The rise of tier 2 and 3 cities: warehousing hubs powering India’s new urban economy

India’s supply chain architecture is undergoing a quiet but consequential transformation. Beyond the metros—often seen as the default logistics centres—a new gravitational force is emerging in Tier 2 and 3 cities. Fuelled by infrastructure buildouts, policy tailwinds, and shifting consumption patterns, these cities are redefining where and how India stores, moves, and delivers goods. They are no longer just satellites to the metros—they are becoming the new urban economy in themselves.

The Decongestion Imperative: Why the Shift Was Inevitable 

Metro cities have long served as the nerve centres of warehousing. But their dominance has come at a cost: high land prices, limited space availability, regulatory complexities, and urban congestion. According to Knight Frank India, warehousing rentals in metropolitan clusters like Mumbai, Bengaluru, and Delhi-NCR have surged by 15-18% over the past two years alone. Add to that traffic bottlenecks and last-mile inefficiencies, and the case for decentralisation becomes self-evident. In cities like Bengaluru, industrial rents grew over 18% YoY in 2023, while average truck turnaround times often exceed 12 hours in peak zones. 

As businesses aim for faster fulfilment and lower costs, they’re rethinking their warehouse footprints. The logic is clear—why choke supply chains in gridlocked metros when mid-sized cities offer lower costs, faster turnarounds, and growing consumer bases? 

Tier 2 & 3 Cities: From Bypass Towns to Strategic Hub 

Today’s warehouse maps look dramatically different from those of five years ago. Cities like Indore, Coimbatore, Patna, Bhiwandi, and Ludhiana are now at the forefront of India’s logistics economy. According to CBRE’s 2024 report, Tier 2 and 3 cities accounted for 36% of all new warehousing lease volumes—a staggering rise from 22% in 2021. 

This shift is powered by four clear factors: 

• Land Affordability: Warehousing land costs in Tier 2 cities are 30–60% lower than in metro locations. 

• Rising Consumption: Non-metro India now accounts for 55%+ of e-commerce orders, according to RedSeer. These aren’t just buyers—they’re fast repeat consumers. 

• Skilled Workforce: These cities are home to a youthful, semi-skilled labour pool eager for stable employment. 

• Policy Push: PM Gati Shakti, Bharatmala, and Dedicated Freight Corridors (DFCs) are tilting infrastructure advantage toward Bharat’s heartland. 

This confluence is creating not just a spatial reallocation—but a new supply chain philosophy. 

Spotlight: Varanasi — From Spiritual Capital to Multimodal Powerhouse 

Perhaps the most symbolic—and strategic—example of this transition is Varanasi. Traditionally known for its cultural and spiritual prominence, Varanasi is now rising as an integrated logistics hub under India’s multimodal vision. 

• Inland Waterways: The development of the Inland Waterways Terminal (IWT) on National Waterway-1 has turned Varanasi into a key inland cargo port, linking it directly to Kolkata and Haldia via the Ganga. 

• Multimodal Logistics Park (MMLP): Planned under the Bharatmala and Gati Shakti frameworks, the upcoming MMLP in Varanasi will integrate road, rail, and river logistics—reducing modal transfer times and enhancing efficiency for cargo movement toward Eastern and Northern India. 

• Rail & Highway Upgrades: With NH-19 upgrades and Varanasi Junction evolving into a multimodal transit node, the city’s reach is being extended to Nepal, Bihar, Eastern UP, and beyond. 

This transformation is creating a ripple effect—attracting investments in cold chain, agro-logistics, and B2B fulfilment. For sectors like textiles, food processing, and handlooms, Varanasi now offers the trifecta of access, efficiency, and affordability. 

Infrastructure as the New Supply Chain Strategy 

The reallocation of supply chain gravity isn’t possible without infrastructure. Fortunately, India is building at a scale and speed rarely seen before: 

• Dedicated Freight Corridors: Cutting transit times by up to 40%, cities like Kanpur, Rewari, and Sanand are becoming preferred warehousing locations along the Western and Eastern DFCs. 

