Over the last ten years, Tier 2 and Tier 3 cities in India have transformed from their previously quiet, small-town personas into vibrant urban centers that significantly contribute to the nation’s growth. As the cost of living in Tier 1 cities continues to rise and infrastructure and connectivity improve, these smaller towns are increasingly capturing the attention of both businesses and residents. This shift marks the beginning of a new phase of national development, resulting in substantial societal and economic changes.

The rapid expansion of job opportunities is a primary driver of progress in Tier 2 and Tier 3 cities. Numerous companies have broadened their focus due to the growth of the digital economy and the trend towards autonomy, seeking alternatives to the heavily-populated markets of Tier 1 cities. With comparatively lower operating costs and an emerging talent pool, these smaller towns present an attractive option for various types of businesses. Today, Tier 2 and Tier 3 cities boast IT parks, industrial zones, and special economic zones, positioning them on par with Tier 1 cities.

As Tier 1 cities have become increasingly costly, Tier 2 and Tier 3 cities offer a more affordable alternative without sacrificing quality of life. Housing prices have become more accessible, making homeownership a realistic aspiration for the middle class. Young professionals with families are also gravitating towards these cities, as many everyday goods are less expensive, and healthcare and education costs remain reasonable. Furthermore, a significant number of professionals are relocating to smaller cities or returning to their hometowns, driven by the availability of job opportunities and the desire for an improved work-life balance.

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Commenting on this trend, Mohit Goel, Managing Director, Omaxe Group, says, “Tier 1 and 2 cities are emerging as top choices for real estate developers. Cities like Vrindavan, which has famous temples and places of religious significance, along with famous tourist spots and historical places, have become an ideal destination for real estate investment. The city will achieve the status of a Tier 1 urban town soon with infrastructural development like a dedicated expressway that will connect Vrindavan to the Yamuna Expressway. Similarly, Indore is rapidly transforming with infrastructure development, including smart city initiatives and improved road networks.”

Also, Ludhiana is emerging as a key player in infrastructure development with significant investments in industrial parks, transportation networks, and urban planning. “The city’s expanding infrastructure supports its role as an industrial hub. These developments and growth prospects in Tier 1 and 2 cities are hotspots for real estate developers. Similarly, cities such as Lucknow, Faridabad, and Chandigarh are also experiencing increased demand for both residential and commercial properties,” he adds.

The government’s focus on schemes like the AMRUT-Atal Mission for Rejuvenation and Urban Transformation, and Smart Cities Mission has actually pushed infrastructure development in such towns. With better roads, improved means of transport, and reliable utilities, these towns have now become more business-friendly.

Uddhav Poddar, Managing Director, Bhumika Group, says, “India’s Tier 2 and 3 cities are becoming hotspots for Global Capability Centers. The Tier 1 cities have grown organically with an increasing population and limited space available for any further development. Cities like Udaipur, famous for tourism and the most visited destination, continue to grow with their historic palaces, lakes, and cultural scenes, drawing visitors from around the world. This boost in tourism is creating new opportunities for real estate development in such cities. The urbanization of India’s smaller cities, aside from population numbers, carries the country’s vision for a balanced economy with job opportunities and new infrastructural developments.”

ICRA says the demand for real estate ownership is in play across Tier II markets, with trends similar to those seen in metro cities, particularly an inclination towards premiumization. Several branded developers are evaluating prospects in Tier II cities. The ICRA report on Residential Real Estate Growth projections mentioned that most current home sales are in the under-construction portfolio. Additionally, new launches in the leading seven cities are likely to increase to 767 million square feet, 12% up year-on-year.

Romi Garg, Director, Pebble Downtown Mall, says, “Faridabad’s rapid growth as a Tier 2 city is evolving owing to its infrastructure and strategic connectivity to Delhi-NCR. The expansion of road networks, metro extensions, and upcoming projects like the Jewar Airport are transforming the region into a premier real estate destination. This growth trajectory unveils significant opportunities for both residential and commercial development. Hence, we foresee promising real estate growth in the city and look forward to contributing to it in progress.”

The educational facilities in these cities are also improving, which in turn leads to a consistent rise in qualified graduates who prefer staying in their hometowns rather than relocating to metropolises. Companies desirous of expanding into these regions will find these local skills based in these cities, which will further spur economic development.

Vansh Kataria, CEO, Tirasya Estates, says, “We categorically see cities other than the top metros performing far better in terms of job opportunities growth. The Tier 2 and 3 cities provide a reasonable alternative without compromising on the quality of lifestyle as the Tier 1 cities become prohibitively expensive. Domestic and foreign investors are also investing in these small cities. These markets are good to invest in as they provide high returns and are relatively stable. This rise of capital, in turn, pushes further development and secures the path of upward growth for these cities. Therefore, we aim to capitalise on this opportunity and launch our new project in Goa.”

With the fast growth of Tier 2 and Tier 3 cities, the urban scene is changing in India, and economic opportunities throughout the country are growing more equitably. As these cities grow and develop further, they will likely play an increasingly larger role in driving India’s future development and contributing to the country’s economic growth.