Cities on the Cusp: Tier II and III Cities Have the Prowess to Elevate Their Investment Appeal
In its heyday, foreign direct investment in Asia was primarily focused on the Tier I cities, such as Beijing, Seoul, Tokyo and Mumbai. These cities are the population and business centers of their countries, with active and growing economies. Tier I cities are the most liquid, mature and transparent of the cities in Asia, with a variety of choices for investment properties and tenants. But with this flood of capital came falling cap rates, making investment in these primary cities a very pricey endeavor. Faced with steep pricing, intense competition and liquidity surpluses in the Tier I cities, investors began to look at some of the Tier II and III cities, where prices were lower and therefore returns higher.
Although generally five to 10 years behind the development of Tier I cities, second- and third-tier cities are often regional or provincial economic hubs with specialized investment advantages such as tourism, natural resources or transportation. What constitute