Tier 2 & 3 cities: The new epicentres for retail realty

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Saransh Trehan
Saransh Trehan
Saransh Trehan is managing director of Trehan Group.

Industry experts are showing huge confidence in the tier 2 and 3 retail ecosystem, acceding to its enormous rise in market size and revenue growth potential in the future

New Delhi: Tier 2 and 3 cities have witnessed immense growth in retail demand over the years. It has contributed to a significant change in general masses’ perceptions and wavelength.

Once considered inferior in terms of basic and retail infrastructure compared to metro cities, making them the second choice to settle down, tier 2 and 3 cities have undergone a phase of a rapid retail boom showing no signs of tail-off, especially after the pandemic.

In fact, a recent Anarock report observed that tier 1, 2, and 3 cities are experiencing strong retail demand. Anarock predicts that these cities will witness additions of over 7.25 million sq. ft. of retail real estate developments in 2023. The capital investment outlays in retail real estate, primarily in tier 2 and 3 cities, have been growing upwards with developers dabbling or expanding in these cities to cater to new consumer bases and transform the retail landscape of a particular region.

Investment wise

Land paucity has continued to be a major problem in metro cities. Tier 1, 2, and 3 cities, however, possess an abundance of land and physical capital at a much lower investment cost, acting as a positive encouragement for developers and retail brands/companies to invest in with a promising proposition of high return-on-investments (ROIs).

The proliferation of top-tier national and international brands, ranging from fashion, Food & Beverage (F&B), and luxury, across the tier 2 and 3 retail real estate circuits has also changed the opinions of naysayers and fence-sitters.

Booming Bharat

Tier 2 and 3 cities are undergoing a retail absorption boom with many lucrative deals signed between retail brands and developers who are building retail, commercial, and mixed-use projects in high-key commercial zones and micro-markets of these cities. The inhabitants of these cities are developing a predilection for these brands and projects, with customer footfalls outstripping pre-pandemic engagement. Masses do not just view retail projects as shopping destinations. These perspectives have worn out. They are looked upon as entertainment hotspots, recreation epicentres, and workstations, providing a real-time holistic experience to customers.

Rise of mixed-use projects

The culture of compact, prosaic, and standalone commercial complexes is an impassive concept. Developers are now launching massive retail real estate options of diverse nature and functionalities, like high-street and mixed-use retail projects along with premium features, designs, and technical models that are sating the demands of modern-day consumers. As a matter of fact, retail real estate has emerged from the pandemic’s dry spell and managed to retain its charms and hold in the markets, warding off economic headwinds. It is well stated through the insurmountable rise in retail lease deals, witnessing a subsequent increase in space deals regardless of high store rentals. The demand for retail spaces hotted up and it has been met by new project announcements and pent-up supply, denoting a blooming phase for retail structures in tier 2 and 3 cities.

Industry experts are also showing huge confidence in the tier 2 and 3 retail ecosystem, acceding to its enormous rise in market size and revenue growth potential in the future as well. Many are of the opinion that the prevalent market ecosystem is acclimatized to favouring the growth of organized retail structures, witnessing a steady increase in investment roll-outs, customer sentiments, developers’ incentives, and institutional support as well.

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