India's real estate sector is expected to remain broadly resilient despite geopolitical uncertainty arising from the West Asia crisis, according to a report by CareEdge Ratings. "While the geopolitical situation in West Asia remains a key monitorable, the near-term impact on the Indian real estate sector is expected to remain limited. Healthy demand, resilient premium housing and stable leasing activity across commercial real estate should support the sector's overall performance," said Rajashree Murkute, Senior Director, CareEdge Ratings. The rating agency noted that sustained demand, deleveraged developer balance sheets, and robust institutional participation have enabled the sector to remain resilient amid the crisis. However, the surge in Brent crude prices from around $72/barrel before the conflict to nearly $117/barrel at its peak has triggered cost inflation across sectors, driven by higher fuel, freight, and input costs. If the West Asia turmoil persists, it could lead to sustained elevation in crude oil prices, thereby increasing fuel, transportation and key construction material costs, resulting in potential cost escalations of 2-3%, consequently raising project costs and compressing developer margins, particularly for projects in the initial phases of construction. As per CareEdge Ratings, the impact of the West Asia turmoil has been uneven across segments as affordable housing and project execution face cost pressures, while office leasing and industrial or warehousing continue to compound on structural demand. The geopolitical uncertainty remains a near-term cost and caution risk rather than a broad demand disruption.
India's commercial real estate sector is experiencing robust growth with gross office leasing rising 10% year-on-year to a record 45.5 million square feet in the first half of 2026, according to Ambit Capital. Pan-India vacancies fell to a five-year low of 14.7%, while Grade-A assets maintained even lower vacancy levels at around 9%, underlining the premium being placed on quality office space. Global Capability Centres (GCCs) accounted for 43% of gross leasing in the first half of 2026, compared with roughly 33% before the pandemic, with nearly 200 new GCCs entering India between 2024 and 2025. GCCs now account for around half of active space requirements, supported by BFSI offshoring and manufacturing-linked technology and R&D demand. The flex workspace segment is experiencing impressive growth, with organised flex-space companies reporting average revenue growth of around 34% year-on-year in Q1 FY27, led by roughly 30% growth in leasing revenue. WeWork India and Smartworks benefited from stronger operating leverage, while IndiQube maintained steady margins, though Awfis emerged as an outlier after a large client exit hurt occupancy. According to CareEdge Ratings, office leasing demand remained strong in the first quarter of 2026, with transactions touching a record 29.9 million sq ft, despite the impact of the ongoing geopolitical crisis. GCCs were the key growth driver, with a 48% contribution to total transactions, up from 44% last year, with Bengaluru recording the highest volume.
India's REIT sector has substantial room for expansion, with over 150 million sq ft of office space expected to become REIT-eligible by 2031, according to CareEdge Ratings. As of May 2026, the six listed REITs have a combined GAV of ₹3.13 lakh crore and market capitalisation of more than ₹2 lakh crore. This expansion could increase the sector's asset value from nearly $33 billion to over $50 billion. Listed REITs currently offer estimated yields of about 5.4-6.7%, with the brokerage seeing potential for an overall medium-term internal rate of return of 11-13%, combining annual distributions with expected capital appreciation. Average occupancy across India's listed office REITs climbed steadily from ~84% in FY24 to 89% in FY25, to about 92% in FY26. Between FY25 and FY26, rental income across the listed office REITs increased by an average of around 20%, with each REIT reporting stronger growth than in the previous year. The sector has remained resilient despite heightened geopolitical tensions and spike in crude oil prices, with occupancy levels remaining broadly stable and demand for Grade A office space largely unfazed. Ambit Capital expects the flex workspace segment could grow at more than 25% CAGR by CY27, compared with 6-7% growth for the broader office market, with the brokerage maintaining BUY recommendations on Embassy REIT, Mindspace REIT and Brookfield India REIT.
According to CareEdge Ratings, residential unit sales in the top six cities are expected to remain broadly range-bound at around 3.55 lakh units in CY2026. The residential sector has witnessed a structural shift towards premiumisation, with homes priced above ₹1.5 crore accounting for 53 per cent of new launches in Q1 2026, compared with 43 per cent a year earlier. In contrast, the share of homes priced below ₹1.5 crore declined to 47 per cent from 57 per cent. Premium and luxury housing is likely to remain relatively resilient, supported by high-net-worth individuals, affluent domestic buyers and non-resident Indians, while affordable housing could face greater pressure from inflation, higher construction costs and affordability constraints. "Residential demand has been uneven across price segments. Affordable housing has faced pressure from inflation and concerns over affordability, while premium and luxury homes have continued to see relatively stronger demand," the report noted. Southern and eastern markets have generally performed better than some other regional markets. India's housing demand remains supported by Pradhan Mantri Awas Yojana – Urban 2.0 (PMAY-U 2.0), urbanisation, rising incomes and improved transparency under RERA. The sector has touched $3.5-4 billion in H1 2026, the highest H1 inflow since the pandemic, with commercial assets continuing to account for the largest share of capital.
Developers are entering the uncertain period with stronger balance sheets, as reported by CareEdge Ratings. The debt-to-collections ratio of the top 13 residential developers declined sharply from 1.80 times in FY20 to 0.68 times in FY26. Bookings exceeded ₹1.5 lakh crore and collections crossed ₹90,000 crore in FY26, demonstrating improved financial health across the sector. "Developers are entering this period with stronger balance sheets and improved liquidity than in previous cycles. However, a prolonged period of elevated inflation and tighter financing conditions could put pressure on developers with high leverage or significant refinancing needs, while financially stronger players are expected to remain resilient," said Divyesh Shah, Director, CareEdge Ratings. Large, organised developers are better placed to manage the pressure, while smaller, highly leveraged developers are more vulnerable to cost escalations and margin compression. Tax changes could provide another tailwind for REITs, with proposed changes highlighting that REIT special purpose vehicles could move from the earlier effective tax structure of around 35% to roughly 29%, while dividend distributions would remain exempt for unitholders, potentially supporting future distributions. "The sector remains supported by long-term lease contracts with a healthy Weighted Average Lease Expiry (WALE), diversified tenant portfolios, and sustained demand from GCCs, providing strong visibility into rental cash flows and limiting the impact of short-term disruptions," Shah added.
