India's real estate enters new value creation phase led by strategic asset selection

New Delhi: India's real estate market entered a new phase of value creation in which investment returns will be driven increasingly by net operating income (NOI) growth and strategic asset selection, a report said on Monday.

Investors have the opportunity to still earn double-digit returns by holding high-quality office properties over a typical 5-year investment period, rather than relying solely on falling cap rates, the property consultancy JLL said.

India's real estate sector has matured into an institutional-grade investment destination, attracting about $78 billion of institutional capital since 2014.

The report noted another sign of maturity which is the notable compression in capitalisation rates across key sectors. Office cap rates have tightened by 270 basis points, retail by 320 basis points, and warehousing by 250 basis points between 2016 and Q3 2026.

“India's real estate market has reached a pivotal moment, moving beyond an era of market-wide re-rating to one focused on sophisticated, long-term value creation. The past decade was defined by a significant re-rating, with capitalisation rates compressing sharply across all key commercial sectors,” said Lata Pillai, Senior Managing Director & Head of Capital Markets, India, JLL.

"The next phase will be about building value, driven by income growth rather than cap rate movement. The era of returns driven by market-wide cap rate compression is behind us, as the scope for further compression is limited given the way interest rates are moving," Pillai added.

With over 600 million square feet of new supply across office, warehousing, and retail in the pipeline, plus 200 million square feet of non-premium office stock ready for repositioning, capital deployment pathways are clearly defined across the entire risk spectrum, from core institutional assets to value-add repositioning and opportunistic development.

A massive upcoming pipeline of 40 million sq. ft till 2030, which is 70 per cent premium, will fundamentally reshape the landscape and support long-term institutional portfolio growth, the report noted.

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