Indian Developers Shifting Focus to Residential Real Estate for Higher Profits
Indian developers are increasingly prioritizing residential projects over commercial ones due to higher profitability and simpler regulatory approvals, potentially leading to a future shortage of quality office space.
Residential Real EstateCommercial Real EstateReal Estate MarketDeveloper StrategyOffice SpaceReal Estate NewsOct 31, 2025
Across India’s prime micro-markets, residential capital values per square foot (PSF) have significantly outpaced those of comparable commercial projects, sometimes by more than 2-3 times. This valuation disparity is reshaping developer strategies, with many shifting capital towards residential projects where profit per square foot is higher, cash flows are faster, and regulatory approvals are simpler.
“The acute undersupply in India’s office real estate market is not just a function of post-COVID caution; it is increasingly driven by project-level economics that favor residential over commercial development,” the report stated. The growing valuation arbitrage has made residential developments more attractive on a pure return-on-investment basis. Developers, particularly those with limited capital or a higher cost of borrowing, increasingly prioritize residential launches over office supply in the same micro-markets, deepening the supply deficit in the commercial space.
Salil Kumar, Director of Marketing and Business Management at CRC Group, noted, “Developers are naturally gravitating towards housing, given faster cash flows and higher profitability. However, the focus should remain balanced; a strong commercial backbone is equally vital. Developments like the upcoming Noida International Airport will be a game-changer, catalyzing both residential and commercial segments by enhancing regional connectivity and investor confidence.”
The combination of limited new supply, surging occupier demand, and cautious developer sentiment is setting the stage for a period of rental appreciation, valuation uplift, and strategic recalibration. “To sustain its growth momentum and achieve the next milestone of 2 billion square feet of office stock, India must adopt a twin-pronged strategy, accelerating new supply creation while enhancing the productivity of existing assets,” Knight Frank has said.
Approximately 31% of India’s office inventory is ready for retrofitting, offering the opportunity to reposition older buildings into modern workplaces. According to the consultancy firm, over the years, new supply has consistently failed to keep pace with the rapid growth in occupier demand. The supply-to-demand ratio has fallen sharply, from 1.40 in 2008 to just 0.49 in the first nine months of 2025, signaling a deep and persistent shortfall in quality office stock.
This imbalance is most evident in core business districts, where Grade A vacancy levels have declined to single digits, even as leasing activity continues to accelerate. An analysis of India’s top 20 office space developers reveals a highly fragmented geographic presence across major cities. No single developer currently operates in all of the top eight tracked markets—Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, MMR, NCR, and Pune.
The widest footprint is observed in seven cities, achieved by only one developer, while the average presence across the group stands at just three to four cities. This geographic concentration limits developers’ ability to fully leverage pan-India growth opportunities and constrains the balanced regional development of commercial real estate.
Frequently Asked Questions
Why are Indian developers shifting focus to residential projects?
Indian developers are shifting focus to residential projects due to higher profitability, faster cash flows, and simpler regulatory approvals compared to commercial projects.
What is the current valuation disparity between residential and commercial real estate in India?
Residential capital values per square foot (PSF) in India’s prime micro-markets have outpaced those of comparable commercial projects, sometimes by more than 2-3 times.
How might this shift affect the office real estate market in the future?
The shift towards residential projects could lead to a future shortage of quality office space, especially in core business districts where demand is high.
What strategies are recommended to address the supply deficit in commercial real estate?
To address the supply deficit, India must adopt a twin-pronged strategy of accelerating new supply creation and enhancing the productivity of existing assets, including retrofitting older buildings.
What is the current supply-to-demand ratio for office space in India?
The supply-to-demand ratio for office space in India has fallen sharply, from 1.40 in 2008 to just 0.49 in the first nine months of 2025, indicating a significant shortfall in quality office stock.
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