Key Takeaways
- • India has attracted approximately USD 78 billion in institutional real estate investment since 2014, with 46% directed to the office segment, according to a JLL report.
- • Capitalization rates fell 2.7 percentage points for offices, 3.2 points for retail and 2.5 points for warehouses between 2016 and Q3 2026, and JLL says further compression is now limited.
- • Future returns will depend more on asset selection, rent growth and operational efficiency than on yield compression.
- • Grade A office stock more than doubled from about 40.8 million sq m in 2014 to 88.4 million sq m in Q3 2026, with 22.4 million sq m under construction.
- • JLL expects prime retail and core logistics cap rates to approach 7% and premium office cap rates to stay below 8%.
Summary
India's commercial real estate market is moving from a model driven by rising property values toward one built on sustainable cash flows and long-term asset management, according to a new JLL report, A Decade of Change: The Institutionalization of Commercial Real Estate in India, as reported by Construction World. Since 2014, the country has attracted approximately USD 78 billion in institutional real estate investment, with 46% of that capital going to offices.
JLL states that high-quality office buildings can still deliver double-digit annual internal rates of return over a typical five-year hold, before leverage, supported by stable corporate tenant demand and growing net operating income. Capitalization rates have compressed significantly over the decade, falling 2.7 points for offices, 3.2 points for retail and 2.5 points for warehouses between 2016 and Q3 2026. Lata Pillai, Senior Managing Director and Head of Capital Markets at JLL India, said the scope for further cap rate declines is now limited, meaning returns will depend more on selecting quality assets, achieving rent increases and improving operations.
The office market retains significant headroom. India has roughly 46.5 million sq m of institutional-grade office space, another 18.6 million sq m of lower-grade stock that could be modernized, and 22.4 million sq m under construction, of which about 14.9 million sq m is premium. Grade A supply has more than doubled from roughly 40.8 million sq m in 2014. International business and technology services centers accounted for more than 40% of leasing activity over the past decade.
In retail and logistics, nearly 60% of the existing prime retail space, about 4.65 million sq m, remains owned by non-institutional investors, which JLL sees as an opportunity for acquisitions and professional management. Roughly 3.7 million sq m of additional retail space is expected by 2030. Planned warehouse supply is about 30.1 million sq m, 77% of it Grade A, and the Grade A share of logistics stock is forecast to rise from 57% to 65% by the end of the decade.
JLL expects cap rates for prime retail and core logistics to approach 7%, while premium office cap rates are likely to stay below 8%. The consultancy also argues that the growth of REITs and InvITs will facilitate capital raising and asset sales, strengthening India's position as a destination for long-term institutional capital.
JLL states that high-quality office buildings can still deliver double-digit annual internal rates of return over a typical five-year hold, before leverage, supported by stable corporate tenant demand and growing net operating income. Capitalization rates have compressed significantly over the decade, falling 2.7 points for offices, 3.2 points for retail and 2.5 points for warehouses between 2016 and Q3 2026. Lata Pillai, Senior Managing Director and Head of Capital Markets at JLL India, said the scope for further cap rate declines is now limited, meaning returns will depend more on selecting quality assets, achieving rent increases and improving operations.
The office market retains significant headroom. India has roughly 46.5 million sq m of institutional-grade office space, another 18.6 million sq m of lower-grade stock that could be modernized, and 22.4 million sq m under construction, of which about 14.9 million sq m is premium. Grade A supply has more than doubled from roughly 40.8 million sq m in 2014. International business and technology services centers accounted for more than 40% of leasing activity over the past decade.
In retail and logistics, nearly 60% of the existing prime retail space, about 4.65 million sq m, remains owned by non-institutional investors, which JLL sees as an opportunity for acquisitions and professional management. Roughly 3.7 million sq m of additional retail space is expected by 2030. Planned warehouse supply is about 30.1 million sq m, 77% of it Grade A, and the Grade A share of logistics stock is forecast to rise from 57% to 65% by the end of the decade.
JLL expects cap rates for prime retail and core logistics to approach 7%, while premium office cap rates are likely to stay below 8%. The consultancy also argues that the growth of REITs and InvITs will facilitate capital raising and asset sales, strengthening India's position as a destination for long-term institutional capital.
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