Institutional investments in the Indian real estate sector achieved a historic milestone in 2025, reaching $8.5 billion with a 29% year-on-year growth, according to a report by Colliers India released on Tuesday. This record-breaking performance reflects the growing confidence of both domestic and international investors in India's real estate market.

Domestic Capital Drives Investment Surge

The investment landscape witnessed a significant shift in 2025, with domestic institutional capital emerging as the primary growth driver. The composition of investments showed a clear preference for local funding sources over foreign capital.

Cross-border investments showed signs of recovery in the final quarter, indicating a gradual improvement in global investor sentiment. The report noted that this recovery comes at a time when the global economy is holding up better, with signs of trade normalcy even amid ongoing tariff negotiations.

Record-Breaking Quarterly Performance

The fourth quarter of 2025 marked a significant milestone, recording the highest-ever quarterly inflows at $4.20 billion. This exceptional performance in the final quarter alone accounted for nearly two-thirds of the annual capital deployment and coincided with strong Grade A office space uptake across the country's major office markets.

Office Sector Leads Investment Activity

The office sector dominated the investment landscape, demonstrating robust growth and investor confidence. The sector's performance was supported by rising participation from both domestic and foreign investors.

Vimal Nadar, National Director and Head of Research at Colliers India, highlighted the significance of this growth, noting that "the year also marked the listing of fourth office-focused REIT and notable acquisitions by older REITs, marked by superior tenant quality, higher occupancy levels, and strong rental growth."

Geographic Distribution and City Performance

Bengaluru and Mumbai emerged as the leading destinations for real estate investments, cumulatively accounting for approximately half of the total inflows in 2025. These two metropolitan cities attracted around $4.00 billion in investments, with office assets driving close to three-fourths of the activity in both locations.

The geographic spread of investments showed broad-based growth, with five out of seven major Indian cities experiencing year-on-year increases in capital inflows during 2025.

Future Outlook and Market Consolidation

Nadar forecasted a greater degree of institutionalization and consolidation in the coming years, supported by cross-border capital flows. The research indicates that over 370 million square feet of existing office space could potentially be included in future REITs, suggesting significant opportunities for continued growth and market development in the Indian real estate sector.

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.