India's Real Estate Draws $3.5B in PE, Offices Dominate Amid Investor Caution

According to a latest report by Knight Frank India, investor interest remained steady, with capital flowing into segments offering stable income and lower risk.

As per the report titled 'Trends in Private Equity Investments in India: H2 2025', office assets continued to dominate private equity inflows during the year.

Office real estate attracted 58 per cent of the total investments, amounting to $2 billion, reflecting strong investor confidence in the sector's scale, rental stability and institutional demand.

Investment volumes in office assets remained broadly in line with the three-year average, even as overall capital deployment moderated, the report said.

Residential real estate emerged as the second-largest recipient of private equity investments, accounting for 17 per cent of total inflows in 2025.

However, the nature of investments changed significantly. Investors increasingly preferred structured and credit-led deals instead of pure equity investments.

The focus shifted towards downside protection and assured cash flows, with equity participation limited mainly to low-risk projects with clear execution visibility.

Private equity investments slowed during 2025 due to a mismatch between capital costs, asset valuations and exit visibility.

While India's macroeconomic indicators such as GDP growth, inflation and interest rates showed improvement, these factors did not align quickly enough to support aggressive investment activity.

As a result, investors remained selective and cautious, favouring income-focused strategies over large-scale risk capital deployment.

The warehousing sector ranked third, attracting 15 per cent of total private equity investments during the year.

Demand for logistics assets stayed strong, supported by the growth of e-commerce, manufacturing and supply chain formalisation.

However, limited availability of stabilised institutional assets and a conservative approach towards new developments restricted investment volumes.

Retail real estate saw relatively low investment activity in 2025. The sector accounted for 11 per cent of total private equity investments, largely driven by a single large transaction after nearly two years of muted interest.

Investors showed interest only in high-quality retail assets with strong operating performance and clear exit prospects, while secondary malls and repositioning opportunities continued to see limited traction, the report said.

- IANS