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Malls would have a larger catchment area in these Tier-II and Tier-III cities. Here's more!

November 2018
Expansion of brick-n-mortar retail is also underway outside metros. Between 2006 and 2017, Tier-II cities reportedly received close to five times the investment of Tier-I cities, which Anuj Kejriwal, Managing Director & CEO, Anarock Retail ascribes to 'investors and mall developers realising the potential of these smaller markets and trying to make their presence felt.'

According to Pratik Mantri, Director, Mantri Developers, developers have been quick to spot the potential in Tier-II cities 'to gain first-mover advantage, as once a mall establishes loyalty through convenience it becomes hard to disrupt.'

Demand-supply economics is at play in this growth. On the one hand, there is a 'dearth of quality malls, more so in Tier-II and Tier-III cities', to quote Jayen Naik, Vice President-Malls, Nexus Malls. On the other hand, the demand for retail space has spilled over to Tier-II and Tier-III cities, driven by 'an increasing consumer base with increasing spending potential', according to Bimal Sharma, Head, Retail Services, CBRE.

To a certain extent, e-commerce has furthered the growth of malls especially in Tier-II and Tier-III cities, Naik believes, 'by generating interest in brands and pushing first-time trials by aspirational customers, which inevitably spurs the desire for an experience that only the brick-n-mortar format can deliver'.

From the perspective of brands, the key drivers of retail space in Tier-II and Tier-III cities are the fact that 'these cities are hitherto uncharted locations and have relatively lower real-estate costs (compared to metros)', says Sharma.

Tier-I cities are facing low vacancy levels, space saturation, crippled infrastructure and high rentals, adds Kejriwal, calling Tier-II and Tier-III the country's future growth engines with the potential for the market size to grow more than 10 times. He sees big prospects for retail expansion in Tier-II cities such as Lucknow, Coimbatore, Chandigarh, Mangaluru and Ahmedabad.

Anshul Pahuja, Vice President, Business Development, Pacific Development Corporation, cites Lucknow, Kanpur, Dehradun, Mathura, Agra, Jaipur, Chandigarh and cities in Punjab as some of the Tier-II cities with great potential. Sharma counts Jaipur, Chandigarh, Kochi, Bhubaneshwar and Nagpur as the retail sector's next happening destinations.

But the bright prospects may well extend beyond these cities. 'In the next decade, we expect to see malls of about 4-5 lakh sq ft develop in every city with a population of about 500,000,' says Naik, relying on the 1:1 ideal ratio between the size of a mall and the size of the population in the catchment area to estimate the size.

But if these malls would have a larger catchment area, larger even than malls in metros, they could be bigger. For instance, a mall in Mohali could attract visitors from the Chandigarh capital region as well as nearby cities in Punjab, Haryana and Himachal Pradesh, explains Aashish Agarwal, Senior Director (Head-Consulting), Colliers International India, provided it is developed as a destination.