Private Equity Investments in Indian Real Estate Drop 41% to $1.7 Billion in H1 2025

Knight Frank India reports a sharp decline in private equity investments in the Indian real estate sector, totaling $1.7 billion across 12 deals in the first half of 2025.

Private EquityReal EstateInvestmentKnight FrankIndiaReal EstateJun 27, 2025

Private Equity Investments in Indian Real Estate Drop 41% to $1.7 Billion in H1 2025

Real Estate:Knight Frank India, in their latest assessment, has stated that Private Equity (PE) investments into the Indian real estate sector witnessed a significant 41% year-on-year (YoY) decline in the first half of 2025, totaling USD 1.7 billion spread across 12 deals.

The office segment attracted the highest share of PE capital, with USD 706 million invested in H1 2025, marking a 22% YoY growth. This trend reflects a shift in global capital flows, influenced by elevated interest rates, tightening liquidity, and increased investor scrutiny over risk-adjusted and post-tax returns.

This downturn is not merely cyclical but highlights a broader structural shift in global and domestic capital views of the Indian real estate. Investors are now more focused on post-tax visibility, currency-adjusted returns, and credible execution over scale or momentum. The number of transactions also dropped sharply from 24 in H1 2024 to 12 in H1 2025, further reflecting increased selectivity in deal-making. Yet, amid the overall decline, sectoral performance diverged significantly.

The assessment highlights a significant shift in the composition of capital inflows. Western institutional capital recedes further in H1 2025, primarily due to the narrowing India-US yield spread, INR depreciation, and India’s 12.5% long-term capital gains tax, which affects post-tax returns. Meanwhile, domestic capital has stepped up substantially. Indian institutions accounted for 25% of total PE inflows during H1 2025, up from an average of 11% during 2011-2020, driven by deeper capital pools, regulatory stability, and maturing investment capabilities.

Regionally, in H1 2025, Mumbai led PE inflows with USD 468 million, closely followed by Bengaluru at USD 453 million. Kolkata attracted USD 374 million, Hyderabad USD 259 million, and Pune USD 134 million, while Chennai received USD 50 million. Together, South Indian cities captured over 44% of total investments, underscoring a sustained regional shift in institutional investor preference.

Shishir Baijal, Chairman and Managing Director of Knight Frank India, said, “The current global economic environment marked by persistent inflation and tighter monetary conditions has led many Western funds to take a cautious, wait-and-watch stance, resulting in subdued private equity activity in the real estate sector. In contrast, India’s commercial real estate market continues to show strong fundamentals, driven by the return to office, rising absorption levels, and strengthening rental values.”

“Similarly, the residential sector has seen year-on-year growth, and retail consumption remains steady, supported by overall economic momentum. These factors have encouraged investors to adopt a long-term outlook on the Indian market. As macroeconomic conditions in the West begin to ease, we expect global capital flows to return to Indian real estate, further supported by the country’s sustained growth and improving regulatory clarity,” Baijal added.

### Trends in PE Investments: Office

Private equity investment in India’s office real estate sector in H1 2025 reflected measured optimism, driven by asset quality, prime locations, and long-term tenancy visibility. While overall capital deployment across real estate declined due to global macroeconomic pressures, the office segment stood out with USD 706 million invested across three transactions, marking a 22% YoY increase from USD 579 million in H1 2024.

Rather than broad-based investment, this growth was fueled by strategic allocations into high-quality, Grade-A assets in core markets. Investors showed a preference for larger, stabilized, or near-stabilized office spaces with strong cash flow potential, often through joint ventures or REIT-aligned platforms. A notable trend in H1 2025 was the near-equal split between investments in ready and under-construction assets, about 50% each.

### Trends in PE Investments: Residential

After witnessing a slowdown post-2017 due to regulatory shifts like RERA and GST, residential real estate has seen a transformation in investment strategy. While volumes in H1 2025 remained below the peak achieved in 2015-16, the nature of capital deployment has matured, with a sharper focus on structured and risk-mitigated approaches.

A key trend in H1 2025 was the return to credit instruments—60% of the USD 500 million invested came through debt structures, compared to 40% the previous year. Institutional investors preferred collateral-backed investments. Bengaluru and Pune dominated capital absorption, accounting for nearly USD 350 million of total inflows. Mumbai received USD 115 million, while Hyderabad drew modest but growing interest in plotted and villa-based developments—signaling expanding investor interest beyond traditional metros.

### Trends in PE Investments: Warehousing

Indian warehousing saw a sharp pause in H1 2025, with PE investments marking a 97% YoY decline to just USD 50 million, down from USD 1.5 billion in H1 2024. Only one transaction was recorded, highlighting a temporary reassessment of growth expectations in a sector previously dominated by large, platform-level deals.

Over the past seven years, warehousing has consistently attracted long-term institutional capital, with over USD 10 billion invested since 2017, driven by rapid e-commerce growth, policy-led manufacturing incentives (PLI), and supply chain diversification across Tier 1 and emerging urban hubs.

### Trends in PE Investments: Retail

After a prolonged lull of over two years, India’s retail real estate sector in H1 2025 saw equity inflows reaching USD 481 million in the sector. The growth was driven by two large transactions, including a stabilized mall acquisition in South India by a listed REIT and another institutional buyout in an eastern metro, signaling renewed investor confidence in operational retail assets.

Since 2011, the sector has attracted over USD 4.4 billion across 33 recorded transactions. While metros like Mumbai, Bengaluru, Pune, and Chandigarh continue to dominate the investment landscape, recent transactions hint at a slow expansion of investor appetite toward emerging consumption hubs, though volumes outside core cities remain limited.

Private equity investments in Indian real estate declined by 41% YoY in H1 2025, reflecting a shift in global capital allocation strategies. Investor decisions are now shaped by currency risk, post-tax returns, governance, and exit clarity. This moderation follows the post-COVID surge of 2021-2022, when India benefitted from ultra-low global interest rates, strong housing recovery, and sectoral reforms. However, with rising global bond yields and INR depreciation, the yield advantage has narrowed.

Capital is moving to jurisdictions offering clearer, risk-adjusted returns. While India’s macro fundamentals remain strong, the threshold for investment has risen. To reignite momentum, the sector must focus on institutional deal structuring, improved tax efficiency, and scalable platforms across core asset classes. The next wave of capital will depend on performance, not just potential. India remains a compelling long-term bet, but credibility, consistency, and execution will determine sustained investor confidence.

Frequently Asked Questions

What was the total PE investment in Indian real estate in H1 2025?

The total PE investment in Indian real estate in H1 2025 was USD 1.7 billion.

Which segment attracted the highest PE investment in H1 2025?

The office segment attracted the highest PE investment in H1 2025, with USD 706 million invested.

What factors led to the decline in PE investments in Indian real estate?

The decline in PE investments in Indian real estate was influenced by elevated interest rates, tightening liquidity, and increased investor scrutiny over risk-adjusted and post-tax returns.

How has the composition of capital inflows changed in H1 2025?

Western institutional capital has receded, while domestic capital has stepped up substantially, accounting for 25% of total PE inflows in H1 2025.

Which cities led in PE inflows in H1 2025?

Mumbai led with USD 468 million, followed by Bengaluru at USD 453 million, Kolkata at USD 374 million, Hyderabad at USD 259 million, and Pune at USD 134 million.