2,000 crores, the mall is spread across an area of 2.2 million sq. ft. housing some of the biggest national and international brands in India, including the largest Lulu Hypermarket in the country, Uniqlo, Starbucks, Decathlon, Costa Coffee, Chili’s, Kalyan Jewellers, Nykaa Luxe, Lulu Fashion Store and Lulu Connect.

The Uttar Pradesh government signed a memorandum of understanding (MoU) with the hypermarket and retail giant Lulu Group to set up six shopping malls and one hotel in the state. As per the MoU, Lulu will set up shopping malls and hypermarkets in Noida, Varanasi, Gorakhpur, Ayodhya, Kanpur, and Prayagraj with a total investment of `4,500 crore. The shopping mall project in Sector 108, Noida will also have a Ʃ ve-star hotel.

After successfully entering the North Indian retail market, the group also announced its entry into Western India with Ahmedabad. LuLu Group International signed an MoU with the Government of Gujarat, which would open doors to future real estate investment in the state. LuLu will further expand its retail footprints in the South Indian market with malls in Hyderabad and Chennai in 2023.

Phoenix Mills Ltd., launching Phoenix Citadel, a 10 lakh sq. ft. mall at Indore in Madhya Pradesh was the other key highlight. Built with an investment of ` 800 crore, the mall is spread over 19 acres of land and is the largest in central India as per the company. The mall has 300 shops that are expected to transact business worth `1,000 crore by next year. It has 16 anchor stores including Marks & Spencer and H&M. The mall also has six mini anchor brands and 253 large in-line stores.

Nexus Malls, the retail platform of US based asset manager Blackstone Group, revealed its new brand identity—a new logo—in 2022. It started rebranding the retail properties it acquired starting with South India in May 2022. The company which is actively looking to expand its existing portfolio of 17 malls, witnessed a strong bounce back in occupancy, footfall and sales at its shopping malls.

“We are thrilled with the kind of confidence reposed by our patrons resulting in continuous recovery and sustained growth. Presently, we have recovered over 130% of sales and more than 100% footfall at the portfolio level. Cinema has been a big driver and has seen 160% recovery compared to pre-covid times led by the big releases in recent months, along with the food and beverage business,” said Dalip Sehgal, chief executive officer, Nexus Malls.

DLF also announced an investment of around Rs 2,000 crore to construct two new shopping malls in Gurugram and Goa. Construction is expected to begin in early 2023.

Bhumika Group’s Urban Square Mall (Phase-I) in Udaipur opened to the public with the launch of the Shoppers Stop store (the first in the city) in December. The first phase, spread over an area of 1.1 million sq. ft will have brands like Lifestyle, Starbucks, Pantaloons, Forest Essentials, Rare Rabbits, Nini Kitchen, Ghoomar, Crossword, Smash, and many more. The second phase will be spread around an area of 8 lakh sq. ft. and will have many new brands making an official entry not only in Udaipur but Rajasthan.

Business in 2022

The year 2020 was a disaster for retail real estate due to the pandemic with only 2.1 million sq. ft. space being added in the year. It doubled to 4.01 million sq. ft in 2021. In this comparison, 2022 so far has been phenomenal for the industry.

Shopping malls are observing high occupancy levels, and the demand for more organised retail space has intensiƩ ed. New records are expected to be set in 2023 due to a spike in retail space demand. Occupancy levels in its malls, which were 92-93% leased in 2019 and lost a bit during the pandemic, are currently about 95%. 

According to a CBRE report, India witnessed an increase of 114% YoY in retail leasing between January and September 2022 while supply increased by 102% Quarter-on-Quarter in Q3 2022. Considering the growth momentum and the brand expansion plans, the sector anticipates a healthy new supply in the coming years.

Knight Frank India stated that cities like Mumbai, Bengaluru, and the National Capital Region (NCR) have been witnessing increasing sales, with the third quarter recording the highest unit sales so far. Sales in the July-September 2022 period are 20% higher than those reported in the corresponding period in 2019, fueling expectations of double-digit growth numbers in 2023 as well.

2023 Outlook

A recent report by Anarock suggests that 2023 will be an even better year with the opening of approximately 31 malls, offering ample space for retail stores, inviting a massive footfall, and generating jobs. It is expected that the availability of fresh retail spaces in shopping malls will rise by up to 76% as compared to the previous year.

“The implementation of focused policy reforms and strategic infrastructure initiatives by the state/central government has resulted in consumer preference leaning towards suburbs / smaller cities. This is evidenced by the entry and expansion of ƪ ex operators and the increasing footprint of industrial establishments,” Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE, said. “The growing urban sprawl is likely to spread beyond tier 1 cities so that tier 2 cities take on the mantle of the future. Recognizing this need, the government started undertaking measures to plug in the prevailing infrastructure/business gaps that would boost the development of these cities,” he added.

In 2023, the industry expects and awaits surpassing demands and supply, property prices to increase and people investing more in the real estate sector. India will remain one of the bright spots in the global economy with most rating agencies projecting growth in the range of 7-9% in the next fiscal. Investors will get attracted to the market, lured by growth in appreciation and rental income.

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