Why Tier 2 and Tier 3 Cities Are the Future of Commercial Real Estate Investments in India?
India's commercial real estate sector is witnessing a significant shift, with Tier 2 and Tier 3 cities emerging as the next big growth markets. With improved infrastructure, progressive government policies and an expanding startup ecosystem, these cities are becoming attractive to investors. By 2030, India's real estate market is expected to reach a size of $1 trillion, contributing 13% to the country's GDP by 2025.
Several government initiatives have played a key role in fostering the development of real estate in smaller cities. The Smart Cities Mission has upgraded infrastructure, urban mobility and digital connectivity in 100 cities, with notable beneficiaries such as Indore, Surat, and Udaipur. The Atal Mission for Rejuvenation and Urban Transformation (AMRUT 2.0) has focused on providing essential urban services, including water supply and sewage systems. Additionally, the Make in India and PLI schemes have helped position Tier 2 cities like Coimbatore and Lucknow as prominent manufacturing hubs, resulting in a surge in demand for industrial parks. The Digital India initiative has also improved internet connectivity, drawing IT companies and startups to these cities.
Recent data highlights the substantial growth in Tier 2 and Tier 3 cities, confirming their emerging potential for commercial real estate investments. In 2024, the top 15 Tier 2 cities saw a 20% increase in housing sales value, reaching ₹1.53 lakh crore, up from ₹1.27 lakh crore in 2023. Retail expansion in these cities is also poised for growth, with over 25 million sq. ft. of retail space expected to be added by 2029. Infrastructure projects like Bharatmala Pariyojana and the UDAN Scheme have improved road and air connectivity, while metro rail expansions in cities such as Kanpur, Surat and Nagpur are transforming urban mobility and enhancing the region's appeal to investors.
Commercial property prices in Tier 2 and Tier 3 cities are 20-30% lower than in Tier I cities, offering significant cost advantages to businesses. The lower costs for land acquisition and construction in these cities result in higher profit margins for investors. Cities such as Indore, Chandigarh, Kochi, and Coimbatore are focusing on key sectors like manufacturing, IT, logistics and textiles, all of which are contributing to the robust growth of these markets.
The rise of hybrid work models has led to an increased demand for co-working spaces in Tier 2 cities. Flexible office space sector in these cities is experiencing a significant growth, further fuelling the commercial real estate boom. Moreover, the expansion of the IT and startup ecosystem in these cities is driving growth. For instance, Jaipur hosts over 300 startups and multiple IT parks, while Bhubaneswar is emerging as an IT hub with major players like Infosys and TCS. Similarly, Lucknow is becoming a hotspot for fintech startups.
India's e-commerce sector is forecast to reach $300 billion by 2030, which will significantly boost demand for warehousing and logistics infrastructure in cities like Guwahati, Visakhapatnam and Jaipur. As the online retail market expands, the need for efficient logistics and warehousing solutions will continue to rise, further fuelling demand for commercial real estate in Tier 2 and Tier 3 cities.
Unlock the potential of India's Tier 2 and Tier 3 cities with CIRIL. Contact us today for expert real estate insights and services to tap into this rapidly growing market.
