India's commercial real estate (CRE) sector is set for moderate growth in FY26. Total CRE inventory is expected to grow by 5-6% year-on-year to around 1,360 million sq ft according to India Ratings & Research (Ind-Ra). New office supply is expected to drop to around 52 million sq ft for FY26, following a surge of supply in FY25. Demand for leasing should strengthen, with robust demand in specific top cities like Mumbai, Bengaluru, Chennai, and NCR.
If you are an investor seeking opportunities in Ahmedabad, GIFT City, etc., RES Management can help you. Let's look at some of the distinct risks and upside opportunities for investing.
Opportunities
Tenant Demand & Absorption Momentum
With absorption anticipated to be up about 7-8% in FY26, the oversupply risk is somewhat mitigated. Cities such as Bengaluru and Chennai have a lower ratio of new supply under construction compared to absorption, indicating stronger markets.
Rental Growth & Yield Stabilization
Rental growth of 3–5% is anticipated in FY26. Similarly, while property price appreciation might hover in the 2–3% range, relative yield improvement is possible with flat rental rates.
REITs & Diversified Structures
REITs will likely outperform non-REIT assets given their better tenant diversification and inherent resilience to tenant churn. Strong EBITDA margins between 70–80% and moderate leverage ratios of about 5x–6x, are expected.
Geographic & Asset Class Selection
For RES Management clients in Gujarat and Ahmedabad, opportunities may lie in corridors with improving connectivity (e.g., SG Highway, GIFT City) and pre-leased or co-working offices that reduce vacancy risk.
Risks
Vacancy & Rent Pressure
Vacancy rates should stay within a 14-18% range for prime cities. Should tenant demand slow or leasing negotiations trend downward, rental compression may result.
Modest Capital Appreciation
With a forecasted price growth of only 2-3% in FY26 (down from 3-7% in FY25), capital appreciation may be limited. Investors depending solely on value appreciation might be disappointed.
City-level Disparities
In NCR, Hyderabad and Ahmedabad show higher under-construction to absorption ratios compared to Bengaluru and Chennai. As a result, select markets may see greater downward pressure on rentals or absorption.
Interest Rate / Financing Risk
Increasing interest rates could lead to increased borrowing costs for asset ownership and reduce the developers'/investors' appetite for leverage. Additionally, any macroeconomic slowdown will impact corporate leasing demand.
Regulatory / Policy Delays
Delays to land acquisition, approvals, or regulation, or policies at the State level (e.g., stamp duty, property tax) could also substantially disrupt project viability.
Final Words
To sum it up, FY26 is presented as an cautiously optimistic window to consider CRE investment in India. Overall, while challenges of vacancy and slow price appreciation remain, steady tenant demand and the emergence of REITs allow levers for investors.
Contact RES Management for smart investment.
FAQ
Q1: Should I invest in CRE in Ahmedabad or focus on metro cities?
A: You can find opportunities in developing sub-markets in Ahmedabad, particularly around GIFT City and SG Highway. However, relatively speaking, you may find more positive absorption dynamics for the time being in the larger metropolitan cities, namely Bengaluru, Chennai, and Mumbai. The balance of having a portfolio across geographies will also help hedge risk.
Q2: Is REIT investment safer than owning individual CRE assets?
A: Yes. REITs provide flexibility and liquidity, a diversified tenant base and much less burden regarding the management of the asset. Returns of the REIT will however follow the returns of the market. Investors wanting a more hands-on approach may have greater upside if selecting core/value-added CRE assets, done carefully.
Q3: What is a “pre-leased” property, and why is it safer?
A: A pre-leased property means that there is a tenant or tenants in place with long-term leases which in place represents cash flows and a less risk of vacancy from day one. RES Management lists pre-leased assets in Ahmedabad, which might appeal to yield-seeking investors.
Q4: How much rental growth is realistic in FY26?
A: Ind-Ra forecasts 3–5% growth in rentals for FY26. However, if this is a competitive area, it may also mean that the landlord has to provide some concessions or influence terms of lease or tenancy.
Q5: What exit strategy should an investor adopt?
A: Hold the investment, if possible, for the medium-term and long-term (5-7 years) as an opportunity ride up rental growth and potential revaluations. You can also structure deals with exit options to a REIT or other institutional investors.
