Summary of this article
The large metropolitan markets still do most of the business, but Tier-2 cities are slowly becoming a bigger part of the leasing landscape.
Many Tier-2 cities are no longer being seen as future markets. They are already showing signs of maturity.
Beyond yield, the attraction lies in diversification. That makes Tier-2 retail not just a peripheral opportunity, but an increasingly important part of India’s commercial real estate growth story.
India’s retail real estate story is no longer limited to the biggest metros. The next phase of growth is also coming from smaller cities, and Real Estate Investment Trusts (REITs) are playing a meaningful role in that shift. The large metropolitan markets still do most of the business, but Tier-2 cities are slowly becoming a bigger part of the leasing landscape. The middle class is upgrading, more people are moving to cities, and airports, highways, and metro projects are making it easier for people to get around.
An example of this trend is Nexus Select Trust. Since its listing in 2023 as the country’s first ever retail-focused REIT, the company has deployed into a portfolio size of 10.7 million sq ft spread across 17 malls located in 11 cities. Notably, this spread is beyond the typical metro centric markets. Cities such as Indore, Lucknow, and Bhubaneswar are now part of the organised retail conversation in a much bigger way. It brought in Rs 2,800 crore from institutions, with 62 per cent of that coming from Indian investors.
“The larger point is that REITs are changing how retail real estate gets funded and owned in India. Instead of assets sitting only with developers, they are being brought into structures that are more transparent, better governed, and focused on regular income distribution,” says Purvang Mashru, Senior Quantitative Research Analyst at 1 Finance.
That changes the proposition for investors. It also raises the bar for asset quality, occupancy, and operational discipline. In smaller cities, that matters even more, because the success of organised retail depends not just on demand, but on execution and tenant quality.
What is encouraging is that many Tier-2 cities are no longer being seen as future markets. They are already showing signs of maturity. The entry of established brands such as Zara and Decathlon is one signal.
“Rental growth is another. In Jaipur, for instance, metro expansion and improving urban infrastructure have supported a sharp rise in rents over the last two years. This suggests that in the right micro-markets, demand is not merely shifting outward from metros, but taking shape on its own strength,” says Mashru.
Investor appetite reflects that confidence. Part of that appeal comes from the yield profile, which in several cases compares favourably with office assets. But beyond yield, the attraction lies in diversification. That makes Tier-2 retail not just a peripheral opportunity, but an increasingly important part of India’s commercial real estate growth story.
