Commercial Real Estate Surges Despite Slowing Residential Market
The commercial real estate market in India has achieved remarkable milestones in the past year, with leasing activity reaching unprecedented levels. According to industry reports from Knight Frank and CBRE, the commercial leasing volume in CY2025 surpassed 80 million square feet (msf), with Knight Frank reporting 86.4 msf and CBRE recording 82.6 msf. A significant portion of this growth, approximately 38-39%, can be attributed to the expansion of Global Capability Centres (GCCs).
The outlook for 2026 is even more promising, with several factors expected to drive continued growth. The technology sector remains a key driver, contributing significantly to leasing activities. Additionally, the flexible workspace market is experiencing robust growth, catering to the evolving needs of modern businesses. GCCs are anticipated to maintain their strong presence, potentially comprising 35-40% of the total absorption in 2026.
In contrast, the residential real estate market appears to have plateaued in 2025. Double-digit price increases in key markets such as NCR (19%), Bengaluru (12%), and Hyderabad (13%) have contributed to this trend. Other factors, including a slowdown in domestic equity markets, a weak pricing outlook for 2026, and continuous rupee depreciation, have further impacted the residential segment. Despite these challenges, higher-ticket units (priced over ₹1 crore) have shown resilience, with a 14% year-over-year (YoY) increase in sales.
The NCR region, which has seen the highest pricing growth over the past two years, is exhibiting visible weakness. This is evident in the Q3FY26 operational update from Signature Global, which reported a 27% YoY decline in pre-sales, with no significant change quarter-over-quarter (QoQ). Similarly, Kalpataru experienced a 14% YoY drop in pre-sales for Q3FY26. However, some developers have managed to buck the trend, with Sobha and Lodha reporting pre-sales growth of 52% YoY (up 11% QoQ) and 25% YoY (up 23% QoQ), respectively.
Retail consumption, driven by festive demand, remained strong in Q3FY26. Phoenix Mills, a leading retail developer, announced a 20% YoY growth in retail portfolio consumption for the quarter.
In light of the continued momentum in office leasing and retail consumption, and the positive outlook for FY26, while acknowledging the plateauing trend in the residential segment, we prioritize our coverage universe stocks as follows: The Phoenix Mills, DLF, Brigade Enterprises, and Oberoi Realty. Smaller players with strong promoter group backing, such as Aditya Birla Real Estate, Max Estates, Arvind Smartspaces, and Mahindra Lifespaces, can also be considered, albeit with a higher risk-reward ratio.
