Developers' housing focus deepens office space shortage: Knight Frank

Knight Frank-CII report says India's top developers are prioritising residential projects over office spaces due to higher margins and quicker returns, causing supply imbalances

India’s top developers are prioritising residential projects over commercial developments such as office and retail projects, with several firms eyeing higher margins and quicker returns from the housing segment, according to a report by real estate consultancy Knight Frank and the Confederation of Indian Industry (CII).

 

“Across India’s prime micro-markets, residential capital values per square foot (PSF) have significantly outpaced those of comparable commercial projects, sometimes by more than two to three times,” the report stated.

 

This growing valuation arbitrage has made residential developments more attractive on a pure return-on-investment basis.

 

“Developers, particularly those with limited capital or a higher cost of borrowing, increasingly prioritise residential launches over office supply in the same micro-markets, deepening the supply deficit in the commercial space,” the report added.

 

NCR seeing sharper tilt towards residential projects

 

Giving an example, Salil Kumar, director, marketing and business management, CRC Group, said that the shift towards residential over commercial is more pronounced in the National Capital Region (NCR).

 

He said developers are naturally gravitating towards housing, given faster cash flows and higher profitability — especially in Noida and Greater Noida — due to world-class infrastructure, expressway connectivity, and steady end-user demand.

 

While Kumar said there should be a balanced approach as a strong commercial backbone is equally vital, the increasingly residential shift has indirectly led to a shortage in new office space supply.

 

Office supply-to-demand ratio drops sharply

 

The supply-to-demand ratio in the segment has fallen sharply from 1.40 in 2008 to just 0.49 in the first nine months of 2025 (9M 2025), signalling a deep and persistent shortfall in quality office stock.

 

“This imbalance is most evident in core business districts, where Grade A vacancy levels have declined to single digits even as leasing activity continues to accelerate,” said Viral Desai, senior executive director, Knight Frank India.

 

India crosses 1 billion sq ft office stock mark but faces imbalance

 

While the country has crossed the 1 billion sq ft threshold in office stock and is now the fourth-largest office market globally — with an estimated valuation of Rs 16.4 trillion ($186 billion) — it stands at an inflection point.

 

Another challenge is the lack of developers specialising in office spaces, even as undersupply is being increasingly driven by project-level economics that favour residential over commercial development.

 

Report urges twin strategy for sustainable office growth

 

To sustain growth momentum and achieve the next milestone of 2 billion sq ft of office stock, the CII–Knight Frank report recommended that India adopt a twin-pronged strategy to accelerate new supply creation while enhancing productivity of existing assets.

 

“India’s office sector must blend expansion with optimisation through policy incentives, public-private partnerships and joint ventures (JVs), and institutional capital,” the report added.

 

Sustainability, retrofitting key to future expansion

 

Desai added that integrating green certifications early in the planning process is increasingly seen as best practice, as it enhances environmental, social, and governance (ESG) alignment and unlocks additional floor space index (FSI).

 

“Notably, 31 per cent of existing office stock offers retrofitting potential, while 12 per cent of special economic zone (SEZ) assets can be adaptively reused, creating scope for sustainable growth,” the report stated.