Notable real estate surge in India’s small towns

Hybrid working has helped ‘dormitory towns’ shed their image by enabling them to emerge as vibrant economic hubs in their own right

March 30, 2024 11:51 am | Updated 01:41 pm IST

Economic trends indicate that India’s small cities and towns are emerging as important regional job markets. In line with an expanding economy coupled with improvements in infrastructure alongside improved availability of good talent, regional cities are seeing a growing demand for manpower as enterprises ramp up their presence to meet rising consumer demand in these cities.

A recent study showed that despite there being a higher concentration of hybrid workers in metropolitan areas, India’s non-metropolitan areas show high potential to become centres for hybrid working models in certain sectors. A solid 31% of hybrid and fully remote workers in the study worked in project coordination or assistant/associate roles in sectors such as technology, media and telecommunication, located in small regional towns and cities such as Nashik and Badlapur (Maharashtra), Shimla (Himachal Pradesh), Gorakhpur (Uttar Pradesh), and Siliguri (West Bengal). This points to growing hybrid work opportunities in non-metropolitan areas. Another 21% of hybrid workers in the study were seen working in consumer goods, social services, teaching or real estate and construction, which indicates that the possibility of working in hybrid models continues to expand beyond technology-intensive verticals. It also helps that talent and real estate costs in Tier-II and Tier-III locations such as Bhopal, Lucknow and Vijayawada are at least 30% lower than costs in Tier-I cities such as Bengaluru or Mumbai.

Southern India, with its vibrant business ecosystem has emerged as a key market for workspace solutions — cities like Bengaluru, Hyderabad, and Chennai, renowned for their thriving tech industries are witnessing heightened demand. Over 90% tech firms are preferring hybrid work model and Bengaluru accounting for approximately half of the demand. These cities have emerged as key hubs with Bengaluru, Chennai and Hyderabad leading in leasing activity, reflecting the region’s growing prominence in the market.

Improving regional infrastructure and growing economic prosperity has led to a greater number of young professionals prioritising a more balanced lifestyle, blending urban amenities with the tranquillity of smaller towns. This has led to a marked shift towards smaller towns and regional cities for job creation and office space expansion along with a growing preference for flexible and hybrid working. This is corroborated by an Anarock study that shows, in the January-March period of Q1 2023, co-working spaces accounted for about 27% of net absorption in office real estate, a remarkable leap from the 14% recorded in Q1 2019.

Consequently, enterprises are increasingly adopting a flexible and hybrid ecosystem, to enable their businesses and employees to operate from these smaller cities and towns. This has coincided with these regional centres embracing better infrastructure, be it in terms of improved roads, transport, or commercial real estate, which in turn has improved economic prospects and opportunities and is attracting new talent. This has had a catalytic affect in other areas as well. The report shows that about 90% of startups in 2023 emerged from these small towns and received about 22% of total funding.

Another important element working in favour of hybrid working is the proliferation of offshore global capability centres (GCCs). As companies across the world try to create a sustainable digital transformation ecosystem, they are looking for new-age talent and digital skills to help them. India continues to be one of the most favourite destinations for GCCs. Many of these GCCs are also choosing Tier-II towns to set up their infrastructure owing to the abundant and diverse skill-sets available across these smaller, non-metro cities. Equally important is the fact that the hybrid work model has become the new normal for GCCs in India.

The hybrid work model has influenced a shift, leading to a more balanced growth trajectory between large metros and state capitals. As India’s smaller towns experience a surge in economic activities, decentralisation brought about by hybrid work models is promoting a more balanced growth trajectory, reducing the disproportionate concentration of resources in mega-cities and nurturing resilience in the broader economy.

Beyond the realm of job distribution, the hybrid work model is actively reshaping the urban landscape of India. As professionals embrace remote work, the need for sprawling office spaces in central business districts of larger cities has diminished. This shift is alleviating congestion, reducing environmental impact, and promoting sustainable urban development. On the other hand, hybrid working has also helped small towns shed their status as mere dormitory towns enabling them to emerge as vibrant economic hubs in their own right by unlocking new economic potential and offering professionals the option to pursue fulfilling careers without the constraints of metropolitan living.

The writer is Country Manager India, Vice President Sales – South Asia, IWG.

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