Private Equity Investors Shift Focus to Office Assets in 2025

After two years of aggressive risk-taking, private equity investors hit pause in Indian real estate in 2025. Capital did not flee—but it became far more selective.

According to the latest Trends in Private Equity Investments in India: H2 2025 report by Knight Frank India, private equity investments in Indian real estate fell 29% year-on-year to $3.5 billion in 2025. Yet beneath the headline slowdown lies a clearer signal: office assets have re-emerged as the undisputed anchor of institutional capital, accounting for 58% of total PE inflows, or just over $2 billion, during the year.

"Office assets emerged as the clear anchor for private equity investments, attracting 58% of total inflows in 2025 with $2,001 million in 2025. Office investment volumes remained broadly in line with the three-year average, underscoring continued investor conviction," said the Knight Frank report.

That dominance is not accidental. Office investment volumes in 2025 were broadly in line with the three-year average, even as capital across other asset classes thinned out. In a year marked by higher cost of capital, patchy exit visibility, and slow valuation resets, private equity gravitated toward what it trusts most—scale, income visibility, and institutional depth.

The data reflects this shift starkly. While overall deal activity moderated, office assets continued to attract consistent cheque sizes and repeat capital. Over the past decade, office has steadily increased its share of PE investment, rising from sub-40% levels in the mid-2010s to nearly three-fifths of all real estate PE capital in 2025.

Residential real estate ranked second, but the nature of capital flowing into housing changed materially. With a 17% share of total PE investments, residential capital in 2025 was less about equity upside and more about downside protection. Investors increasingly favoured credit-led and structured instruments, targeting contracted cash flows and capital protection rather than outright development risk. Pure equity exposure was largely restricted to de-risked projects with strong execution visibility.

Warehousing, the third-largest recipient with a 15% share, continued to benefit from strong occupier demand driven by e-commerce expansion, supply-chain formalisation, and manufacturing growth. However, investment volumes moderated—not due to weak fundamentals, but because of limited availability of stabilised, institutionally owned assets and more conservative underwriting of build-to-core strategies amid higher financing costs.

"Occupier demand remained robust in the warehousing sector. The sector remained the third largest recipient of private equity investments in 2025, recording 15% of the total PE share. This demand supported by e-commerce expansion, supply-chain formalisation and manufacturing growth. The moderation in investment volumes was largely supply-driven," said the report.

Retail real estate saw limited investment activity in 2025, marked by a single large transaction after nearly two years of muted private equity participation. As a result, the segment accounted for just 11% of total private equity investments during the year. Capital deployment resumed only for assets that met strict criteria on scale, operating performance, and exit visibility. Beyond these assets, investor interest remained selective, with secondary malls and repositioning-led opportunities seeing limited traction.

Knight Frank attributes the overall slowdown to a three-way misalignment that persisted through 2025: the effective cost of capital, exit visibility, and valuation expectations. While macro conditions improved—GDP growth firmed up, inflation cooled, and interest rates peaked—these variables did not reset quickly enough to unlock large-scale deployment. As a result, capital stayed active, but cautious.

"Private equity investors recalibrated rather than retreated," said Shishir Baijal, Chairman and Managing Director of Knight Frank India. He noted that while 2025 was a year of consolidation, the medium-term outlook is improving. Knight Frank’s investment forecasting model projects PE inflows rising 28% year-on-year to around USD 4.4 billion in 2026, supported by government capex, currency stability, easing inflation, and incremental office supply.

The recovery, however, is expected to be measured rather than exuberant. Office and logistics-led strategies are likely to remain the primary beneficiaries, while residential and retail investments will continue to focus on structured, project-specific opportunities rather than broad equity risk. As interest rates stabilise and underwriting confidence improves, capital deployment is expected to gather pace—but selectively.