Office, retail and warehousing offer new opportunities as India’s real estate market matures: JLL

Agencies

The report, titled ‘A Decade of Change: The Institutionalization of Commercial Real Estate in India’, highlights that despite cap rates compressing to historic lows and tighter bid-ask spreads across key asset classes, the Indian real estate market continues to offer double-digit unlevered internal rates of return (IRR) over a typical five-year investment period.

However, the drivers of returns are changing. With limited scope for further cap rate compression, investors will increasingly have to rely on net operating income (NOI) growth, strategic asset selection and operational efficiencies to generate returns.

India's real estate sector has attracted approximately $78 billion in institutional capital since 2014, reflecting its growing appeal as a globally recognised, institutional-grade investment destination. Office assets accounted for 46% of the total institutional investments during this period.

The institutionalisation of the sector is also evident in the significant compression in capitalisation rates across key segments. Between 2016 and the third quarter of 2026, office cap rates tightened by 270 basis points, retail by 320 basis points and warehousing by 250 basis points.

“India's real estate market has reached a pivotal moment, moving beyond an era of market-wide re-rating to one focused on sophisticated, long-term value creation. The past decade was defined by a significant re-rating, with capitalisation rates compressing sharply across all key commercial sectors. The next phase will be about building value, driven by income growth rather than cap rate movement,” said Lata Pillai, Senior Managing Director and Head of Capital Markets, India, JLL.

Office market offers core and value-add opportunities

India's office sector presents a dual opportunity for institutional investors, with established institutional-grade assets offering relatively stable income streams and non-premium properties providing scope for repositioning and yield optimisation.

According to the report, India has approximately 500 million square feet of institutional-grade office inventory, providing a substantial acquisition opportunity for investors seeking core assets.

At the same time, nearly 200 million square feet of non-premium office stock is available for repositioning, creating opportunities for value-add investors to upgrade properties and improve their income-generating potential.

The upcoming office supply pipeline stands at approximately 241 million square feet, of which 160 million square feet is premium stock.

The country's Grade A office space has more than doubled over the past decade, increasing from 439 million square feet in 2014 to 952 million square feet in the third quarter of 2026.

Demand from Global Capability Centres (GCCs) has been a key growth driver, accounting for more than 40% of total office leasing over the past decade. This has supported occupancy levels and provided stability to cash flows.

Retail offers acquisition opportunities for institutional investors

The retail real estate segment also presents significant opportunities, particularly as a large portion of premium shopping centre assets remains under non-institutional ownership.

JLL estimates that approximately 60% of India's nearly 50 million square feet of premium retail stock is still owned by non-institutional investors, creating an acquisition opportunity for institutional capital.

The sector is also expected to see a significant addition to its supply, with around 40 million square feet of new retail space in the pipeline until 2030. Nearly 70% of this upcoming supply is expected to be premium stock.

The report notes that the retail sector has undergone a significant transformation over the past decade. Limited availability of high-quality organised retail assets has supported their attractiveness, with trophy retail properties now commanding cap rates significantly below comparable office properties.

Warehousing emerges as a strategic asset class

Warehousing has evolved from a niche real estate segment into a strategic institutional asset class, supported by structural changes such as the implementation of GST and the expansion of e-commerce.

Investment in the sector has gained momentum, with post-pandemic investments rising 467% to $4.4 billion. Its share of total private equity deployment has also nearly quadrupled to 9.5% over the same period.

The sector has a substantial development pipeline of 324 million square feet, of which 77% is expected to be Grade A stock.

This will improve the overall quality of India's warehousing inventory, with the share of Grade A stock expected to increase from 57% to 65% by 2030, while Grade B stock's share declines from 43% to 35%.

The growing preference for high-quality logistics facilities and institutional-grade assets is expected to support sustained investor interest in the segment.

Income growth to drive the next phase of returns

With property cap rates and government bond yields moving closer to each other, the investment strategy for commercial real estate is undergoing a shift.

JLL believes that investors will increasingly focus on long-term internal rates of return rather than short-term forward projections. The ability to generate consistent rental income, improve asset quality and identify properties with strong demand drivers will become critical to investment performance.

The report expects cap rates for core warehousing and premium retail assets to move towards 7%, while premium office cap rates are likely to remain below 8%.

The availability of more than 600 million square feet of upcoming supply across office, warehousing and retail, alongside opportunities to reposition around 200 million square feet of non-premium office stock, provides investment avenues across different risk-return strategies.

A more mature exit ecosystem, supported by REITs and InvITs, is also expected to improve liquidity and give institutional investors greater confidence to deploy capital.

According to JLL, India's economic growth, infrastructure development and urbanisation will continue to support institutional investment in commercial real estate through 2026 and beyond. The next phase, however, is likely to favour patient, long-term capital and investors capable of identifying asset-specific opportunities across core, value-add and opportunistic strategies.