Tier II Cities: The New Frontier of Commercial Real Estate

Tier-II cities across India are witnessing a significant surge in office space leasing, marking a shift in the commercial real estate landscape. As companies look beyond traditional metros, cities like Coimbatore, Mysuru, and Bhubaneswar are emerging as promising growth destinations.

Commercial Real EstateTier Ii CitiesOffice Space LeasingStartupsRemote WorkReal Estate MumbaiMay 28, 2025

Tier II Cities: The New Frontier of Commercial Real Estate

Real Estate Mumbai:Tier-II cities across India are witnessing a steady surge in office space leasing, marking a significant shift in the country’s commercial real estate landscape. As companies look beyond traditional metros like Bengaluru, Mumbai, and Delhi-NCR, cities such as Coimbatore, Mysuru, and Bhubaneswar are emerging as promising growth destinations. This trend is driven by a combination of factors, including the availability of skilled talent, cost advantages, supportive policy frameworks, and the growing acceptance of remote and hybrid work models.

Real estate experts attribute this trend to a combination of factors: the availability of skilled talent, cost advantages over Tier-I cities, supportive policy frameworks, and the growing acceptance of remote and hybrid work models. In recent years, demand for office space in Tier-II and III cities has risen consistently, driven in large part by a wave of startups, particularly in the tech sector.

Leading flexible workspace operators are also expanding their presence in these markets, signaling confidence in their long-term growth potential. Vimal Nadar, national director and head of research at Colliers India, pointed out, “Tier II cities are gaining ground in office demand driven by evolving work models, availability of skilled talent, cost arbitrage, and supportive policy frameworks. The acceptance of hybrid and remote work has encouraged companies to adopt hub-and-spoke models, with satellite offices in smaller cities which are adjacent to Tier I cities.”

Overall, real estate experts say rapid urbanisation, infrastructure upgrades, and rising employment opportunities can spur commercial real estate growth in multiple Tier II and III cities. These cities are likely to complement the established office markets increasingly over the next few years.

In the last 3-4 years, several multinational companies have leased over 10.87 lakh square feet of office space in Coimbatore, marking a significant shift in commercial real estate activity in the city. The total value of these lease transactions stands at approximately ₹402.26 crore, reflecting growing confidence among global firms in Tier II city markets, data from data analytics firm Propstack showed. State Street Corporate Services accounted for the single largest transaction, leasing 2.1 lakh sq ft with a total lease value of ₹126.24 crore in March 2025. Bosch Global Software Technologies followed with 3.25 lakh sq ft leased across two transactions, amounting to ₹98.99 crore between 2023 and 2024. Infosys also secured a substantial footprint with 2.56 lakh sq ft leased in two separate deals, totalling ₹79.8 crore.

Other key transactions include Cameron Manufacturing India, which leased 98,726 sq ft for ₹35.66 crore, and Accenture, which took up 90,008 sq ft in two transactions valued at ₹27 crore. Deloitte Shared Services leased 54,666 sq ft for ₹25.39 crore, while Amazon Development Centre closed a single deal for 51,000 sq ft valued at ₹9.18 crore.

Real estate experts note that in recent years, Tier II and III cities have witnessed consistent growth in office space demand, fueled by the rise of startups, especially in the technology sector. “Interestingly, 50% of India’s startups now originate from Tier II and III cities, and a significant proportion of these belong to IT or allied sectors. Resultantly, these cities are witnessing heightened traction in Grade A office space uptake, including flex spaces,” Nadar said.

Leading flex operators are also increasingly expanding into Tier II and III cities, a clear reflection of the long-term growth potential of such cities, he said. This is evident in last year's MyBranch-Qdesq report, which said demand for flexible office spaces in tier II and III cities grew 12% annually in 2024. Meanwhile, supply grew fourfold between 2020-24, owing to the increasing need for “cost-effective and adaptable office solutions”.

