Tier II cities have to wait for attention

Real estate in Metro and tier-I cities still have a lot of traction

Metros and tier I cities still have a lot of real estate traction in them. So tier II cities may have to wait for another couple of years to get their share of investments.

For both tier I and tier II cities it is IT, BPO and ITeS sectors which are driving the local economy and real estate space offtake. Demand for space in tier II cities is currently by just a few domestic IT biggies like Infosys and Wipro which find value in low operational cost.

Tier I cities are large metropolises that have an international airport like Delhi, Mumbai, Bangalore Hyderabad, Chennai and Kolkata. Whereas Tier II or secondary cities are smaller in nature and are located close to major metros like Pune, Jaipur, Chandigarh, Ahmedabad, Mysore and Mangalore.

"Currently tier I cities in India have more real estate space for new companies to enter and companies established are going in for expansion in the same city with ease," said Anshuman Magazine, managing director, CB Richard Ellis South Asia, an international property consultant.

"In this real estate boom across the nation, tier II cities are also getting a chance to develop and this is being slowly kick-started by retailers and a few IT companies. These in turn have a trickle down effect on the residential and hospitality sectors as well," said Mayank Saksena of Chesterton Meghraj, international property consultants.

With tier I cities still shining, a hub and spoke model of expansion is slowly emerging in the country i.e. a company sets up base in a metro and for its expansion looks at cities in its proximity (that is a few hours journey by road).

In the south, for Bangalore it is Mysore, Mangalore and Hubli. Hyderabad has Vizag and Guntur. For Chennai it is Coimbatore, Madurai and Salem. Kerala has Thiruvananthapuram and Kochi.

In the west, it is the Mumbai-Ahmedabad region with Baroda and Indore acting as consort. In the north with Delhi as the centre it is Gurgaon, NOIDA, Mohali, Chandigarh and Jaipur and in the east it is Kolkata with Kharagpur and Bhubaneshwar.

"A company can easily cut real estate cost by 50 per cent by moving to tier II cities but then the problem of human resources, connectivity and support infrastructure like schools, leisure among others eat up this cost saving. So the only benefit of moving to these cities is less of poaching which is a major problem among IT companies," said Saxena.

But, according to Manisha Grover, associate director at Jones Lang LaSalle, apart from the state capitals, respective state governments do not see these cities as focus areas for IT development and therefore administrative efficiency, response and support is relatively low in them. These constraints have so far not let them succeed.

"Although Mangalore and Mysore are being promoted as secondary IT destinations, a majority of the existing manpower migrates to Bangalore. Such migrations are happening in all the tier II cities," added Manisha Grover, robbing them of one of their pluses.