India's Real Estate Outlook Stabilises Despite Global Headwinds: Knight Frank–NAREDCO

After several years of rapid growth followed by a steep decline in sentiment earlier this year, India’s real estate sector seems to be steadying. Although uncertainties like geopolitical conflicts, high inflation and elevated energy prices continue to dampen sentiment, industry participants now feel that the sector has passed its worst phase. The second quarter Knight Frank–NAREDCO Real Estate Sentiment Index predicts that the real estate sector is poised for stabilisation, with healthy office demand being complemented by a housing market finally beginning to see signs of moving into a stable growth cycle.

As per the report, the Current Sentiment Score decreased slightly to 48 (lowest being 0 and highest being 100) from 49 in the last quarter and remains in negative territory. However, real estate's Future Sentiment Score was unchanged at 50 (where any value above 50 is positive), indicating that the dramatic drop seen in Q1 2026 may have bottomed out.

Uncertainty due to geopolitical conflicts, volatility in energy prices and inflation, and consequent darkening of the global economic outlook continued to keep sentiment muted. However, support from India's domestic economic activity, sustained occupier demand for offices and lightness in fear across most CRE indicators point to stakeholder sentiment slowly starting to find some ground.

While the Current Sentiment Score reduced by 1 percentage point quarter-on-quarter to 48, indicating stakeholders remain cautious about current market conditions against the backdrop of a challenging macroeconomic environment, the deceleration in decline is notable when compared to the steep decline observed in the last quarter.

The Future Sentiment Score also remained flat at 50, signalling stakeholders believe current headwinds will continue to prevail over the next six months.

Commenting on the report, Shishir Baijal, international partner, chairman and managing director, Knight Frank India, said, “The current geopolitical tensions accompanied by inflation and volatile energy prices continue to affect overall sentiment in the real estate sector. But if we look beyond the current quarter’s sentiment score, what’s encouraging is that the steep fall we saw in the last quarter has stabilised and the future sentiment is holding steady at the neutral threshold. The residential sector, which is coming off an extended period of robust growth, is now set for a period of normalisation. The office segment on the other hand has shown resilience with healthy leasing activity and strong occupier demand. With strong domestic demand factors and being the fastest-growing major economy in the world, we continue to remain optimistic about the growth story of Indian realty in the long term.”

Sentiments of Developers and Non-Developers

Overall stakeholder sentiment stayed muted as it hovered around the neutral mark.

Developer sentiment stalled at 51 this quarter, remaining unchanged from Q1 and sustaining the improvement from the sharper decline seen in previous months. This means that sentiment remains slightly more positive than neutral for the first time since the steep fall earlier in the year, but has not yet returned to the levels of optimism witnessed immediately following the pandemic. Sentiment among non-developers such as financial institutions, banks and private equity investors continued to improve, growing to 53 in Q2 2026 from 50 in the previous quarter.

Residential Market Outlook

Residential markets remain in a moderation phase after several years of strong growth. Transactions across the key markets increased by 1 per cent year-on-year in H1 2026, as growth continues to normalise and stabilise.

Sentiment has improved modestly as stakeholders are less pessimistic about the market outlook. The percentage of respondents who believe residential demand will soften in the next six months decreased to 45 per cent from 52 per cent in the previous quarter. Meanwhile, the percentage of respondents who believe conditions will remain the same increased, suggesting an expectation that markets will stabilise rather than continue to deteriorate.

Expectations on the supply side have also improved. The percentage of respondents who expect launch momentum to weaken over the next six months decreased to 38 per cent from 45 per cent in Q1 20 26. Developers continue to be cautious as cost pressures, labour shortages and financing conditions remain key challenges.

Price growth remains resilient as 74 per cent of respondents expect residential prices to stay the same or increase over the next six months. Ongoing inflation in construction materials, transportation fees and labour wages have supported price increases.

Office Market Outlook

Office spaces register highest absorption among commercial segments driving sentiment.

Absorption of office spaces at 48 mn sq ft in H1 2026 recorded a marginal decline of 2 per cent on a YoY basis despite a very high base in the previous year. Demand from occupiers has remained resilient backed by investment from Global Capability Centres (GCCs), IT and expansive corporate occupiers.
Sentiment on leasing volumes continues to be positive as 74 per cent of respondents surveyed expect leasing volumes to remain the same or increase in the next 6 months.

Outlook

Q2 2026 Sentiment Index reflects a sector that is adjusting to a tougher global backdrop, but still believes in the long-term fundamentals. While the current sentiment is soft, the stabilising trend in future sentiment indicates that respondents do not foresee conditions deteriorating materially from where they are.

The residential sector is witnessing a cyclical correction after a long phase of growth. The office sector continues to witness healthy leasing activity and stable rental growth. As geo-political and inflationary concerns are likely to ease gradually, Indian real estate is positioned well to benefit from India’s strong growth story aided by urbanisation and long-term demand drivers.