India's real estate sector continues to demonstrate resilience with strong demand fundamentals, though recent data reveals contrasting supply trends across major metropolitan markets. While the sector remains positioned for sustainable growth, new supply patterns show significant regional variations despite robust leasing activity.

Supply Constraints Hit Key Markets

Delhi-NCR and Mumbai, two of India's premier office markets, experienced notable declines in new office space supply during 2025. According to Colliers India, Delhi-NCR witnessed a 15% drop in fresh supply, falling to 7.40 million sq ft from 8.70 million sq ft in 2024. Mumbai recorded a steeper decline of 37%, with new supply dropping to 5.20 million sq ft from 8.30 million sq ft in the previous year.

Southern and Western Markets Show Growth

Contrasting the supply constraints in northern and western metros, several markets demonstrated robust supply growth. Bengaluru led the expansion with a 15% increase in fresh supply to 17.50 million sq ft from 15.20 million sq ft. Chennai recorded remarkable growth, more than doubling its new supply to 4.50 million sq ft from 2.10 million sq ft, while Pune witnessed a similar surge with supply jumping to 11.00 million sq ft from 5.30 million sq ft.

Demand Outpaces Supply Across Major Cities

Despite supply variations, office space leasing demonstrated consistent strength across India's seven major markets. Total absorption grew 6% to 71.50 million sq ft in 2025 from 67.20 million sq ft in 2024. Overall new supply across these markets increased modestly by 5% to 56.50 million sq ft from 53.80 million sq ft, indicating demand significantly outstripped fresh supply additions.

This demand-supply imbalance resulted in vacancy levels falling by 49 basis points, while average rentals strengthened by up to 15% year-on-year across major cities. Technology firms, BFSI sector companies, and foreign firms establishing Global Capability Centres continue driving prime workspace demand.

Economic Fundamentals Support Sector Outlook

The office market performance aligns with broader economic indicators supporting real estate growth. India's GDP growth of 8.20% in Q2 FY26 and the Reserve Bank of India's reduced repo rate to 5.25% with a neutral monetary stance provide a supportive environment for continued real estate activity.

Major real estate players including DLF Ltd, Prestige Estates, K Raheja Group, Embassy Group, and RMZ Group continue leading office segment development. The sector's institutional backing is further evidenced by four operational office REITs and Bagmane Prime Office REIT's recent filing for a ₹4,000 crore IPO, reflecting continued investor confidence in India's commercial real estate fundamentals.

India's real estate sector concluded with strong capital market performance, recording 11 deals worth ₹17,867 crore between April and December FY26, according to Equirus Capital. This activity matched the total deal count achieved in FY25, with potential to surpass six-year highs if momentum continues through the March quarter. The sector has simultaneously achieved its best housing affordability levels in three decades.

Capital Market Performance Shows Sustained Momentum

The real estate sector's fundraising activity demonstrates consistent investor confidence, with both deal volume and capital mobilization approaching record levels. Since FY18, the sector has cumulatively raised ₹72,331 crore from capital markets across different segments.

REITs have emerged as the dominant fundraising vehicle, accounting for the largest share of capital mobilization over the six-year period.

Housing Affordability Reaches Historic Levels

The sector has witnessed a dramatic improvement in housing affordability metrics across India. The property price-to-income ratio declined significantly to 3.3 in 2024, compared to 22 in 1995, representing the most favorable affordability conditions in nearly 30 years.

This improvement stems from multiple factors including steady home loan rates, stable rental yields, and rising income levels. Equirus Capital expects the gap between home loan rates and rental yields to narrow further, potentially falling below 500 basis points in FY26.

Market Dynamics Support Continued Growth

Residential absorption patterns across top cities continue to demonstrate healthy demand-supply balance. Absorption rates have consistently matched or exceeded new supply, supporting developers' launch momentum while maintaining controlled inventory levels. This balance has created favorable conditions for sustained sector growth.

Robin Mangla, President at M3M India, noted that the performance reflected consolidation supported by macro stability and increasing homeownership demand. He highlighted that large infrastructure projects, including the Noida International Airport, could further boost residential demand and property valuations, particularly benefiting NCR markets such as Noida.

Outlook Supported by Infrastructure Development

The sector's trajectory appears supported by broader infrastructure development initiatives. Major projects are expected to create additional demand drivers, particularly in key metropolitan regions. The combination of improved affordability metrics, sustained capital market interest, and infrastructure development positions the sector for continued momentum into FY26.