Developers bet on luxury malls in smaller cities as demand surges

Developers bet on luxury malls in smaller cities as demand surges

Real estate developers are designing malls in India’s Tier 2 and smaller cities with luxury zones, valet parking, and experiential spaces, as rising incomes and aspirational spending fuel the spread of premium retail beyond metros.

“Premiumisation in Tier 2 and 3 cities is no longer a future possibility—it’s current reality. Consumers here are well-travelled, digitally exposed, and aspirational, making them ready for luxury and premium retail,” said Kamakshi Mantri, Chief Strategy Officer, Mantri Malls.

Mantri explained that Mantri Malls’ expansion and redevelopment plans are focusing on cities with growing middle-class populations, better infrastructure, and strong connectivity. “Instead of replicating metro models, we adapt our retail formats to local consumer tastes while ensuring aesthetics, brand curation, and hospitality rival the best urban malls,” she said.

The company sees significant potential in cities such as Lucknow, Jaipur, Indore, Kochi, Bhopal, Coimbatore, Surat, Bhubaneswar, and Vizag. Growth in digital payments, modern retail habits, luxury housing, car ownership, and urban renewal projects are all shaping these investment decisions.

Vivek Rathi, National Director – Research, Knight Frank India, said luxury brands are actively expanding beyond metros. “Tier 2 and 3 cities like Chandigarh, Lucknow, Jaipur, Indore, Surat, Coimbatore, and Nagpur are increasingly attracting luxury and premium tenants. This is fuelled by rising disposable incomes, aspirational consumption, and significant modern mall development,” he noted.

International and aspirational Indian brands across categories, from fashion and beauty to accessories and durables, are gaining traction. Rathi pointed out that Armani, Brooks Brothers, Diesel, Kiehl’s, Onitsuka Tiger, Steve Madden, Good Earth, Rado, and Seiko are among the global names finding a market outside metros.

Jones Lang LaSalle (JLL) projects that Tier 2 and 3 cities will add more than 25 million sq ft of retail space by 2029, with projects averaging 3,75,000 sq ft. North India leads the pipeline with 44 percent, followed by South India at 30 percent. JLL also highlighted that over 30 percent of institutionally held retail assets, about 9.12 million sq ft, are already in smaller markets, underscoring investor confidence.

Occupancy levels show strong demand

Developers are reporting robust operating metrics. Prestige Estates said its malls were 99 percent occupied in Q1 FY26, generating revenues of ₹590 crore. “Our malls are at near-full capacity, and we continue to see strong interest from both luxury and bridge-to-luxury tenants,” said Irfan Razack, Chairman and MD.

Oberoi Realty also flagged steady traction. On its latest earnings call, the company said its flagship premium mall in Mumbai “has new shops opening every day,” and added that the model is being extended to smaller hubs.

Mall design evolving to match luxury positioning

Developers are rethinking design as luxury retail takes centre stage. “Luxury retail is as much about the environment as it is about product. We are investing in biophilic design, double-height shopfronts, concierge services, valet parking, personal shopper lounges, exclusive zoning, immersive art, enhanced security, and curated event spaces,” said Kamakshi Mantri.

Knight Frank noted that developers are now building larger malls averaging 3,80,000 sq ft, with some projects exceeding a million sq ft, featuring luxury-dedicated zones and experiential layouts that blend shopping, dining, and leisure.

Mantri added that brand partnerships are also shaping growth.

“We collaborate with retailers on premium store fit-outs, share costs for façade upgrades, and work on architectural enhancements. Marketing tie-ups like curated fashion shows and cultural festivals help align with brand values and strengthen positioning,” she said.