India’s real estate landscape has witnessed a remarkable transformation, marked by a notable rise in commercial real estate development across not just urban centres but also Tier 2 cities. This burgeoning growth is propelled by various factors that have reshaped the landscape of these cities and created unprecedented opportunities for investors.
Rising urbanisation: Fueled by a combination of factors, Tier 2 cities are experiencing a wave of urbanisation. People are migrating from rural areas and smaller towns in search of better job opportunities, educational facilities, and a higher standard of living. This influx of population is driving the growth of residential areas, shopping malls, and entertainment options. As these cities evolve into bustling centres of commerce and culture, they are experiencing a corresponding increase in the demand for goods, services, and experiences. Consequently, there is a growing demand for modern retail spaces, entertainment hubs, and lifestyle amenities, creating opportunities for developers and investors in the commercial real estate sector.
Transport and infrastructure advancements: With concerted efforts from both the public and private sectors, Tier 2 cities are witnessing significant enhancement in transportation networks, including roadways, railways, and air travel facilities. Improved road networks ease traffic congestion, facilitating the movement of goods and people. Advancements in digital infrastructure, such as high-speed internet connectivity and digital payment systems, are accelerating the integration of Tier 2 cities into the global economy. These cities are also witnessing investments in reliable power grids, robust water supply systems, and efficient waste management solutions.
Work-life balance: Tier 2 cities offer a blend of career opportunities and relaxed living environments. With shorter commute times and lower levels of congestion, individuals can allocate more time to personal pursuits and leisure activities. This, coupled with a slower pace of life allows residents to truly unwind after work, which fosters better work-life integration, allowing individuals to excel professionally while still having ample time for their personal well-being. Additionally, the cost of living tends to be more manageable, allowing for greater financial stability and flexibility.
Talent hub: Tier 2 cities are emerging as powerhouses of talent, boasting a unique blend of excellent educational institutions and a burgeoning pool of bright, young minds. These cities now house some of the renowned engineering colleges, management institutes, and specialised universities. As a result, a pool of skilled and knowledgeable professionals is steadily growing within these cities, fueling local industries and driving entrepreneurial endeavours.
Retail growth: With increasing urbanisation and rising disposable incomes, consumers in Tier 2 cities are becoming more inclined towards modern shopping experiences. The infrastructural developments and improved connectivity have made these cities more accessible, attracting both retailers and consumers alike. This expansion is further propelled by the e-commerce boom and a tech-savvy consumer base, coupled with a surge in discretionary purchasing.
How will the hub-and-spoke model shape our offices?
The hub and spoke model is a business strategy that designates the main location, known as the ‘centralised location’ or the ‘hub’ in Tier 1 cities, while smaller workspaces, referred to as the ‘spokes’, established in Tier 2 cities. By doing this, companies can tap into talent pools across different geographical locations.
This results in the search for smaller, cost-effective spaces with lower maintenance costs, where co-working operators play a pivotal role. With the demand for flexible workspaces on the rise, landlords are increasingly inclined to convert their properties into co-working spaces. With lower rentals and a lower cost of living providing a better work-life balance, this caters also to the rise of freelancers, startups, and smaller businesses seeking flexible and affordable work environments.
Why should corporations consider opening offices in Tier 2 cities?
Government support and incentives: Government Initiatives like UIDF, Stand-up India, Start-up India, MUDRA Yojana, JAM Trinity, UDAN, etc. in Tier 2 cities have not only created improved employment opportunities and increased disposable income but also enhanced the overall quality of life by providing more avenues for spending and enjoying a higher standard of living. By offering tax breaks, subsidies on land acquisition or leasing, and streamlined regulatory processes, the government can significantly reduce operational costs for businesses.
Emerging start-up hubs: Several Tier 2 cities, characterised by their smaller size, lower cost of living, tech-savvy graduates, and rising internet user base, provide fertile ground for innovation and growth. Government initiatives aimed at promoting entrepreneurship, coupled with the availability of co-working spaces and incubation centers, are further catalysing the startup ecosystem in these cities.
Cost advantage: Compared to Tier 1 cities, the cost of real estate, labor, and utilities is significantly lower in Tier 2 cities. This affordability factor not only appeals to domestic investors but also attracts foreign investment. The cost of living in these cities is often more affordable for employees, contributing to higher employee satisfaction and retention rates and thus fostering a good work-life balance.
Technology and innovation: From co-working spaces and shared offices to smart buildings and digital infrastructure, technology is revolutionising the way commercial spaces are designed, managed, and utilised. Developers are incorporating Internet of Things (IoT) devices and home automation systems to provide residents with enhanced security, energy efficiency, and convenience. From online property listing portals to smart home features like temperature regulation, smart locks, remote-controlled lighting, and intelligent security systems, these are becoming standard offerings in real estate, attracting tech-savvy buyers.
The future potential of commercial real estate in Tier 2 cities in India is bright and promising. With favourable economic conditions, infrastructure development, and changing consumer dynamics, these cities are poised to become magnets for investment and business opportunities. As investors and developers capitalise on the growth prospects offered by Tier 2 cities, we can expect to witness a robust expansion of the commercial real estate market, driving economic prosperity and urban development across the country.