Residential Projects Surpass Commercial Developments in Profitability for Indian Real Estate
Indian developers are shifting their focus from commercial to residential real estate projects due to higher profitability and simpler regulatory approvals. This strategic move is driven by a significant valuation disparity, where residential capital values per square foot (PSF) have outpaced those of comparable commercial projects, sometimes by more than 2-3 times.
The Confederation of Indian Industry (CII) and property consultant Knight Frank have highlighted that this valuation disparity is reshaping developer strategy. Many developers are now shifting their capital towards residential projects, where profit per square foot is higher, cash flows are faster, and regulatory approvals are simpler.
According to the report, the acute undersupply in India’s office real estate market is not just a result of post-COVID caution but is increasingly driven by project-level economics that favor residential over commercial development. 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, are increasingly prioritizing 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. Knight Frank has emphasized that 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: accelerate new supply creation while enhancing the productivity of existing assets.
Approximately 31% of India’s office inventory is ready for retrofitting, offering the opportunity to reposition older buildings into modern workplaces. 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.