Real estate experts say overburdened infrastructure, unaffordable real estate costs, and constantly rising operational costs led to the migration of companies from Tier II cities. “Major employment hubs such as MIHAN in Nagpur, Mahindra World City in Jaipur, Infopark and SmartCity in Kochi, Technopark in Trivandrum, InfoCity in Bhubaneswar, and STPI in Dehradun have successfully attracted leading IT companies and a range of support services,” Shrinivas Rao, FRICS, CEO, Vestian, said.

Emerging centres like Lucknow’s IT City, Vizag’s Fintech Valley, and Coimbatore’s TIDEL Park are also gaining traction. Real estate experts say Tier II and III cities offer significant cost arbitrage over Tier I cities, making them increasingly attractive for businesses. “On average, leasing costs are anywhere between 30–50% lower than in Tier I cities. Operational expenses also tend to be lower, and EBITDA margins higher,” Peush Jain, MD - Commercial Leasing and Advisory, ANAROCK Group, said.

For example, in cities like Coimbatore, the average rent in the central business district area in 2024 stood between ₹50-70 per sq ft. The rentals vary from ₹40-60 per sq ft and are even lower in upcoming commercial micro-markets, data from CBRE showed. Similarly, in other cities like Indore, Kochi, and Visakhapatnam, the office rents ranged between ₹40-60 per sq ft on average, depending on the location and the quality of the property.

Overall, experts say similarly for an employee residing in these smaller cities, the average cost of purchasing a house is 20-30% lower compared to Tier I cities. Comparatively lower real estate price points and the cost of living create a win-win situation for both office space occupiers and employees.

Real estate experts note that the pandemic triggered a wave of reverse migration, with many professionals relocating to Tier-2 and Tier-3 cities in search of safety, affordability, and a better work-life balance. The widespread adoption of remote and hybrid work models has encouraged many to extend their stay in these non-metro locations. “Driven by ample availability of land, local talent, and substantial cost advantage offered by non-metro cities, companies were quick to adopt the hub and spoke model to cater to the growing requirement of employees to work from non-metro cities. To fulfil the sudden increase in demand for office spaces, several co-working players expanded their footprint in these cities. As per Foundit, Tier-2 cities witnessed an annual 11% increase in hiring in 2024, with Kochi, Coimbatore, and Jaipur emerging as the key hiring locations,” Rao said.

Despite the recent uptick in demand and supply for Grade A office spaces, real estate experts caution that Tier-II and Tier-III cities must overcome several hurdles to unlock their full long-term potential. Major challenges include the limited stock of high-quality office spaces, a lack of diverse and well-paying job opportunities, delays in infrastructure development, and inconsistent access to essential urban amenities such as public transport, healthcare, and organized retail.

Frequently Asked Questions

What factors are driving the growth of commercial real estate in Tier II cities?

The growth of commercial real estate in Tier II cities is driven by the availability of skilled talent, cost advantages over Tier-I cities, supportive policy frameworks, and the growing acceptance of remote and hybrid work models.

Which multinational companies have leased office space in Coimbatore?

Several multinational companies have leased office space in Coimbatore, including State Street Corporate Services, Bosch Global Software Technologies, Infosys, Cameron Manufacturing India, Accenture, Deloitte Shared Services, and Amazon Development Centre.

How much lower are office rents in Tier II and III cities compared to Tier I cities?

On average, office rents in Tier II and III cities are 30-50% lower than in Tier I cities. This cost advantage makes these cities increasingly attractive for businesses.

What are the major challenges facing Tier II and III cities in commercial real estate growth?

Major challenges include the limited stock of high-quality office spaces, a lack of diverse and well-paying job opportunities, delays in infrastructure development, and inconsistent access to essential urban amenities such as public transport, healthcare, and organized retail.

How has the pandemic influenced the commercial real estate market in Tier II and III cities?

The pandemic triggered a wave of reverse migration, with many professionals relocating to Tier-2 and Tier-3 cities in search of safety, affordability, and a better work-life balance. The widespread adoption of remote and hybrid work models has encouraged many to extend their stay in these non-metro locations.