Despite an estimated $2. 3 billion in dry powder available for future investments, a report released Tuesday revealed that institutional capital deployment is increasingly lagging behind strong occupier demand in India’s real estate market, resulting in a growing supply gap.
According to the Knight Frank India study, alternative investment funds focused on real estate saw capital commitments of $14. 5 billion between 2021 and 2025, but only $7. 9 billion has been collected and $5. 7 billion has been invested.
The rate at which institutional capital is being deployed is still not fast enough to support the creation of supply, which is causing the gap between future demand and supply needs to grow.
Depending on the asset type, risk profile, and income stability, continuing capitalization rates (cap rate) in key asset classes range from 2. 60% to 7. 75%.
With cap rates of 7. 25% to 7. 75%, little over the 10-year Government of India bond yield of about 6. 6%, institutional capital continues to favor office assets due to their consistent income visibility.
About 14% of India’s yearly office demand of 86. 4 million square feet in 2025 could be met if all $2. 3 billion of the dry powder that is currently available were used only for office construction, which would result in around 12. 2 million square feet of new supply.
In addition to highlighting the increasing disparity between occupier demand and institutional capital availability, the funding data also demonstrates the possibility for Indian and international capital.
Thus, the true opportunity lies in closing the capital gap. India is one of the most appealing real estate investment prospects worldwide due to this discrepancy. According to Shishir Baijal, International Partner, Managing Director, and Chairman of Knight Frank India, “Strong occupier demand, increasing transparency, and maturing investment structures are laying the groundwork for long-term, institutional-grade growth. ”
According to the study, the total volume of transactions in India’s top eight office markets during the previous five years was 307. 7 million square feet, which is much more than the 236. 1 million square feet of supply that was delivered during the same time.
As a result, the market has shifted to a demand-driven cycle, with the supply-to-demand ratio falling from 1. 40x in 2008 to 0. 63x in 2025, the lowest level ever recorded.
The warehouse industry is seeing a similar trend, demonstrating that Indian real estate is becoming more and more dependent on capital availability rather than occupier demand.