Domestic Investors Account for 85% of Real Estate Private Equity Investment; Ready Office Assets Attract 78% of Office Capital
Mumbai: Private equity (PE) investments in Indian real estate fell 31% year-on-year to $1.66 billion in the January-September period of 2026, even as the number of deals increased, reflecting a shift towards smaller transactions and a growing reliance on domestic capital, according to a Knight Frank India report.
The country recorded 31 transactions during the nine-month period, compared with 24 a year ago. However, the average disclosed deal size dropped 47% to $53 million, largely due to the absence of large-ticket investments that had boosted overall inflows in previous periods.
Domestic investors accounted for 85% of total PE investments during the period, up sharply from 25% in the corresponding period last year. Foreign investors’ share fell to 15% from 75%, signalling a significant change in the funding landscape of India’s property market.
Office assets remained the largest investment category, attracting $1.18 billion, or 71% of total PE inflows. Investment in the segment, however, declined 19% year-on-year. Completed office properties accounted for 78% of office investments, compared with 49% a year earlier, indicating investors’ preference for income-generating assets with lower development risks.
Residential real estate attracted $320 million, down 33% from the previous year. Debt and structured credit accounted for 97% of residential investments, while 83% of the capital was directed towards under-construction projects. The National Capital Region (NCR) received 63% of the residential investment.
Warehousing investments rose 66% to $160 million, with the entire amount recorded in the third quarter through a single transaction involving a completed asset. The retail segment, meanwhile, recorded no PE investment during the first nine months of 2026, compared with about $374 million in the year-ago period.
NCR emerged as the leading destination for real estate PE investments, attracting $568 million and accounting for 34% of the total. Pune followed with $356 million, while Chennai received $319 million. Mumbai attracted $276 million, and Bengaluru recorded $137 million during the period.
Domestic investors contributed approximately $1.42 billion during the nine-month period, compared with $603 million a year earlier. They accounted for 94% of residential investments and 81% of office investments, and also funded the only warehousing transaction. Foreign investors contributed about $240 million, of which 92% was through equity.
The growing participation of domestic investors has been supported by alternative investment funds (AIFs), domestic private equity platforms and structured investment vehicles. At the same time, higher return expectations in overseas markets and rupee depreciation have weighed on foreign investment flows.
Real estate credit funds typically target annual returns of 15-18% on lending to developers, around 900 basis points above the yield on 10-year government bonds, supporting domestic capital deployment, particularly in residential projects. Shishir Baijal, international partner, chairman and managing director of Knight Frank India, said domestic capital was playing a significantly larger role in real estate investment, while investors were becoming more selective about deal size, structure and risk.
He said India’s ability to attract capital would depend on the quality of investment opportunities, transparency and investor confidence in long-term fundamentals. Going forward, investment activity is likely to remain sensitive to asset quality, risk allocation and currency-adjusted returns. A more stable global interest-rate outlook could improve the visibility of cross-border returns and support a revival in foreign investment, the report said.
Source: Knight Frank India and Venture Intelligence
