Commercial spaces make a splash in smaller cities
Tier 2 and Tier 3 cities will see fast growth in the retail sector, with premium brands choosing to open shop and cater to rapidly changing consumer tastes.Updated: Jun 25, 2019 16:44 IST
To anyone with a bird’s eye view of India’s real-estate developments, one thing is clear. The action is hotting up in the cities outside the metros. The retail sector is growing, leading to the development of sophisticated commercial spaces in tier-2 and tier-3 cities such as Kochi, Bhubaneswar, Nagpur, Surat, Baroda, Indore and Rourkela.
And where the building of a gigantic mall once signalled the first burst of success, there are now a string of specialised top-notch local shopping centres, convenience stores and retail parks.
According to the Retail Report 2018 by the India Brand Equity Foundation (IBEF), the Indian retail industry is one of the fastest growing ones in the world. The report, produced by a trust established by the Ministry of Commerce and Industry states, “retail industry in India is expected to grow from US$ 672 billion in 2017 to US$ 1,200 billion by 2021.” That is nearly double in four years.
The retail boom is bringing premium brands and spaces to smaller cities. “Healthy economic growth, changing demographic profile, increasing disposable income, urbanisation, changing consumer tastes and preferences are the factors driving growth in the organised retail market in India,” says the IBEF report. Add to this the ample space available in smaller cities. The fact that many of them are seeing an influx of migrants coming to work in IT parks and other new businesses, and the internet bringing big-city ideas to small-town screens, and the change seems inevitable.
In spite of the headlines about the e-commerce sector growth in India, brick-and-mortar stores still remain popular. “From garment sellers and home furnishing brands to leading grocery stores, all kinds of retailers are actively looking at the future potential offered in smaller cities as they seek to tap into more remote populations,” says Shubhranshu Pani, MD of retail services at JLL India, a real-estate consultancy. “With retailers getting attracted to smaller cities, investors have also started focusing on these markets. As a result, over the past few years, organised retail across India’s second-tier cities has gained ground and space taken has gradually increased.”
Ashish Patil is the co-founder of ArchiLabs, a firm that has designed over 10 apparel and jewelry stores in Surat, Jalandhar, Madurai and Nagpur. “Even the stand-alone stores in smaller cities are beginning to opt for grander visual displays,” he says. “They are offering modern store design and are training staff on how to offer the best services to the customers.” Patil says the small-town stores cater to the fashion aspirations of the locals. Many brands don’t mind smaller shops in well-established older shopping districts even as they set up flagship showrooms in newer malls.
Investors and real-estate developers are tapping smaller towns for low rentals and better spaces. As per data by the real-estate consultancy Anarock, nearly 17 million sqft of new mall space is expected to come up in tier 2 and 3 cities by 2021. “The prominent new markets include Baroda, Indore, Rourkela and even Ghazipur,” says Anuj Kejriwal, MD and CEO at Anarock’s retail arm. “In north India, Dehradun, Mohali and Amritsar will see a total mall supply of more than 5 million sqft, in south India, a total of 3 million sqft of new mall space is coming up in Trivandrum, Mysore, Kochi, Vizag, Wayanad and Thrissur by 2021. In the east, over one million sqft of retail space is getting set up in Agartala, Bhubaneshwar, Guwahati, Cuttack and Adityapur.”
The retail real-estate sector in small cities is maturing and might look attractive, but should you jump at the opportunity to invest? “It is not always profitable to invest in malls,” says Pankaj Kapoor, CEO of real-estate consultancy Liases Foras. “We see malls shutting all the time. Look for a retail space with a rental operating model [in which shops are let on rent and not sold] in a good location.” Or, consider investing in a convenience store in the developing suburbs of the town. “There is less competition there and you will get a good return on the investment.”