India's commercial real estate sector sees strong demand but faces a capital shortage for new projects. Available funds can only support a fraction of future office and warehousing needs. This gap presents a significant opportunity for investors. Experts suggest increased participation from domestic pension funds and insurers, along with simplified foreign investor taxation, can boost capital flows.
Synopsis
India's commercial real estate sector sees strong demand but faces a capital shortage for new projects. Available funds can only support a fraction of future office and warehousing needs. This gap presents a significant opportunity for investors. Experts suggest increased participation from domestic pension funds and insurers, along with simplified foreign investor taxation, can boost capital flows.
Mumbai: India’s commercial real estate sector is facing a growing mismatch between the scale of occupier demand and the amount of deployable institutional capital available to fund future development, raising concerns over supply creation across office and warehousing assets.
While leasing activity across major cities continues to remain strong, the limited availability of investment capital is increasingly emerging as a structural bottleneck for the sector’s next growth cycle.
The gap is particularly stark in the office market, where around $2.3 billion of deployable capital currently available as dry powder can support only nearly 12.2 million sq ft of fresh office development, enough to address just about 14% of India’s annual office demand of 86.4 million sq ft recorded in 2025, showed a Knight Frank India assessment.
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“India’s commercial real estate has entered a phase where occupier demand is outpacing the availability of institutional capital. The real opportunity therefore lies in bridging the capital gap. At a time when India recorded over 86 million sq ft of office demand and over 72 million sq ft of warehousing demand, the available dry powder can support barely a fraction of future supply creation,” said Shishir Baijal, International Partner & CMD Knight Frank India.
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Between 2021 and 2025, real estate-focused Alternative Investment Funds (AIFs) saw capital commitments of $14.5 billion, with $7.9 billion raised and $5.7 billion already deployed, leaving around $2.3 billion available for future deployment as of December 2025.
“India’s commercial real estate market is no longer constrained by occupier demand, but by the availability of long-term institutional capital. Office leasing and warehousing demand remain exceptionally strong, yet the capital pool available for future development remains relatively shallow. This gap presents a significant opportunity for domestic and global investors looking to participate in India’s next phase of income-generating real estate growth,” said Saurabh Rathi, Co-head, Real Estate Funds, Motilal Oswal Alternates.
Office assets continue to remain the preferred segment for institutional investors, supported by stable rental income visibility and cap rates of 7.25%-7.75%, marginally above the 10-year Government of India bond yield of around 6.6%.
India’s top eight office markets recorded transactions totalling 307.7 million sq ft over the last five years, significantly higher than the 236.1 million sq ft of supply delivered during the same period, reflecting sustained demand-led market conditions.
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As a result, the office supply-to-demand ratio has declined sharply to 0.63 times in 2025 from 1.40 times in 2008, the lowest level recorded so far. A ratio below one indicates that occupier demand is exceeding fresh supply creation.
India remains significantly undercapitalised compared with major Asia-Pacific markets despite leading the region in occupier demand. Capital availability in India stands at just $23.2 per sq ft of office demand compared with $604.9 in Japan, $2,240.2 in Singapore and $5,711.5 in Australia.
Deeper participation from domestic pension funds and insurance companies, expansion of REIT structures into warehousing and data centres, and simplified taxation norms for foreign investors could help strengthen long-term institutional capital flows into Indian real estate, experts said.
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