Surpassing Tier I and Tier II cities in cost advantages, five Tier III cities Ahmedabad, Chandigarh, Indore, Kolkata and Nagpur are all set to emerge as major hubs for IT offshoring in next five years, said a global realty consulting firm.
"India is one of the lucrative emerging real estate market and offers huge scope in IT/ITeS segments along with the retail sector," Jones Lang LaSalle, CEO, Asia Pacific Peter Barge said.
He, however, said commercial property management would offer the maximum growth opportunities in the emerging cities.
The five identified cities have advantages in terms of labour and capital costs, he said, adding that favourable business environment and basic infrastructure facilities have also been developed to attract investment in these locations.
"Tier III cities currently provide cost advantages of 15-30 per cent over Tier I and II cities through lower labour and real estate costs and reduced staff attrition rates and this gap is expected to widen further," said company's country manager for India, Vincent Lottefier.
The company's latest market updates points out that these Tier III cities are already witnessing extensive interest from occupiers, with demand of 1.2-1.5 million sq ft expected over the next year, and would trigger further growth in infrastructure and commercial real estate.
Continuing cost pressures characterising Tier I cities - Bangalore, Mumbai and Delhi and Tier II cities - Hyderabad, Chennai and Pune, are encouraging more companies to look at Tier III cities as alternatives for outsourcing business for future, Lottefier added.
Pointing to uniqueness of each of the identified five cities, the realty consulting firm said in its latest report that from a human capital perspective, Kolkata and Nagpur provide the largest manpower pools, with these two cities being comparable to Pune in terms of labour availability.
Ahmedabad and Chandigarh provide the highest cost benefit amongst the Tier III cities and are, therefore, likely to attract occupiers who look for cost advantages.
Interestingly, Nagpur, another Tier III city, provides a cost advantage of about 15 per cent over Kolkata. Both Nagpur and Ahmedabad provide a 25-30 per cent cost advantage over Kolkata and Delhi in terms of facility costs.
The report further revealed that Kolkata provides the largest availability of grade A office space, with large developers like DLF and Unitech, who have traditionally operated in Tier I cities, now operating in the eastern regional hub.
Lottefier sounded confident that India would be able to maintain its edge in the IT offshoring business in the coming next five to seven years.
"Despite the increased competition from offshore centres elsewhere, the lower wage rates and large number of skilled staff in India's Tier III cities would prolong India's position of global leadership in the offshoring of IT activities for the next five-seven years," he added.
