Stabilized Domestic Demand Fuels Growth in Tier-2 Cities
India's tier-2 cities are experiencing a surge in growth, primarily driven by stabilized domestic demand for both residential and commercial properties.
Contrasting with Tier-1 Cities
Unlike major cities, which heavily rely on demand from Non-Resident Indians (NRIs) and High Net Worth Individuals (HNIs), the growth of tier-2 cities is attributed to indigenous demand. This results in more stable property prices, which are not witnessing the skyrocketing trends seen in larger metropolitan areas.
Market Insights and Projections
- Property Price Stability: A majority of occupants in tier-2 cities believe that property prices will remain stable, while a few predict a potential increase of up to 70% by the next year.
- Opportune Time for Investment: According to Mr. Rohip Kumar, Chief of DTZ India, this is an ideal time to invest in new spaces within these cities, anticipating an increase in occupancy costs above the South Asian average of 4.5%. Notably, Mumbai is expected to be an exception to this trend.
Growth Drivers
- Domestic Demand: The expansion of the banking and financial sectors, along with the pharmaceutical sector, is slated to drive the demand for office spaces.
- IT and ITeS Sectors: Although these sectors commanded half of the total office space absorption last year, their contribution is forecasted to drop to 30% this year.
Market Maturity and Volatility
Mr. Kumar highlighted a previously existing mismatch between supply and demand but noted an improvement, indicative of the market's emerging maturity. Despite anticipated higher vacancy rates, the limited supply of office spaces is expected to reduce market volatility.
Economic Growth Outlook
DTZ forecasts suggest that India's economic growth will be increasingly driven by domestic demand, further solidifying the foundation for growth in the nation's tier-2 cities.