Mumbai : India’s commercial real estate sector continues to witness robust occupier demand across office and warehousing segments. However, a significant shortage of deployable institutional capital is emerging as a critical challenge for future supply creation, according to Knight Frank India’s latest report titled India Real Estate Investment – Alternative Investment Funds (AIF), Platforms, and the Funding Gap.
The report highlights that real estate-focused Alternative Investment Funds (AIFs) recorded capital commitments worth USD 14.5 billion between 2021 and 2025. Of this, approximately USD 7.9 billion has already been raised, while nearly USD 5.7 billion has been deployed by Indian investors. As of December 2025, only around USD 2.3 billion remains available as deployable dry powder for future investments.
Knight Frank India noted that even if the entire USD 2.3 billion available capital is directed exclusively towards office development, it would generate only around 12.2 million square feet of new office supply. This would address merely 14% of India’s annual office demand, which stood at 86.4 million square feet in 2025.
The study further reveals that India’s office supply-to-demand ratio has steadily declined from 1.40x in 2008 to just 0.63x in 2025, reflecting a strong demand-led market cycle and tightening supply pipeline across major cities. Over the past five years, India’s top eight office markets recorded 307.7 million square feet of transactions against only 236.1 million square feet of new supply delivered during the same period.
According to the report, India continues to lead the Asia-Pacific region in office occupier demand but remains significantly undercapitalised compared to global peers. Capital availability per square foot of office demand in India stands at just USD 23.2, substantially lower than Japan at USD 604.9, Singapore at USD 2,240.2, and Australia at USD 5,711.5.
Shishir Baijal, International Partner, Managing Director and Chairman, Knight Frank India, said, “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. Strong occupier demand, improving transparency and maturing investment structures are creating the foundation for long-term, institutional-grade growth.”
The report also underlines the need for structural reforms to deepen institutional capital participation in Indian real estate. Knight Frank India suggests expanding domestic institutional investments from pension and insurance funds, improving liquidity through broader REIT participation across asset classes, and simplifying taxation frameworks for foreign investors in Category I and II AIFs.
India currently has five listed REITs covering nearly 157 million square feet of operational assets, largely concentrated in office and retail segments. Expanding the REIT ecosystem into warehousing, hospitality, logistics, and data centres could significantly improve capital recycling and investor participation in the sector, the report added.