Private equity investments in Indian real estate declined 23 per cent year-on-year to $1.13 billion during the first half of 2026 as elevated global interest rates and shrinking yield differentials prompted overseas investors to become far more selective in deploying capital, according to Knight Frank India.

 Office continued to remain the preferred asset class for investment with 89% of PE investment in H1 2026, while residential sector received the remaining. National Capital Region (NCR) recorded maximum investment amongst the top eight cities of India.

India’s yield advantage has narrowed

One of the biggest reasons behind the slowdown is the sharp rise in US bond yields.

During 2020-21, India’s 10-year government bond offered a yield premium of around 440 basis points over the US 10-year Treasury, making emerging markets significantly more attractive for global investors.

By the first half of 2026, that premium had narrowed to about 240 basis points as US Treasury yields climbed from around 1.8 per cent in 2021 to 4.4 per cent.

As a result, global investors can now earn substantially higher returns from relatively risk-free assets in developed markets, forcing Indian real estate to compete not only on growth prospects but also on execution certainty and capital efficiency.

Knight Frank estimates that the implied minimum return expected by investors on Indian assets has increased from around 8.6 per cent in 2021 to nearly 11.5 percent in H1 2026.

Office assets dominate

The biggest beneficiary of this more cautious investment approach has been office real estate.

Office properties accounted for 89 per cent of all private equity investments during the six-month period, attracting $998 million, a 33 per cent increase over the same period last year.

Knight Frank attributes the resilience to sustained expansion by Global Capability Centres (GCCs), multinational corporations and domestic occupiers, which continue to drive leasing demand across India’s major office markets.

Investors also showed a clear preference for completed office buildings.Around 75 per cent of office investments during H1 2026 were directed towards ready assets, up sharply from 53 per cent a year ago, reflecting growing preference for stable rental income over development risk. 

Residential investments halve

The residential segment witnessed a much sharper slowdown.

Private equity investments in housing declined to $128 million from $297 million a year earlier as investors became increasingly cautious towards development-led opportunities.

Knight Frank said the decline should not be interpreted as weakening housing demand. Instead, higher financing costs and stricter return expectations have pushed investors towards projects offering greater certainty of returns.

NCR attracts the most capital

The National Capital Region emerged as the biggest destination for institutional capital during the period.

Private equity inflows into NCR surged 522 per cent year-on-year to $411 million, accounting for more than one-third of total investments.

Warehousing sees a pause

Interestingly, neither warehousing nor retail witnessed significant private equity transactions during the first half of the year.

Knight Frank, however, said the absence of deals does not indicate weakening fundamentals, suggesting investors are temporarily prioritising sectors offering greater income visibility amid tighter global financial conditions.” 
The next phase of capital inflows into Indian real estate will be driven not only by growth prospects but also by the country’s ability to deliver predictable post-tax, risk-adjusted returns. Policy initiatives that enhance the competitiveness of India’s investment ecosystem and facilitate long-term institutional participation could play a crucial role in strengthening capital flows into the sector over the coming years,” said the report.