India's real estate market is experiencing a structural demand-supply mismatch, with occupier appetite significantly outpacing the pace of institutional capital deployment, according to a report released on Tuesday, 26 May 2025 by Knight Frank India. Despite an estimated $2.3 billion available as dry powder for future investments, the funding pipeline remains too thin to bridge the growing gap between demand and supply creation.

Capital Commitments vs Deployment

Real estate-focused alternative investment funds recorded $14.5 billion in capital commitments between 2021 and 2025. Of this, only $7.9 billion has been raised and a further $5.7 billion deployed — leaving a significant portion of committed capital yet to translate into actual supply. The report underscores that the pace of institutional deployment remains structurally insufficient to support the scale of new development that occupier demand requires.

Office Sector Leads Institutional Preference

Office assets continue to attract the largest share of institutional capital, buoyed by stable income visibility. Capitalisation rates for office properties currently range between 7.25% and 7.75%, marginally above the 10-year Government of India bond yield of approximately 6.6%. Across major asset classes, ongoing cap rates span 2.60% to 7.75%, depending on asset type, risk profile, and income stability.

If the entire $2.3 billion in available dry powder were deployed exclusively into office development, it would generate roughly 12.2 million square feet of new supply — meeting only about 14% of India's annual office demand of 86.4 million square feet recorded in 2025. This single metric illustrates the scale of the shortfall.

Five Years of Demand Outrunning Supply

India's top eight office markets recorded 307.7 million square feet of transactions over the last five years, considerably higher than the 236.1 million square feet of supply delivered in the same period. As a result, the market has transitioned into a demand-led cycle, with the supply-to-demand ratio declining from 1.40x in 2008 to a record low of 0.63x in 2025. This is the lowest level recorded to date, signalling a deepening structural imbalance.

A comparable pattern is now emerging in the warehousing sector, suggesting the capital-availability constraint is not confined to offices but is increasingly a systemic challenge across Indian real estate.

What the Industry Says

Shishir Baijal, International Partner, Managing Director and Chairman of Knight Frank India, said: 'The real opportunity, therefore, lies in bridging the capital gap...This imbalance is what makes India one of the most compelling real estate investment opportunities globally. Strong occupier demand, improving transparency, and maturing investment structures are creating the foundation for long-term, institutional-grade growth.'

Investment Opportunity and What Comes Next

The funding data, while highlighting a gap, simultaneously points to the scale of opportunity available to both domestic and global capital. Improving regulatory transparency and maturing investment structures — including REITs and AIFs — are increasingly making India an attractive destination for institutional-grade real estate capital. Whether that capital arrives fast enough to close the supply deficit will determine the trajectory of India's commercial property markets over the next cycle.