Tier 2 & Tier 3 cities to drive growth in commercial real estate

Jun 24, 2022

A resurgence of COVID-19 cases and that too in a much stronger manner definitely means that the ‘World From Home’ culture is here to stay for much longer period than expected and subsequently it also means that the real estate sector would need to brace for a prolonged new normal.

New normal changing the trends in Indian real estate-On one hand, the WFH culture may lead to some good news for the housing sector, as there may be a boost to demand residential units, especially for larger homes with one or more extra rooms to double up as office space. The growth may be even higher in smaller cities as remote working may prompt people to shift to places with a lower cost of living and yet better standards of life. But that could also mean that the demand for commercial real estate in big cities may saturate as more and more companies might need lesser office spaces and same may be the case for malls and other segments. However, if more people shift to smaller cities, the investment demand for commercial real estate may rise significantly in those places.

The latest quarterly data from global giant Knight Frank shows that PE (private equity) investment in real estate rose 16-fold to USD 3.2 billion in the quarter ended March 31, 2021, but office space continued to be the preferred segment attracting over 70% of PE investments during the quarter.

For quite some time, experts and global realty consultants have been projecting a somewhat muted level of investments as fears about the resurgence of the deadly coronavirus continue to overshadow the minds and purses of investors. And those fears have turned out to be true and the virus is rearing its head again and in a much deadlier manner.

Tier2 cities- safest choice for investments-

In such a time, the only safe havens are tier-2 and tier-3 cities and if you still want to be closer to the top tier, Chandigarh and other such places could be the safest bets. Thanks to various comfortable and fast commute options across the road, rail and air modes, they are well within reach, by distance and by the quantum of investment. It makes much more sense to invest in commercial real estate in places like Chandigarh and other tier-2 and tier-3 cities, if you want some good returns and also play it safe.

If you need more proof, fastest-growing property consultant Anarock, when it reported better-than-expected revenue growth of 18% for a pandemic-ravaged year, cited leasing of retail space and sale of office properties among key contributors to its overall revenue.

The latest quarterly report from Cushman & Wakefield shows a significant fall of 48 per cent in office leasing in seven major cities during the January-March quarter of 2021 due to the resurgence of the pandemic, but the plunge is largely driven by tier-1 cities like Delhi, Mumbai and Chennai and cities like Pune saw a jump.

Branded Developers for property investment-

Every dilemma the real estate sector has faced in the last 10 years or so has overseen the emergence of new directions and choices. However, this crisis has modified a lot of aspects. The months of extensive lockdown and the way the market has been attempting to limp back after that with fewer demand and incremental resumption of business activities have shown that those developers who have a stellar financial and delivery record are the ones who are glimpsing good market. This trend is likely to become the new normal moving forward.

So, wait for more and more people to shift to smaller cities, thanks to WFH and remote working trends, and seem them invest there in commercial real estate rather than taking higher risks with big cities. And for those looking for northern parts of the country and those seeking to move out from Delhi-NCR, Chandigarh and nearby areas definitely offer best options. After all, precaution is foremost on everyone’s mind right now, whether it’s against the virus or to safeguard investments.