The retail real estate market in Chennai entered 2025 with cautious optimism. Q1 2025 saw relatively muted activity in mall leasing but strong traction in high street retail spaces. This evolving trend indicates a shift in retailer strategies, consumer preferences, and investor priorities. Let us dive deep into how the retail sector performed in the first quarter and what does the future looks like.

Figure 1.

• The supply end has seen a startling rise between 2023 and 2024. The main reason behind this sudden spike is the “return to business as usual” of the corporates. Majority IT/ITes companies converted to “work-from-home” or “hybrid” conditions during the covid era, i.e., 2020 to 2022. Thus, we can clearly see close to 0 launches of newer units. However, once the business is returning to normal, the need is increasing; thus, the spike.

• Similarly, the demand end also witnessed a slowdown during the covid period. The increase in demand is again due to the return to normalcy of businesses, corporates, and IT companies.

• The Vacancy Rate, however, has stayed fairly steady ranging from 8 to 12%

I. MALL LEASING ACTIVITY OBSERVES A DIP IN Q1 2025.

• The net absorption in malls during Q1 2025 was just 0.05 million sq. ft., indicating a slow start to the year in terms of mall-based leasing.

• Compared to the heightened activity in past quarters, this number suggests a more selective leasing approach by retailers.

• One of the main reasons behind this could be the lack of a fresh supply of units and rising demand for locations with better footfall and accessibility.

• Surprisingly, no new malls were introduced or launched in the first quarter of 2025. This resulted in total retail stock to be steady at 7.1 million sq. ft. This stagnation may have impacted leasing volumes but also helped stabilize the rental market.

II. SUBURBS TAKE THE LEAD IN LEASING ACTIVITY

If we look at the leasing dynamics, the suburban submarkets emerge as dominant leaders, accounting for an enormous 86% of the leasing activity. This is concrete evidence of how retailers are approaching expansion and customer penetration. They understood the scope and increasing affordability of population in the western belt and strategized accordingly.

Suburbs hold better potential in the long run:

• Malls and retail spaces here have a distinctive cost advantage*

• The residential growth in these locations is much higher than others

• The scope of infrastructure developments in these regions are focal point for authorities

• Convenience in terms of accessibility and commuting are growing at a progressive rate

Retailers are willing to invest beyond the core city boundaries.

This is in line with the anticipated supply trend, with most new mall developments in the pipeline between 2025 – 2029 located in the suburbs. Major upcoming projects include Lulu Mall and Forum Mall in OMR, indicating a suburban retail boom in the coming years.

III. HIGH STREET DOMINATES RETAILER PREFERENCE

Figure 2. Bifurcation of retail spaces

While mall activity may have been subdued, high streets became a hotbed of retail leasing accounting for a whopping 66% of total retailer activity in Q1 2025. Retailers, especially in the fashion, apparel, and jewelry segments, leaned heavily toward high street locations.

Why is it a trending layout?

• Prime visibility: High Streets are usually situated in commercial zones with heavy and regular footfalls

• Convenience and accessibility: Shoppers find these areas easier to access, dynamic, airy, and convenient compared to large, isolated malls

• Brand exposure: High Streets often double as a showcase of brands, increasing their visibility without the mall leasing overhead costs

The increasing traction in high street retailing has not only enhanced occupancy but also pushed up rental rates in prominent zones. This spike is a clear indicator of demand outpacing supply.

IV. MALL VACANCY DROPS, RENTS REMAIN STABLE

• Although there was a limited leasing activity, the vacancy rate (citywide malls) decreased by 80 basis points Q-o-Q. This basically means that the inventory overhang decreased. The demand withing the existing mall spaces was strong and regular. Tenants appear to be consolidating and expanding withing high performing malls, rather than shifting to a brand new one and starting from scratch.

• Rents in existing malls were largely stable, particularly in Grade A malls, where the tenants mix is robust, and footfalls are consistent. Premium malls held their ground in terms of pricing to avoid any drastic downfall.

• Capital values of retail properties remain unchanged, reflecting a mature and steady investment environment

V. RETAIL CATEGORIES LEADING THE CHARGE

Retail demand in Q1 2025 was spearheaded by the jewelry and fashion/apparel sectors.

• These categories have typically high margins and depend on physical presence for sales conversions.

• With consumer spending slowly recovering and the onset of festive seasons, these retailers are strategically placing their bets on high visibility and premium access.

• Fashion and apparel brands, in particular, are rapidly expanding across both malls and high streets, often adopting omnichannel approach that blends physical and digital retail.

VI. 2025 OUTLOOK: RETAIL EXPANSIONS GEAR UP!

Looking ahead, the retail market in Chennai is expected to regain momentum:

• By Q4 2025, ~0.25 million sq. ft. of new supply is anticipated

• Net absorption is projected to touch 0.36 million sq. ft., indicating a positive leasing sentiment going forward

• From 2025 to 2029, a significant 5.2 million sq. ft. of mall supply is forecasted, further solidifying the suburban shift in retail focus.

Though most new developments are in suburban pockets, which traditionally command lower rental values than central zones, existing malls, especially ones in high-traffic areas are expected to see rent hikes due to increasing demand and limited immediate supply. This dichotomy means that while citywide average rents may appear steady, there will be pockets of premium pricing, particularly in saturated, high-demand zones

VI. INVESTMENT IMPLICATIONS

• For real estate investors and developers, these trends signal key strategic insights:

• Focus on suburbs: Suburban retail spaces will lead the growth in the next 5 years, supported by infra and residential catchments

• Emergence of High Streets: High Streets are here to stay! Investors seeking quick ROI and high leasing momentum should consider high streets in metro areas

• Selective mall investments: While the mall market is not expanding aggressively, well-performing mall spaces (Grade A) continue to offer stable income through rent and capital appreciation

The retail real estate market in Chennai entered 2025 with mixed bag trends like stability in malls, booming high streets, and a shift towards suburban dominance. While leasing momentum within malls saw a slow start, the decrease in vacancies and stable rents indicate underlying strengths. As the year progresses, new developments and a revived demand in fashion and lifestyle segments are likely to drive retail leasing. High Streets are clearly the winner, but long-term outlook favors well positioned malls.

*Source: JLL Research

Author: Sumedha Das