In our Country, Metro or the Tier-1 Cities have witnessed a rapid rise in property costs fueled by rise in demand and factors. To a foreigner, the terms tier 2 and tier 3 might suggest that these cities will become tier 1 cities in the near future.

However, this is not necessarily the case — Indian cities are classified purely on the basis of their population size.

Accordingly, foreign companies that are interested in locating in a tier 2 or tier 3 city should carefully consider their options: lower tier cities offer comparatively cheap labor and affordable real estate, but setting up in these cities also comes with challenges.

What are tier 1, tier 2 and tier 3 cities?

According to government, cities with population more than 1,00,000 classified as tier 1, between 50,000 to 1,00,000 are classified as tier 2 city, while those with population of 20,000 to 50,000 are classified as tier 3 city.

In a populous country like India, cities of this size are common and does not correlate with any potential for economic development. Some tier 2 and tier 3 cities, however, have shown potential to become a business destination.

Generally, these cities have several industrial clusters, are situated in business-friendly states, and are well-connected to other major economic hubs.

When should businesses consider a tier 2 and tier 3 city?

If a company has sufficient time, money, and resources to grow their business independently, it may be worth setting up in a lower tier city to obtain cheap real estate and labor.

This means the company needs to be prepared to invest in setting up basic infrastructure and logistics, train local labor in fundamental tasks, and learning to function outside a well-developed business ecosystem.

If a company has presence in a tier 1 city, it could consider moving some of its operations to a nearby tier 2 or tier 3 city to cut operational costs.

A business could explore moving staff engaged in back-end and related functions to a nearby emerging city.

Similarly, manufacturing activities could be moved to smaller cities, while management functions could continue to operate out of the tier 1 city.

If there is an existing industry cluster that is relevant to the company’s business portfolio, a company may find tier 1 capacity at tier 2 or tier 3 costs.

Approx rent of a land

Coming to tier 1 city, If you own a space then its fine but if you don’t have go for a rented space. Since purchasing space will cost you an estimated of Rs 70 lacs to 1 crore better go for a rented space.

For tier 2 city, you can get the rented space little less to tier 1 city. It may approx 40 to 50 lacs if you are searching for a commercial space to set up any shop/cafe/restaurant.

Finally for tier city, there are chances that you may get land easily in good location if you are looking for a commercial space. It may cost approx 30 to 40 lacs but location matters.

Regarding the ‘Rent or Buy’ part of your question, it depends upon how much money you have and how much you want to invest? Buying will increase the initial investment and renting might affect your operational cost.

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