“With a wave of innovation and investment, tier 2 and tier 3 cities are set to redefine India’s commercial real estate sector, offering unparalleled opportunities for growth and success.” – Meghraj Singh Royal
As India’s metropolitan cities grapple with the challenges of rapid urbanization and limited land availability, the commercial real estate market in these metros has reached a saturation point. Cities like Mumbai, Delhi, and Bangalore, which have traditionally driven the commercial real estate sector, are now facing significant hurdles in accommodating further growth. Skyrocketing land prices and inadequate infrastructure have made it increasingly difficult for businesses to establish a presence in these markets. The congestion and long commute times in these cities have further decreased productivity, prompting a search for alternatives.
In contrast, a new frontier of growth is emerging in tier 2 and tier 3 cities, now attracting significant attention from investors and developers. According to a report by Mordor Intelligence, the commercial real estate market in India is poised for substantial growth, with the market size expected to reach USD 40.71 billion in 2024 and projected to grow at a compound annual growth rate (CAGR) of 21.10%, ultimately reaching USD 106.05 billion by 2029.
This shift is driven by several factors, including the availability of more affordable land, improving infrastructure, rising disposable incomes, and favorable government policies aimed at encouraging investment in these emerging markets. Meghraj Singh Royal, a prominent entrepreneur and proprietor of the MRS Group, sheds light on the factors driving this shift and the prospects of commercial real estate in these emerging markets.
The Rise of Tier 2 and Tier 3 Cities
The government’s emphasis on infrastructure development, particularly through initiatives like the Smart Cities Mission, is significantly enhancing connectivity in tier 2 and tier 3 cities, making them increasingly attractive for businesses. As these cities improve their infrastructure, they become viable options for companies looking to establish a presence outside saturated metropolitan areas. Furthermore, the rising disposable incomes among the growing middle class in these regions are driving demand for various commercial spaces, including retail outlets, restaurants, and office spaces.
According to a recent report by JLL India, real estate developers have acquired 1,461 acres of land in tier 2 and tier 3 cities over the past 22 months, accounting for 44.4% of the total 3,294 acres acquired nationwide during this period. This trend highlights the shift from previously overlooked markets to emerging hotspots for commercial real estate development. Meghraj Singh Royal notes, “The rising demand for residential housing in tier 2 and tier 3 cities is a harbinger of growth for commercial real estate, as businesses follow the surge in population, creating a symbiotic relationship that promises a boom in the sector.”
The availability of affordable and accessible land parcels compared to metros facilitates easier acquisition and development of commercial properties. Additionally, state governments are offering attractive incentives, such as tax breaks and subsidies, to encourage investment in these regions. As a result, tier 2 and tier 3 cities are transforming into promising opportunities for investors eager to capitalize on the evolving dynamics of India’s commercial real estate landscape.
Future Prospects and Challenges
The future of commercial real estate in tier 2 and tier 3 cities appears bright, with experts anticipating sustained growth in the coming years. However, several challenges must be addressed to fully realize this potential. One significant issue is the lack of a skilled workforce; many of these cities struggle to attract and retain talent, making it difficult for businesses to find the right personnel to support their operations. Additionally, while government investments in infrastructure are underway, there remains a pressing need for further development in areas such as transportation, utilities, and telecommunications to adequately support the burgeoning commercial real estate market. Limited access to financing is another hurdle, as developers and investors in these regions may encounter difficulties in securing funding, with banks often hesitant to lend in less established markets.
Despite these challenges, Meghraj Singh Royal remains optimistic about the prospects for commercial real estate in tier 2 and tier 3 cities. He believes that as more businesses recognize the opportunities these markets present and invest in their development, the existing challenges will be overcome, paving the way for continued growth and prosperity. As the market continues to evolve, it will be important for stakeholders to work together to address the challenges and unlock the full potential of these emerging markets.
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