Why Tier 2 Cities Are Emerging as Strong Contenders in India’s Retail Growth

India’s retail landscape is undergoing a major transformation, and the shift is far more dynamic than what the metros alone can capture. Over the last few years, Tier 2 cities have emerged as the unexpected growth engines of organised retail, driven by rising incomes, aspirational consumption, and a strategic approach to mall development. While metros still account for the majority of operational shopping centre stock, the momentum in smaller cities is reshaping how retailers, developers, and investors evaluate retail opportunities.

A new wave of consumer behaviour, backed by strong catchment growth and brand penetration, has enabled Tier 2 cities to outperform expectations and, in many cases, match the performance of larger markets.

Tier 2 Cities Are Becoming High-Performance Retail Markets

India’s retail mall ecosystem is experiencing a structural shift. According to multiple industry observations, several Tier 2 cities now match or surpass Tier 1 markets in terms of mall occupancy, tenant stability, and rental traction. This upward trend reflects the rapid urbanisation and purchasing power emerging in cities like Chandigarh, Kochi, Visakhapatnam, Surat, and Lucknow.

What stands out is the performance gap between modern retail centres and older, outdated malls. This divergence is sharper in Tier 2 cities, where newly developed malls with strong anchors and contemporary layouts consistently outperform older stock that struggles to keep pace with rising consumer expectations.

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Rising Demand Meets Limited Grade A Supply

One of the biggest catalysts behind the surge in Tier 2 cities is the growing gap between strong retailer demand and limited supply of high-quality malls. National and international brands are expanding deeper into India, but often find fewer Grade A spaces in smaller cities. This supply constraint is pushing developers, investors, and mall operators to rethink older assets and consider upgrades or redevelopment.

In markets where demand outweighs supply, modern malls are enjoying near-optimal occupancy and healthier tenant mixes, strengthening the performance of Tier 2 cities across key retail indicators.

Rentals in Tier 2 Cities Now Rival Tier 1 Markets

Driven by robust demand and rising household incomes, rentals in several Tier 2 cities are now comparable to those in Tier 1 markets. The surge is supported by:

• deeper brand penetration
• a growing aspirational middle class
• calibrated mall development
• consistent footfalls and strong catchments

For instance, markets like Chandigarh command rentals in the ₹100–₹175 per sq ft range, supported by premium consumption patterns. Kochi operates between ₹80–₹175 per sq ft, backed by an established retail ecosystem, and Visakhapatnam records healthy ranges from ₹70–₹150 per sq ft, reflecting modern retail expansion and improved urban infrastructure.

Surat and Lucknow also demonstrate strong traction, with rising interest from jewellery, fashion, lifestyle, and experiential retail brands.

City-Wise Retail Growth Across Tier 2 Markets

Several Tier 2 cities illustrate how consumption-led growth is driving retail performance:

• Chandigarh: Higher rentals driven by premium consumer preference and strong brand presence.
• Kochi: Well-balanced retail ecosystem with consistent footfalls and steady demand.
• Jaipur: Rising consumption but moderated by a value-conscious base.
• Visakhapatnam: Improving mall infrastructure and expanding modern formats.
• Surat: A textile and jewellery powerhouse drawing strong organised retail demand.
• Lucknow: Among the fastest-growing consumption hubs in North India with rising brand preference.

Each of these cities benefits from stable catchments, improved connectivity, and evolving consumer lifestyles factors that are reshaping the retail map of India.

Consumption-Led Momentum Accelerates Tier 2 Growth

The biggest force propelling Tier 2 cities forward is the surge in consumption powered by rising household incomes and urban aspirations. As the middle class expands and becomes more brand conscious, demand for organised retail continues to grow.

Retailers today see Tier 2 cities as crucial markets where sales volumes are rising steadily. This shift is fueling deeper expansion strategies, pushing brands to strengthen their presence beyond metros and Tier 1 cities.

Vacancy Levels: Tier 2 Cities Lead the Country

Data from industry sources shows that Tier 2 cities record some of the lowest mall vacancy levels in India. Cities like Mysuru, Vijayawada, Vadodara, Thiruvananthapuram, and Visakhapatnam operate with near-full occupancy, supported by:

• extremely limited new supply
• cautious, demand-led development
• stable tenant retention
• consistently strong footfalls

Mysuru, for example, reports a vacancy level as low as 2 percent, while Vijayawada and Vadodara show similar resilience due to balanced supply pipelines and steady consumption growth.

Oversupply Hurts Some Markets Despite Rising Demand

However, not all smaller cities show the same performance. Nagpur, Amritsar, and Jalandhar illustrate the risks of unplanned supply expansion, where high vacancy levels—ranging between 34 percent and 49 percent stem from weak anchors, intense competition, and outdated mall formats. These examples highlight the importance of demand-calibrated development, particularly in markets where consumer behaviour is rapidly evolving.

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Tier 1 Cities Face Challenges with Older Retail Stock

Even as metros attract premium global retailers, several Tier 1 cities struggle with ageing malls and obsolete layouts that no longer resonate with younger shoppers. India has over 70 “ghost malls,” many concentrated in top cities due to outdated infrastructure, weak tenant mixes, and insufficient anchor-led redevelopment.

These challenges in metros are allowing Tier 2 cities to capture demand more effectively and, in many cases, outperform their Tier 1 counterparts in occupancy, rentals, and sales productivity.

Conclusion

The momentum in Tier 2 cities is not a short-term phenomenon it reflects a structural shift in India’s consumption patterns. With rising incomes, stronger aspirations, and careful supply planning, these cities have evolved into compelling retail destinations.

As retailers deepen their presence and developers focus on quality over quantity, Tier 2 cities are set to play a defining role in shaping India’s next phase of organised retail growth. Their strong fundamentals, healthier mall performance, and untapped consumer potential make them central to the country’s long-term retail strategy.