Why Commercial Real Estate, REITs, and AIFs Are the Smart Investment Choices for Today's Investors
Explore the evolving landscape of real estate investments in India, where commercial real estate, REITs, and AIFs are gaining traction for their attractive yields and diversification benefits.
Real EstateReitsAifsCommercial Real EstateInvestmentReal EstateOct 13, 2025
The Luxury Residential Outlook Report 2025 by India Sotheby’s International Realty notes that commercial real estate is emerging as a strong contender, with 41% of HNIs and ultra HNIs planning to invest over the next 12–24 months. Additionally, 24% are also eyeing AIFs to diversify and grow their wealth portfolio. Clearly, for Indian investors, the spotlight is shifting beyond homes. Commercial real estate, REITs, and AIFs are increasingly seen as smarter, more diversified ways to grow wealth. Office parks, retail outlets, and warehouses generate attractive rental yields of 7–10%, and India’s office market has stayed resilient with steady demand from IT firms, startups, MNCs, and India-facing businesses.
The data backs this trend: in Q2 2025, India’s top-8 cities recorded 21.4 million square feet of gross office leasing, pushing the H1 total to 42 million sq ft and on track to cross a record 90 million sq ft for 2025. Net absorption stood at 27.8 million sq ft in H1, growing 19% on-year. Vacancy rates have been steadily falling, down to 15.7% in early 2025 from nearly 18.5% two years ago. Bengaluru, Delhi-NCR, and Pune continue to drive much of the momentum.
Evolved UHNIs prefer buying good quality pre-leased office, retail, and warehousing assets. They have family offices or teams to take care of diversification, asset quality maintenance, and improvements, which ultimately help deliver the returns that come with the risks of owning physical assets of these classes.
### Hassle-free Commercial Ownership
Direct ownership of a retail space, a floor, or even a commercial building continues to appeal to ultra-rich investors for steady rental income. However, for most people, the large capital requirement, tenant management, and operational responsibilities make it complex. This is where REITs and SME REITs come in.
Listed on bourses, REITs pool investor money into high-quality assets—Grade A offices, malls, warehouses—and distribute rental income regularly. Units can be bought and sold like stocks, giving investors liquidity that physical assets cannot. Since inception, India’s four initial REITs have distributed more than Rs.24,300 crore to unitholders, underscoring their steady cash generation.
Today, India’s five listed REITs—Embassy Office Parks, Mindspace Business Parks, Brookfield India, Nexus Select, and Knowledge Realty Trust—together command a market capitalisation of around Rs.1.5 lakh crore. Several have delivered 15%+ investor returns, combining dividend payouts with unit price gains. With their blend of steady rental yields, capital appreciation potential, and liquidity, REITs offer transparency, scale, and stability—making them a compelling choice for investors seeking income with flexibility. There are several more REITs planned, and we expect that we should have one new REIT every year over the next 4-5 years in the country.
### Higher Returns, Structured Safety
For those willing to take on a longer horizon, AIFs are emerging as a compelling wealth-building tool. Unlike REITs, which focus on income distribution, AIFs blend income-generating assets with projects that deliver capital appreciation.
What makes AIFs especially attractive for HNIs is the potential for higher returns. Debt real estate AIFs target internal rates of return (IRRs) of 14-16%, which is far superior to other debt products. Equity real estate AIFs can generate IRRs above 20%, depending on the projects invested in and the effective risk management strategies employed by the fund manager.
AIFs are regulated by the Securities and Exchange Board of India. With their tranche-based payouts and clear exit strategies, investors know roughly when and how they will see returns, which is more reliable than direct ownership. They also offer diversification—investments spread across geographies and property types, such as warehouses in Pune, office assets in Bengaluru, or residential township projects in Hyderabad, thereby lowering concentration risk. Additionally, management is professional, with experienced fund managers handling acquisitions, leasing, development, and sales, thereby freeing investors from operational burdens. As of March 2025, there were about 1,524 registered AIFs in India.
That doesn’t mean these instruments are risk-free. Debt real estate AIFs work in the high-yield market where credit risk is high. Essentially, these funds invest in bonds issued by real estate companies. The credibility and repayment capability of such companies are crucial. It can also be said that some of these companies, which raised money at 14-15% yields, were unable to raise funds at lower yields. This makes companies risky. Fund managers must do their due diligence. An exit strategy is also needed by fund managers because selling these securities can take time.
Similarly, equity real estate AIFs invest in both listed and unlisted companies. Investments in unlisted companies, with the hope that an initial public offering (IPO) is forthcoming, are a rewarding but risky proposition. What if the IPO doesn’t happen? That is why fund managers of AIFs need to exercise care and discretion.
Residential property remains an anchor of long-term wealth for Indian families, but for mature investors, the more compelling story today lies in commercial assets, REITs, and AIFs. REITs deliver liquidity and predictable income, AIFs open doors to higher returns with managed risk, and together they provide institutional-quality exposure without the operational headaches of direct ownership.
A thoughtful mix of REITs, AIFs, and select residential holdings can help investors balance stability, liquidity, and growth—the true hedge in an uncertain global climate.
Frequently Asked Questions
What are REITs and how do they work?
REITs, or Real Estate Investment Trusts, are investment vehicles that pool money from multiple investors to buy and manage income-generating real estate assets such as office buildings, malls, and warehouses. REITs are listed on stock exchanges, allowing investors to buy and sell units like stocks, providing liquidity and regular rental income distributions.
What are the benefits of investing in AIFs?
Alternative Investment Funds (AIFs) offer higher potential returns and diversification. They blend income-generating assets with projects that deliver capital appreciation. AIFs are regulated, offer tranche-based payouts, and are managed by experienced professionals, reducing operational burdens for investors.
What are the risks associated with AIFs?
AIFs, especially debt real estate AIFs, come with credit risk. They invest in high-yield bonds issued by real estate companies, which may have repayment issues. Equity AIFs, which invest in unlisted companies, face the risk of delayed or no IPOs. Fund managers must conduct thorough due diligence and have clear exit strategies.
How do REITs provide liquidity for investors?
REITs are listed on stock exchanges, allowing investors to buy and sell units easily, providing liquidity. This is unlike direct ownership of physical real estate, which can be complex and time-consuming to sell.
Why are commercial real estate investments becoming more popular?
Commercial real estate, including office parks, retail outlets, and warehouses, generates attractive rental yields of 7–10%. The market has remained resilient with steady demand from IT firms, startups, MNCs, and India-facing businesses, making it an attractive option for investors seeking stable returns.
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