• Multi-Modal Logistics Parks: Over 35 such parks are planned in cities like Nagpur, Guwahati, Bengaluru (Peripheral), and Vijayawada—integrating storage, processing, and distribution in one ecosystem. 

• Airport Cargo Capacity: Tier 2 cities like Ranchi, Coimbatore, and Bhubaneswar have seen cargo volumes rise 10–15% year-on-year, a sign of deeper market integration with national and export supply chains. 

• Expressway Network: Corridors like the Delhi–Mumbai Expressway and Purvanchal Expressway are compressing first and last-mile timelines, reducing fuel consumption and slashing costs. 

These developments are not just additive—they are transformative. Logistics is no longer an afterthought in infrastructure planning. It is central to India’s growth equation. 

Benefits That Go Beyond Economics: Jobs, Skills, and Regional Growth 

What makes this shift remarkable is that its impact isn’t just operational—it’s deeply human. 

• Employment Generation: Each large-format warehouse (50,000+ sq. ft) in a Tier 2/3 city creates 150–200 direct jobs and 250+ indirect jobs—from loaders and supervisors to maintenance crews, security, and last-mile drivers. 

• Skill Upliftment: With the growth of organised warehousing, there is a parallel rise in demand for trained forklift operators, inventory specialists, safety officers, and cold chain handlers. Initiatives like the Logistics Skill Council and NSDC are helping upskill local youth—many of whom are first-time formal economy workers. 

• Reverse Migration: In regions like Bundelkhand and Purvanchal, logistics parks are slowing out-migration by providing dignified, stable employment closer to home. 

• Local Ecosystem Development: The warehouse economy stimulates peripheral businesses—canteens, transporters, packaging suppliers, repair services—creating entire micro-economies around these hubs. 

The broader economic philosophy here is powerful: logistics is not just about moving goods—it’s about moving livelihoods forward. 

Challenges to Navigate: Standardisation, Tech Readiness, Land Aggregation 

This rebalancing, however, isn’t frictionless: 

• Infrastructure Gaps: While national corridors are robust, internal road quality and municipal planning in smaller cities remain uneven. 

• Spec-Grade Deficit: A significant portion of warehousing stock in Tier 2 cities is still subpar in terms of height, floor strength, ventilation, or fire safety. 

• Technology Penetration: WMS, IoT-led inventory tracking, and automation are still nascent in many non-metro warehouses. Investment is needed to match urban-grade efficiency. 

• Regulatory Bottlenecks: Land title clarity and industrial zoning in Tier 2/3 regions can delay large-scale projects unless public-private coordination improves. 

But these are challenges of execution—not intent. The national vision, and more importantly, the commercial will, is firmly aligned. 

The Strategic Takeaway for Businesses 

This shift requires leadership teams to reimagine their logistics playbooks: 

• Network Redesign: Replace legacy, metro-centric models with node-based regional supply chains. 

• Build-to-Scale: Invest in Grade A, compliant infrastructure that can accommodate future-ready automation. 

• Co-Invest in Communities: Collaborate with state governments and skilling partners to build talent pipelines at source. 

• Go Multimodal by Design: Plan warehousing near ICDs, ports, and air cargo hubs—not just highways. 

• Measure Impact Holistically: Track not just cost and time metrics, but also local employment, carbon savings, and job uplift. 

The New Urban Economy is Not Where the Skyscrapers Are 

India’s logistics story is no longer anchored to skyscrapers or Special Economic Zones. It is being quietly written in the heart of Bharat—in mid-sized cities, integrated corridors, and once-overlooked towns that now find themselves on the frontlines of economic relevance. 

This is not decentralisation for its own sake. It is the emergence of a more inclusive, balanced, and resilient logistics architecture. For companies that embrace it early, the rewards will not just be supply chain wins—they’ll be social capital, regional loyalty, and long-term cost agility. 

In this new urban economy, gravity is shifting—and it’s pulling opportunity, infrastructure, and investment along with it.

Views expressed are personal. Puneet Agarwal is the President, CJ Darcl Logistics.