Commercial real estate to move northwards in Tier 2 markets post Covid-19

Factors like good location, easy accessibility, improvement in basic infrastructure, increased connectivity with suburbs and the availability of skilled manpower have turned smaller cities into an attractive business destination.

Bigger cities are witnessing the trend of high property prices, land saturation and subdued demand, which has led the buyers to look for greener pastures that are cost-effective markets. This has brought the non-metro (Tier II) cities into focus. One of the most important factors that has made it all possible is the fast-growing infrastructure in these cities. Many government schemes like AMRUT, Smart Cities etc have also played a significant role in the growth of these cities. Earlier only the natives of these cities used to stay there, but now people are migrating to these cities also. People from metro cities are also migrating there and demand for real estate is increasing.

Post-Covid, the scenario is likely to change further as many people have already migrated to smaller cities. People with businesses will definitely love to spend time with their near and dear ones living in smaller cities. The demand which was already on the rise before this pandemic is likely to go further northwards. NRIs and HNIs too would start investing more in commercial real estate after the pandemic is over. The primary reason being the interest rates are at the lowest, leading to real estate becoming a very attractive proposition.

Before the pandemic scenario, many reports put out the figures of rising real estate investments in Tier II cities at around 20 per cent over last year, which is a clear sign of the movement of buyers and investors to these cities. Indeed, the development of physical and social infrastructure — airports, road infrastructure, better connectivity, companies foraying in these markets — has pushed the real estate demand in these cities.

Now tier 2 cities also have local experienced developers having delivered remarkable commercial spaces in the peripheral areas. Their design and quality has evolved to match up to international standards, meeting all the demands of the new-age and traditional businesses alike. These are the main catalysts for the growing demand of commercial real estate. This has led to the movement of businesses and employment centres, townships with mixed developments, etc in these suburban and peripheral areas.

As approval processes, land acquisitions etc have been halted in current times along with various restrictions imposed on the movement of staff, just like other sectors, it will impact the immediate launches and new supplies will be delayed. Thus, post-Covid, considering all these factors, there will be a lull in supply in the mid-term, but we are very much hopeful that the government will also take steps to bring positivity to business and might announce a slew of measures. Most likely the push will be given to startups and SMEs, and these two are going to move towards tier II cities, thereby increasing the demand of commercial there.

Factors like good location, easy accessibility, improvement in basic infrastructure, increased connectivity with suburbs and the availability of skilled manpower have turned smaller cities into an attractive business destination. In the coming months, a lot of IT/ITeS companies will go for rationalization of manpower and will look to optimize their office real estate portfolios. These firms would consolidate offices across various locations and move to smaller cities. This will open up new avenues for investment in the commercial segment. For example, in Chandigarh, the primary reason for the soaring popularity is advent of IT/ITEs sector and world class education and medical facilities. Today Tricity boasts of having good infrastructure coupled with state-of-the-art office campuses that are pulling in a good chunk of the migrant population. A few prominent upcoming investment locations are Zirakpur, Airport Road, Panchkula, and Mohali.

Now the focus should on lessening the burden on bigger towns. It also means that the government has to work on developing employment opportunities in these cities. This is good for the overall economy of the country. Real estate reports point out that nearly 12 per cent people in Delhi-NCR prefer to invest in nearby cities like Sonipat, Jaipur and Chandigarh. Many private equity investors are turning their focus on Tier 2 cities and Private Equity close to USD 1.37 bn was pumped into the real estate markets across various smaller cities, including Bhubaneshwar, Chandigarh, Ahmedabad, Mohali, Indore and Amritsar, between 2015 and 2018.

(By Prateek Mittal, Executive Director, Sushma Group)