India office realty demand surge faces funding crunch: Knight Frank

Knight Frank says $2.3 billion dry capital with AIFs can meet only 14 per cent of India's annual office demand despite the country leading APAC occupier activity

Despite Indian commercial real estate witnessing the highest occupier demand among Asia-Pacific (APAC) markets, market watchers believe that the slow pace of institutional capital deployment remains insufficient to support supply creation.

 

According to a study by realty consultancy Knight Frank, an estimated $2.3 billion remains available as dry capital through alternative investment funds (AIFs) for future deployment in the commercial realty sphere.

 

This, however, will be able to create only approximately 12.2 million square feet (msf) of new supply, meeting 14 per cent of India’s annual office demand of 86.4 msf as recorded in 2025.

 

“This not only underscores the growing gap between occupier demand and institutional capital availability but also indicates the opportunity domestic and global capital has in India,” the report stated.

 

Real estate-focused AIFs have recorded capital commitments of $14.5 billion between 2021 and 2025. “Of this, nearly $7.9 billion has been raised, with around $5.7 billion already deployed by Indian investors,” the report said.

 

Experts added that office demand has consistently outrun supply in India, leading to a gradual tightening of the supply pipeline across key markets.

 

“Over the last five years, India’s top eight office markets recorded 307.7 msf of transactions, significantly higher than the 236.1 msf of supply delivered during the same period,” the report stated.

 

Consequently, India’s office supply-to-demand ratio has declined to 0.63 times in 2025 from 1.40 times in 2008. The funding imbalance appears even sharper when compared to other leading commercial markets.

 

While India continues to lead the region in occupier demand, institutional capital availability relative to this demand remains significantly lower than in other APAC markets.

 

For example, India continued to lead office demand in the region, recording 86.4 msf absorption in 2025, more than double that of Japan at 36.9 msf. Other markets such as Singapore and Australia recorded 5.9 msf and 1.5 msf, respectively.

 

On a per-unit basis, however, capital availability in India stands at just $23.2 per square foot of office demand, compared to $604.9 in Japan, $2,240.2 in Singapore, and $5,711.5 in Australia.

 

Shishir Baijal, international partner, managing director and chairman at Knight Frank India, said the widening mismatch between demand and capital availability will also create a long-term investment opportunity for domestic and global investors looking at India’s commercial real estate sector.

 

The report added that structural measures such as expanding the pool of domestic institutional capital in real estate and improving liquidity and exit pathways for investors may be needed to tap this opportunity and deepen institutional capital flows into Indian real estate.

 

“In developed markets such as Singapore, Australia, the United States (US), and Japan, pension funds, insurance companies, and retirement funds typically allocate a meaningful share of their assets under management (AUM) to real estate, providing a stable source of long-term funding,” it stated.

 

In India, allocations from these institutions remain well below 1 per cent of total AUM, with a gradual increase in allocation levels expected to deepen the domestic capital base and reduce reliance on foreign capital.

 

Similarly, expanding REIT structures — from the current five in office and retail — to warehousing, data centres, and other asset classes can improve exit visibility and enable faster capital recycling.

 

Experts have also recommended simplifying tax deducted at source (TDS) on payouts for foreign investors in realty-focused AIFs, with income for non-residents often taxed at higher rates unless required tax residency documents are submitted in advance.

 

“Simplifying the taxation framework for onshore AIFs can improve post-tax returns, reduce compliance burden, and support higher foreign capital inflows into real estate,” the report added.