Anatomy of Tier-II Investments

After reaping the growth prospects in these so-called Tier-I cities, real estate companies are now heading to the tier-II and tier-III cities. While Tier II-cities have rapidly emerging real estate markets with proven and heightened demand drawing in more investments, Tier-III cities are those where considerable potential demand is forecasted and the real estate markets are yet to be recognized. These small cities and towns are described as ‘‘emerging centres of growth’’ as they are now giving a thrust to India’s booming economy.

Anatomy of emerging centres of growth: attractive to the developers, retailers and IT/ITES are their low real estate costs, availability of land for development and untapped manpower pool. Also the sustaining GDP growth, expanding service sector, rising purchasing power and affluence is contributing to the real estate developments in these cities. A number of of the foremost developers like Hiranandani group, Godrej Properties, DLF and Parsvanath have shown interest in the Tier-II and Tier-III cities to fuel their future growth. Braced with their competitive business environments, human resources availability, telecommunications connectivity, quality of urban infrastructure, transparency of governance and availability of real estate, cities like Hyderabad, Chennai and Pune are emerging as highly smart business locations ahead of tier-III cities. IT/ITES contributes nearly 80% of total office space demand, this has fuelled the demand for real estate activities in Tier-III cities. The Indian IT/ITES sector is thus exploring these towns in a bid to stay globally competitive.

And the rise in rentals and cost of labour in Tier-I and Tier-II cities like Delhi, Mumbai, Bangalore and Pune, the Tier-III cities like Chandigarh, Jaipur, Nagpur, Lucknow and Kochi have surfaced as alternative commercial centres where off-shoring facilities could be reallocated.

Even the retail sector in the larger cities in India is reaching a saturation point, global retailers are increasingly setting up shop in smaller cities to cash in on the first mover’s advantage. This has added up to the demand for commercial space in Tier-II and Tier-III cities. Growth of organised retailing has translated into real estate growth in these emerging locations.