Real Estate: A Stable and Yield-Oriented Asset Class for 2026

As investors navigate an increasingly uncertain global landscape, real estate is reclaiming its position as a reliable, yield-driven asset class for 2026. In an exclusive conversation, Vivek Rathi, National Director – Research at Knight Frank India, explains why the sector stands out amid muted equity returns, fluctuating interest rates, and shifting consumer preferences.

From the surge in luxury housing and record office leasing to the rise of fractional ownership models, Rathi outlines the structural strengths and evolving demand drivers that make Indian real estate a compelling choice for stability, income generation, and long-term wealth creation in 2026. Edited Excerpts –

Q) How would you summarize the performance of the Indian real estate market in 2025 across residential, commercial, and alternative segments?

A) Residential: Housing sales in the top eight cities observed a slight dip of ~1% YoY during the 9M 2025. Homes with ticket sizes of INR 10+ million now account for 50% of sales (up from 43% a year ago), signaling a continued preference for higher-end properties. Commercial: Office leasing remained healthy during the first 9 months of 2025, shaping up as a record year for the office segment. Grade A office transactions accounted for 92% during this period. Demand for such spaces is rising as occupiers prioritize modern workplace designs and sustainability standards. This shift has accelerated in recent years, driven by the expansion of REITs, the growing footprint of GCCs, and the rapid adoption of flexible workspaces.

Other segments: Industrial and warehousing activity remained buoyant, fueled by third-party logistics (3PL), e-commerce fulfillment, and manufacturing occupiers, underlining India’s appeal as a resilient and strategically located hub for regional supply-chain diversification. During the first 9 months of 2025, transaction volumes grew by 32% YoY to a robust 49.1 million sq ft, positioning the market well to scale another record high in 2025.

Q) Which key trends defined the realty market in 2025—luxury demand, affordability, rentals, or institutional participation?

A) Units priced above INR 10 million led the sales, with its share rising to 50% during the first 9 months of 2025 from 43% a year ago. The luxury segment (INR 200-500 million) witnessed a 70% growth in sales during this period; however, the absolute scale of this segment is small compared to other segments. Office demand remained strong, with transaction volumes reaching 66.7 million sq ft during the 9M 2025 against 53.7 million sq ft a year ago. This growth was supported by a diversified set of occupiers, including GCCs, third-party IT services, flex operators, and India-facing businesses. Easing inflation, stable repo rates, steady domestic consumption, and favorable fiscal conditions supported the sentiment and demand across the real estate segments.

Q) Going into 2026, what makes real estate a compelling asset class compared to equities, bonds, and gold?

A) Real estate isn’t directly comparable to equities, bonds, or gold because each asset class behaves differently. Real estate offers tangible asset value, with features like rental income and capital appreciation. Strong institutional demand and growing rental income make it stable and more yield-oriented. This is further supported by macro conditions (lower inflation, favorable lending rates, urbanization, etc.), offering a hedge against volatility seen in other asset classes.

Q) Do you expect the growth in luxury and premium housing to continue in 2026, or will the market broaden to mid-income segments?

A) The near-term outlook points to continued demand in the luxury segment because buyer demand remains skewed toward larger homes and premiumization. That said, a rebound in the mid-income housing segment could emerge if developers and policymakers support affordability through incentives and increased supply, as India currently has an urban affordable housing shortage of 9.4 million units.

Q) Gen Z prefers digital and bite-sized investing—how does fractional real estate fit into their wealth-building journey?

A) Though traditional real estate is capital-intensive, newer models like REITs, which offer fractional ownership, align well with Gen Z’s preference for secured lower entry costs, liquidity, and digital access. By allowing smaller ticket sizes, these formats enable real estate investing by making it more accessible, liquid, and aligned with diversified financial portfolios.

Q) How is fractional ownership changing the perception of real estate from a “lumpy” investment to a “liquid, tech-enabled” asset?

A) Real estate historically was seen as a large and illiquid asset, but fractional models enabled via tech platforms can reframe it as a diversified, investible, and part-liquid asset class.

Q) What is your top advice for first-time real estate investors entering the market in 2026?

A) Focus on prime locations and asset quality. REITs can be considered for diversification. (Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)