Why Tier 2 and Tier 3 Cities Are Redefining the Future of Indian Real Estate

India’s real estate landscape is undergoing a profound shift — and it’s no longer just the metros leading the charge.

As we move through 2025, Tier 2 and Tier 3 cities have emerged as the true growth engines of the sector, reshaping investment strategies, development priorities, and buyer behaviour across the country.

The Rise of the New Urban India

With urbanisation no longer confined to Mumbai, Delhi and Bengaluru, cities such as Ahmedabad, Lucknow, Coimbatore, Indore and Kochi are fast becoming hotspots for residential, commercial and industrial real estate activity.

Knight Frank India’s Q1 2025 report highlighted that residential sales in emerging markets surged by over 20% year-on-year, reflecting a strong preference among buyers for more affordable and spacious living options outside traditional metro hubs. Infrastructure investment — particularly through government initiatives such as Gati Shakti — has also opened up new corridors of connectivity, making these cities viable alternatives for both businesses and individuals.

At the same time, JLL India’s 2025 analysis confirmed that Tier 2 and Tier 3 cities are attracting an increasing share of private equity real estate funding, with smaller markets accounting for nearly 30% of all new residential launchesrecorded in Q1 2025.

Several key factors are driving this shift:

Affordability: Property prices in secondary cities remain up to 50% lower than in metros, offering better value and stronger potential returns for investors.
Lifestyle Upgrade: Improved healthcare, education, and entertainment options have made smaller cities more liveable, helping them retain talent that would previously have migrated to larger centres.
Hybrid Work Culture: CBRE’s India Market Outlook 2025 notes that the normalisation of hybrid working post-pandemic has enabled professionals to choose quality of life over proximity to central business districts.

Investment Opportunities on the Rise

Institutional capital is now flowing rapidly into India's smaller cities.According to CBRE’s Q1 2025 Investment Report, real estate investment volumes across India reached USD 2.9 billion for the quarter, with a significant proportion directed towards land acquisitions and development projects in emerging urban centres.

Meanwhile, ANAROCK Property Consultants observed that inventory overhang across top cities fell to a 14-month low, suggesting that supply is struggling to keep pace with demand — particularly in newer growth corridors.

Key sectors benefiting from this expansion include:

Residential real estate targeting mid-income and first-time homebuyers.
Retail developments with malls and high-street projects gaining traction.
Warehousing and logistics, driven by the e-commerce boom and improved national highways.

Flex spaces and co-working models are also penetrating Tier 2 markets, supported by the tech sector’s decentralisation efforts, as reported by Knight Frank in their 2025 India Commercial Market Update.

Challenges That Cannot Be Ignored

Despite the immense opportunity, there are challenges that stakeholders must navigate:

Regulatory inconsistencies across states can slow down project approvals, complicating nationwide expansion efforts.
Infrastructure gaps still persist in many secondary cities, despite government initiatives.
Land acquisition complexities, particularly around title clarity and urban planning regulations, can affect project timelines and investment returns.

JLL’s Project Cost Outlook 2025–26 cautions that rising fit-out and construction costs could also impact developer margins, particularly in cities where price sensitivity remains high.

The Road Ahead

The Tier 2 and Tier 3 story is not a short-term anomaly — it represents a structural shift in India's economic and demographic reality.

Developers and investors who recalibrate their strategies now to embrace this evolution — by investing in high-quality developments, prioritising sustainable design, and engaging with local communities — stand to benefit significantly.

As CBRE’s 2025 Outlook asserts, sustainability, smart technology, and infrastructure-led growth will be the defining forces of Indian real estate over the next decade.

For those willing to innovate and invest for the long term, the future has never looked more promising — and it may no longer be in the metros.