The majority of Indian real estate market is driven by metropolitan cities such as NCR, MMR, Bengaluru, Chennai, and Kolkata. Well, not anymore as the industry is now witnessing a paradigm shift towards Tier II and III cities.
It was recently reported that it is small cities that are overtaking Tier I cities in Smart Cities mission. In the retail sector as well, this shift is evident. While Phoenix Mills, recently bought two under construction malls in Lucknow and Indore, retail giants like Future Retail, Reliance Digital, H&M,etc. are now looking to expand their presence beyond metros.
In the coming years, small cities are expected to witness a massive development. Here are the five factors that are driving real estate growth in Tier II and III cities:
- Over the past few years, cities such as Chandigarh, Coimbatore, Vadodara, Jamshedpur, have become the hub of e-commerce while Ahmedabad, Surat, and Vadodara have made huge progress in the industrial sector. This has, in turn, led to an increase in the disposable income among the middle class and thus higher demand for housing and organized retail.
- Developers find a relief in smaller cities owing to low labor as well as low land cost. Lowers cost is leading to lower prices and affordable rates of residential units and rentals in case of retail projects.
- State governments’ policies also play an active role here. Conducive policies and thrust on physical infrastructures like airports, flyovers, metro corridors, and expressways are fuelling rapid growth in smaller towns. A prime example here is Smart City project that plans to build 100 smart cities.
- As compared to the saturated market in metro cities, consumers in tier II and III cities have remained underserved by the real estate industry for a long time. There is a huge demand of quality affordable as well as practical-luxury housing among the middle class in these cities.
Similarly, consumers in such cities are currently under-served markets for quality retail and entertainment experiences while the population has a high propensity to spend.
- Strategically-located smaller cities also have a huge opportunity to develop warehousing space owing to better transport networks and benign land prices. For instance, Walmart and Amazon are developing new fulfillment centers to cater to growing demand from these cities.