Real estate stakeholders expect challenging conditions to persist: Report

Knight Frank-Naredco's Q2 2026 sentiment index remained neutral for the next six months, signalling stabilising confidence despite geopolitical tensions and inflationary pressures

The future real estate sentiment score remained at 50 in the second quarter of calendar year 2026 (Q2 2026), indicating that stakeholders expect prevailing challenges to persist over the next six months, according to the Knight Frank-Naredco Real Estate Sentiment Index for Q2 2026.

 

The quarterly index captures current and future sentiment towards the real estate sector, economic conditions and funding availability as perceived by developers, financial institutions and investors. A score of 50 indicates neutrality, above 50 reflects positive sentiment, and below 50 indicates pessimism.

 

The current sentiment score softened marginally to 48 in Q2 2026 from 49 in Q1 2026, remaining in the pessimistic zone. The future sentiment score remained at the same level as in Q1 2026.

   

The quarter-on-quarter decline in the current sentiment score reflects continued caution among stakeholders amid a challenging global environment. However, the pace of decline has slowed significantly compared with the sharp correction witnessed in Q1 2026, when sentiment declined to 49 from 60 in Q4 2025.

 

According to the report, the moderation in sentiment continues to be driven by external factors, including geopolitical tensions, volatile energy prices and inflationary pressures that have clouded the global economic outlook. However, the resilience of India's domestic economy, sustained occupier demand in the office market, and a gradual easing of pessimism across key real estate indicators suggest that stakeholder confidence is beginning to stabilise, the report added.

 

Shishir Baijal, international partner, chairman and managing director, Knight Frank India, said, "The real estate sector continues to navigate a complex global environment characterised by geopolitical tensions, inflationary pressures and volatile energy markets. While these factors have weighed on current sentiment, the more significant takeaway from this quarter's findings is that the sharp decline witnessed in the previous quarter has levelled off, with future sentiment holding steady at the neutral threshold."

 

According to Baijal, the residential market is transitioning into a phase of normalisation after a prolonged growth cycle, while the office segment continues to demonstrate resilience, supported by robust leasing activity and sustained occupier demand. "India's strong domestic fundamentals, coupled with its position as the fastest-growing major economy, continue to provide confidence in the sector's long-term growth prospects."

 

According to the report, developer sentiment remained flat at 51, unchanged from the previous quarter, with the earlier post-pandemic optimism yet to return. Meanwhile, non-developer stakeholders, including financial institutions, banks and private equity investors, recorded an improvement in sentiment, with the score rising to 53 in Q2 2026 from 50 in Q1 2026.

 

The measured recovery among non-developer stakeholders suggests that capital providers and investors have become more comfortable with prevailing market conditions after reacting sharply to global uncertainties in Q1 2026, the report noted.

 

Regionally, sentiment remained near the neutral mark across all zones.

 

The residential market continues to undergo a phase of moderation following multiple years of sustained growth. Housing sales across the top markets rose marginally by 1 per cent year-on-year (Y-o-Y) in the first half of 2026 (H1 2026), indicating a transition towards a more mature and stable growth cycle, the report said.

 

Though sentiment remains cautious, the proportion of stakeholders expecting residential demand to weaken over the next six months declined to 45 per cent, compared with 52 per cent in Q1 2026. At the same time, the share of respondents expecting market conditions to remain unchanged increased significantly.

 

On the supply side, the proportion of stakeholders anticipating weaker launch momentum fell to 38 per cent from 45 per cent in Q1 2026, indicating cautious developer sentiment amid concerns around construction costs, labour availability and financing conditions.

 

A significant 74 per cent of respondents expect residential prices to either remain stable or rise over the coming six months.

 

Parveen Jain, national president, Naredco, said, "Residential is settling into a more mature phase, a normalisation rather than a weakening, while office continues to anchor the market with resilient leasing and firm rents. The pressures at play are external in origin, and India's real estate fundamentals remain robust enough to absorb them."

 

The office market, however, continued to be the strongest-performing segment within the real estate sector.

 

Office transactions reached 48 million square feet (msf) in H1 2026, marginally down 2 per cent Y-o-Y amid the high base of H1 2025. Occupier demand continues to remain robust, supported by expansion activity from global capability centres (GCCs), technology firms and diversified corporate occupiers, the report said.

 

Seventy-four per cent of industry stakeholders expect leasing volumes to either remain stable or improve over the next six months. The supply outlook also remains healthy, with 76 per cent of respondents expecting office completions to remain stable or improve. A total of 81 per cent of stakeholders expect office rents to remain stable or increase over the coming six months amid limited quality supply in key micro-markets and sustained demand.

 

Stakeholder sentiment regarding the broader economy remains cautious but has improved compared with Q1 2026. The proportion of respondents expecting economic conditions to worsen declined significantly to 36 per cent from 50 per cent in Q1 2026. Meanwhile, 31 per cent expect economic momentum to improve.

 

According to the report, funding sentiment remains broadly stable. Half of all respondents expect funding conditions to remain unchanged over the next six months, while 19 per cent expect improved availability of capital.

 

Although private equity investments in Indian real estate moderated during H1 2026 amid tighter global financial conditions, investors continue to demonstrate interest in high-quality assets and projects backed by strong execution capabilities, the report noted.

 

"The index highlights a sector that is adapting to a more challenging global environment while retaining confidence in its long-term fundamentals. Although current sentiment remains subdued, the stabilisation in future sentiment suggests that stakeholders do not expect conditions to worsen materially from current levels," the report added.