India's e-commerce to reach $550 bn by 2035 driven by Tier II-III demand

Demand for mall space has also increased, signalling growth in both e-commerce and brick-and-mortar retail industries: Report

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India’s e-commerce industry is projected to reach $550 billion by 2035, according to a joint report by ANAROCK and ETRetail. The report highlights that the sector’s rapid expansion is driven by digital adoption and evolving consumer behaviour. Meanwhile, mall vacancy rates have declined sharply to 8.1 per cent in 2024, signalling more demand for physical retail stores.

The report estimates that in 2024, India’s e-commerce market was valued at $125 billion. It is expected to surge to $345 billion by 2030, reflecting a compound annual growth rate (CAGR) of 15 per cent over the next decade.

 

Tier II, III demand drives e-comm growth

This growth is propelled by increasing internet penetration, widespread smartphone adoption, enhanced digital payment infrastructure, and government initiatives such as ‘Digital India.’

 

A key driver of this expansion is the increasing participation of consumers from smaller cities. The share of online shoppers in Tier II and III cities has grown from 46 per cent in financial year 2019-20 (FY20) to 56 per cent in FY24 and is projected to reach 64 per cent by FY30.

 

E-commerce firms are actively capitalising on this demand, offering better logistics and delivery networks in these regions.

 

“Besides the metros, e-commerce players are also tapping the growing demand from smaller towns and cities,” CEO and MD of ANAROCK Retail Anuj Kejriwal said. “This shift is reshaping India’s retail landscape, which is projected to grow to $2,500 billion by 2035, nearly three times its size in 2019.”

 

Mall space demand outpaces supply

While online shopping is booming, India’s physical retail sector is also undergoing significant changes. The report reveals that new mall supply across the country’s top seven cities was limited to just one million sq ft in 2024, yet absorption stood at a much higher six million sq ft.

 

Consequently, mall vacancy rates have declined sharply to 8.1 per cent in 2024 from 15.4 per cent in 2019, signalling strong demand for retail spaces.

 

“Mall space supply is struggling to keep up with demand, reflecting a strong post-pandemic rebound in leasing activity,” Kejriwal said. “Experiential retail, particularly in fashion and food & beverage (F&B) sectors, remains a major footfall driver, contributing nearly 45 per cent of total demand.”

 

The report further highlights that domestic and international retailers are expanding aggressively into Tier II and III cities, where over 26 million sq ft of mall space is expected to be developed by 2030.

 

This shift aligns with India’s evolving retail ecosystem, where organised retail’s share is projected to increase from the current 12 per cent to 17 per cent by 2035. As both e-commerce and brick-and-mortar retail evolve, India’s retail sector is expected to see the blending of digital commerce with in-store experiences to cater to its diverse and expanding consumer base.