For years, India's commercial real-estate playbook was straightforward: buy an office in Mumbai, Delhi or Bengaluru, sign a corporate tenant, and collect steady rental income.
That equation is changing.
As office rents and land prices climb in the country's biggest cities, companies are increasingly expanding into tier-II markets where operating costs are lower and talent is more readily available. The shift is creating new opportunities—and new risks—for investors looking beyond the traditional commercial-property hubs.
Over the past four years, average office rentals across major metropolitan markets have risen nearly 35%, according to tenant-only commercial real-estate firm Vestian. Rising occupancy costs are pushing companies into cities such as Jaipur, Coimbatore, Kochi, Indore and Ahmedabad, where lower rents, improving infrastructure and expanding talent pools are reshaping local office markets.
At the same time, trends such as reverse migration and multinational expansion are accelerating demand for commercial space outside the metros, forcing investors to reassess where future rental growth may come from.
Reverse migration redraws the office map
The rise of tier-II commercial markets has been years in the making. One of its biggest drivers is the movement of skilled workers away from India's largest cities.
“The growth story of tier-II cities is no longer confined to housing; it is driving the creation of complete economic ecosystems,” explained Samujjwal Ghosh, chief executive officer, The House of Abhinandan Lodha. “Reverse migration has further strengthened this momentum, with professionals, entrepreneurs, and skilled talent choosing to build their lives and businesses closer to their hometowns. This creates a cycle where residential development fuels commercial growth, which in turn generates employment, attracts investment, and strengthens local economies.”
Hybrid work has reinforced that trend by weakening the assumption that skilled workers must be based in metropolitan centres.
“Hybrid work broke down the old mandate that talent needed to be in a metro. The employers followed the talent and not vice versa, simply because it was more economical for them to set up a satellite office closer to where professionals moved than to pay steep metro salaries to lure them back,” said Nitya Yadav, lead platform and strategy architect at Integrow Asset Management.
Technology, consulting, engineering, and banking, financial services and insurance firms are leading the expansion. Global Capability Centres (GCCs) are also establishing operations outside the major metros.
According to Vestian Research, tier-II cities now account for roughly 10% of India's GCC base and 29% of the country's flexible coworking centres.
The economics are compelling.
“Grade A office leasing in India’s tier-II cities has gained notable traction over the past few years, driven by factors such as cost arbitrage, with rentals typically being 20% to 35% lower as compared to tier-I cities,” said Vimal Nadar, national director and head of research, Colliers India.
Large campuses remain concentrated in established metros, but Nadar said micro, small and medium enterprises, or MSMEs, and startups are scaling rapidly and are expected to account for 20-25% of near-term office leasing in these emerging markets.
Lower costs, higher returns
For investors, lower land prices alter the economics.
Metro markets typically require significantly higher upfront capital, compressing rental yields. Tier-II cities offer a different risk-return profile, where lower acquisition costs can offset relatively lower rents.
"A multinational company does not simply make a cursory visit; it leases office space for many years and usually returns demanding additional floors," emphasized Yadav. “Since the cost of construction and land in tier-II cities is only about half of what it costs in metropolitan cities, while the rental market has begun to catch up, the effective capital yield becomes highly favourable for the investor.”
Yadav said yields in these markets have remained in the 6-9% range over the past three to four years despite fluctuating interest rates. Well-located commercial properties in cities such as Jaipur and Coimbatore are also seeing asset-price appreciation outpace more mature metro markets, she added.
Vestian Research data points in the same direction.
"In recent years, office spaces in these non-metro markets have generated rental yields of around 6-8% against an average yield in the metros of around 6.5%," said Shrinivas Rao, FRICS, chief executive, Vestian.
“Interestingly, rapidly growing micro-markets in several of these non-metro cities, backed by rapid infrastructure development and enhanced connectivity, have offered an average annual capital appreciation in the range of 10% to 15%,” he added, compared with 5-8% capital appreciation in metros.
Three ways to invest
Investors seeking exposure have three primary routes: buying commercial property outright, investing through fractional ownership platforms, or purchasing units of Real Estate Investment Trusts (Reits).
Direct ownership remains the dominant route in tier-II cities.
“Direct ownership continues to be the most preferred mode of investing in commercial real estate across tier-II cities,” Rao said. Because these cities are in an early stage of development, there is a limited supply of institutional-grade, investment-ready assets, making direct purchase the dominant route for high-net-worth investors.
But ownership also means assuming leasing risk.
"Direct ownership of commercial spaces is becoming more and more challenging to manage if tenants leave," warned Gagan Randev, MRICS, executive director at India Sotheby's International Realty. “You face scenarios where the space may remain empty for months on end.”
Reits, meanwhile, have delivered total returns exceeding 15% over the past year.
While Reit penetration in tier-II markets remains nascent, Nadar said marquee commercial assets in locations such as Ludhiana and GIFT City in Gandhinagar are beginning to enter Reit portfolios.
Execution risk
Financial planners caution that attractive yields should not obscure the risks.
For Amol Joshi, founder of Plan Rupee Investment Services, the strongest case for tier-II commercial real estate is diversification.
“Diversification is not only achieved when you invest across multiple asset classes, but when you choose assets that are truly non-correlated to each other. Smaller ticket sizes and high capital appreciation are the primary benefits of going to a tier-II market,” Joshi said.
He cautioned that developers increasingly price anticipated corporate demand into current valuations, limiting the margin for error.
Investors also need to weigh the trade-off between under-construction and completed projects.
“Under-construction projects delay your cash flows for years, whereas ready-to-move-in options come at a premium and will not be as cheap,” Joshi explained.
Liquidity remains another constraint.
“One thing an investor can't expect yet is the same level of liquidity or the same quality of institutional buyers found in a metro. This makes tier-II real estate an investment strictly for patient capital,” said Yadav.
Joshi argues the bigger mistake is excessive borrowing. “As real estate is a tangible brick-and-mortar asset, people have a mindset that it cannot just disappear, so they are overly comfortable taking on massive debt.”
“But they forget that if the rent stops for whatever reason, your EMIs still need servicing. Do not take on a heavy debt burden, mortgage your existing home, or liquidate well-performing market investments purely because an opportunity sounds lucrative,” Joshi said.
His advice is to cap overall real-estate exposure at 20-25% of an investment portfolio and diversify within that allocation to reduce location-specific risk.