India's real estate demand outpaces institutional investments: Report
New Delhi, May 26
Strong occupier demand in India's real estate market is increasingly outpacing institutional capital deployment, creating a widening supply gap despite an estimated $2.3 billion available as dry powder for future investments, a report said on Tuesday.
Real estate‑focused alternative investment funds recorded $14.5 billion in capital commitments between 2021 and 2025, but only $7.9 billion has been raised and $5.7 billion deployed, the report from Knight Frank India said.
The pace of institutional capital deployment remains insufficient to support supply creation, resulting in a widening gap between demand and future supply requirements.
Ongoing capitalisation rates (cap rate) across major asset classes range between 2.60 per cent and 7.75 per cent, depending on asset type, risk profile and income stability.
Office assets remain a preferred segment for institutional capital, supported by stable income visibility with cap rates of 7.25 per cent to 7.75 per cent, marginally above the 10‑year Government of India bond yield of around 6.6 per cent.
If the entire $2.3 billion of available dry powder were deployed solely to office development, it could create roughly 12.2 million square feet of new supply, meeting about 14 per cent of India's annual office demand of 86.4 million square feet recorded in 2025.
Apart from underscoring the growing gap between occupier demand and institutional capital availability, the funding data also indicates the opportunity that domestic and global capital have in India.
"The real opportunity, therefore, lies in bridging the capital gap...This imbalance is what makes India one of the most compelling real estate investment opportunities globally. Strong occupier demand, improving transparency, and maturing investment structures are creating the foundation for long-term, institutional-grade growth," said Shishir Baijal, International Partner, Managing Director and Chairman, Knight Frank India.
The report noted that India's top eight office markets recorded 307.7 million square feet of transactions over the last five years, significantly higher than 236.1 million square feet of supply delivered in the same period.
Consequently, the market has transitioned into a demand-led cycle, with the supply-to-demand ratio declining from 1.40x in 2008 to 0.63x in 2025, the lowest level recorded to date.
A similar pattern is emerging in the warehousing sector, highlighting the challenge for Indian real estate increasingly linked to capital availability rather than occupier demand.
— IANS
Reader Comments
I work in a commercial real estate firm, and I see firsthand how institutional investors are cautious - they want proven returns. But the demand from tech companies and startups is real. The supply-to-demand ratio dropping to 0.63x is worrying - where will companies set up their offices if we don't have space? 🤔
Bhai, $2.3 billion dry powder is a lot, but only 14% of annual demand? That's peanuts. In Mumbai and Pune, I've seen so many projects delayed because developers can't get funding. The government should step in with policies to attract more foreign investment, or we'll have a crisis. The 307.7 million sq ft transactions vs 236.1 million sq ft supply over 5 years tells the story.
Interesting analysis from Knight Frank. But let's not ignore the warehousing sector - e-commerce is booming, and logistics needs space. If institutional capital doesn't flow there too, we'll have bottlenecks. India's real estate potential is huge, but investors need to think beyond office spaces. My cousin in Gurgaon works in a warehouse park, and demand is insane! 🚚
As someone who's invested in Indian real estate through an AIF, I can share that the returns are decent but liquidity is a concern. The 2.60% cap rate for some assets is too low for the risk. India needs more transparency and quicker regulatory approvals to bridge this gap. Still, long-term potential is strong - demand is driven by demographics.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.