India's institutional real estate market witnessed a strong recovery in the first half of 2026, with investments rising 23% year-on-year to an estimated $4.3 billion across a record 54 transactions, according to a report by JLL. This growth comes after a subdued first half in 2025 and follows a record-breaking second half that helped institutional investments touch $10.5 billion for the full calendar year 2025. The rebound demonstrates the market's resilience despite global uncertainties that prompted investors to adopt more cautious and diversified investment strategies.
Private equity investments in Indian real estate declined 23% year-on-year to $1.13 billion during the first half of 2026, as reported by Knight Frank India. The decline is primarily attributed to elevated global interest rates and shrinking yield differentials, with US Treasury yields climbing from around 1.8% in 2021 to 4.4% by the first half of 2026. As a result, the yield premium of India's 10-year government bond over US Treasury narrowed from around 440 basis points in 2020-21 to about 240 basis points in H1 2026. According to Knight Frank, the implied minimum return expected by investors on Indian assets has increased from around 8.6% in 2021 to nearly 11.5% in H1 2026. Despite this decline, the moderation reflects more selective capital deployment rather than weakening of India's real estate fundamentals. Shishir Baijal, International Partner, Chairman and Managing Director at Knight Frank India, noted that the moderation is primarily driven by the global investment environment rather than any deterioration in India's real estate fundamentals, with rising global borrowing costs reducing traditional yield advantages offered by emerging markets.
The office sector emerged as the biggest beneficiary of institutional capital, reclaiming the top position with 89% of total private equity investments worth $998 million, representing a 33% increase year-on-year, according to Knight Frank. Investments into office assets rose 34% year-on-year to $2.3 billion across 17 transactions. Domestic investors dominated office investments as well, accounting for 89% of the capital deployed in the segment. A notable trend was the preference for completed office buildings, with around 75% of office investments directed towards ready assets, up sharply from 53% a year ago, reflecting growing preference for stable rental income over development risk. The strong demand is attributed to India's expanding Global Capability Centre (GCC) ecosystem, stabilising return-to-office trends, and attractive valuations and rental yields ranging between 7.8% and 8%.
The residential segment witnessed a much sharper slowdown, with private equity investments declining to $128 million from $297 million a year earlier, as reported by Knight Frank. Investors became increasingly cautious towards development-led opportunities amid higher financing costs and stricter return expectations. Despite this decline, the moderation should not be interpreted as weakening housing demand, but rather reflects investors' preference for projects offering greater certainty of returns. Debt instruments accounted for a significant share of residential investments, highlighting investors' preference for downside protection. The decline comes despite healthy underlying housing market fundamentals, with the absence of significant deals not indicating weakening fundamentals but suggesting investors are temporarily prioritising sectors offering greater income visibility.
A notable trend during the January-June 2026 period was the decline in average deal size by nearly 40%, from $133 million in H1 2025 to $80 million in H1 2026. According to Knight Frank, investors preferred spreading capital across a larger number of smaller transactions rather than concentrating exposure in a few large deals, reflecting a more risk-calibrated investment approach. Looking ahead, the next phase of capital inflows into Indian real estate will be driven not only by growth prospects but also by the country's ability to deliver predictable post-tax, risk-adjusted returns. Knight Frank expects foreign institutional investors to gradually return as geopolitical risks ease and inflation moderates, while policy initiatives that enhance India's investment ecosystem could play a crucial role in strengthening capital flows into the sector over the coming years.
