Private equity investment into India's real estate sector saw a notable contraction in 2025, yet the office segment stood out as the undisputed champion, capturing the lion's share of institutional capital. According to the latest data from Knight Frank India, the total value of private equity (PE) deals in real estate reached USD 3.5 billion for the year. However, this marked a significant 29 per cent decline compared to the previous year's figures.
Office Sector Anchors Investor Confidence
Amidst the broader market recalibration, office assets demonstrated remarkable resilience. This segment alone pulled in more than USD 2 billion from private equity funds, commanding a dominant 58 per cent of the total annual inflows. The report, titled 'Trends in Private Equity Investments in India: H2 2025,' highlighted that investment volumes in offices remained consistent with the three-year average.
This steady performance underscores a continued conviction among investors in the long-term fundamentals of India's office market. This confidence persists even as global investors reassess risks, expected returns, and execution challenges across asset classes.
Residential and Warehousing Follow, Retail Lags
The residential real estate market emerged as the second-most favoured destination for PE capital. It accounted for 17 per cent of the total investment pie. Knight Frank analysts noted an important shift in investment strategy here, with funds increasingly opting for credit-led instruments instead of pure equity stakes, reflecting a more cautious approach.
Close behind, the warehousing and industrial segment secured 15 per cent of the investments. This demand is fundamentally driven by robust occupier appetite, fueled by the relentless expansion of e-commerce, formalisation of supply chains, and the government's push for manufacturing growth under schemes like Production Linked Incentive (PLI).
In contrast, the retail real estate sector witnessed limited activity, attracting only 11 per cent of the total PE capital. The report clarified that investments here were highly selective, flowing only into assets that met stringent benchmarks for scale, proven operating performance, and clear exit visibility for investors.
A Cautious Year and a Measured Recovery Ahead
Knight Frank India attributed the overall year-on-year dip to a period of sharp market recalibration. Investors exercised caution as the market grappled with aligning three critical factors: the effective cost of capital, visibility on exit opportunities, and asset valuations. While macroeconomic indicators like GDP growth, interest rates, and inflation showed improvement, their positive impact on capital deployment was delayed.
Looking forward, the forecast offers a brighter picture. Shishir Baijal, International Partner, Chairman and Managing Director at Knight Frank India, provided insights based on the firm's investment forecasting model. "The model points to a more supportive environment over the medium term," Baijal stated.
He projected that, assuming stable conditions for government capital expenditure, currency movement, inflation, interest rates, and new office supply, private equity investments in Indian real estate are expected to rise by 28 per cent in 2026. This would translate to an inflow of approximately USD 4.4 billion. Baijal emphasised that this recovery is likely to be measured and driven by selective growth, rather than a broad-based, risk-on surge of capital.
