Real estate demand is booming, but capital isn’t: Are the real cracks forming?

Private equity investment into Indian real estate fell 29% year-on-year to $3.5 billion, even as office absorption reached 86.4 million sq ft. According to Knight Frank, the divergence did not stem from weakening demand but from tighter capital conditions, higher financing friction, and more disciplined deployment. Knight Frank’s report argues that India’s real estate market is increasingly constrained by access to institutional capital rather than by occupier appetite. It positions the funding gap as the central issue affecting new supply across office and logistics assets. Demand kept expanding, but the capital available to fund development, platforms, and institutional-grade inventory did not keep pace. That argument becomes clearer when office leasing, capital mobilisation, and deployable funds are examined together. Office demand kept outpacing supply across major markets Knight Frank said India’s top eight office markets recorded cumulative transactions of 307.7 million sq ft over the last five years. Over the same period, only 236.1 million sq ft was delivered. This was not a one-year blip, the report noted: demand outran supply over an extended stretch and steadily drained the available pipeline. The report measured this through the supply-to-demand ratio. In 2008, India’s office market operated at 1.40x. By 2025, that ratio had fallen to 0.63x, the lowest on record, indicating sustained demand running ahead of fresh supply. Knight Frank wrote that 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. (quote ~20 words – within limits, single use) Office market indicators Source: Knight Frank Knight Frank attributed the demand growth to continued expansion by Global Capability Centres (GCCs) and flexible-workspace operators, who sustained leasing momentum while new stock lagged transaction volumes. The same pattern appeared in warehousing. Over three years, the top eight warehousing markets recorded roughly 180 million sq ft of leasing against about 137 million sq ft of supply. Manufacturing occupiers, third-party logistics firms, and e-commerce companies drove demand, while institutional-grade logistics inventory stayed limited in several regions. Capital deployment slowed even as demand stayed active The report separates occupier demand from funding conditions. Private equity investment into Indian real estate fell to $3.5 billion in 2025 as global markets reset return expectations and reweighted allocations. Knight Frank linked the slowdown to risk repricing, rupee depreciation, rising hedging costs, and persistent market uncertainty, and said capital flows into Indian real estate are likely to stay measured in the near term. Higher financing friction also sharpened selectivity. Capital increasingly moved toward assets with stronger income visibility, execution capability, and exit options, which shaped where new funding channels gained ground. Alternative Investment Funds expanded as capital turned selective Knight Frank identified Alternative Investment Funds (AIFs) as one of the most important channels now supporting real estate deployment. Regulated by SEBI, AIFs allow capital mobilisation across private equity, debt, and real estate, and have drawn in domestic institutions, family offices, and domestic PE players. Registrations accelerated over the decade, rising from 154 in December 2015 to 1,743 by December 2025, what Knight Frank called the rapid institutionalisation of alternative capital in India. Mobilisation grew alongside. Cumulative fundraising rose from $1.9 billion to $75.4 billion between 2015 and 2025, while cumulative investments rose from $1.6 billion to $71.7 billion. The investment-to-funds-raised ratio improved from 81% to 95%, signalling faster deployment of committed capital. Within real estate, residential assets drew the largest share of fundraising from 2021 to 2025, followed by infrastructure, mixed-use projects, and offices. Available capital is still smaller than annual demand The funding math is the clearest measure of the gap. Knight Frank estimated that real estate-oriented AIFs recorded capital commitments of $14.5 billion between 2021 and 2025. Of that, $7.9 billion had been raised and $5.7 billion already deployed, leaving roughly $2.3 billion available. Capital commitments and deployment Source: Knight Frank Knight Frank then estimated the supply that could be supported if all available capital moved into office development. The report estimated that full deployment could support approximately 12.2 million sq ft of additional office supply. That estimate sits against annual office demand of 86.4 million sq ft. Knight Frank used this comparison to argue that current funding capacity remains insufficient relative to occupier demand. If all of that available capital flowed into office development, the report estimated it could support about 12.2 million sq ft of additional supply, against annual office demand of 86.4 million sq ft. On that comparison, Knight Frank argued, current funding capacity falls well short of occupier demand. India’s office demand beat much of Asia-Pacific, but its capital pool is far shallower Knight Frank compared demand and capital availability across the region. India recorded office absorption of 86.4 million sq ft in 2025, against 36.9 million sq ft in Japan, 5.9 million in Singapore, and 1.5 million in Australia. Measured as capital available per sq ft of office demand, though, India recorded just $23.2, against $604.9 in Japan, $2,240.2 in Singapore, and $5,711.5 in Australia. Mature markets, Knight Frank noted, benefit from deeper capital pools where investment flows track occupier demand far more closely. Conclusion The report concluded that, in India, expanding supply now depends more on widening access to institutional funding than on generating additional occupier demand. Disclaimer: The macroeconomic data, institutional funding metrics, and sector-specific demand analyses discussed in this report are based on real estate market updates and do not constitute direct investment advice, corporate financing guidelines, or financial planning recommendations for retail investors. While commercial leasing and infrastructure demand remain robust, real estate development and capital allocation remain subject to risks from tighter liquidity conditions, foreign exchange fluctuations, rising hedging costs, and evolving regulatory frameworks. Readers are strongly advised to consult a qualified financial consultant, SEBI-registered professional, or real estate analyst before making capital allocation or investment decisions based on these thematic market insights.