The Office-Housing Multiplier Effect Driving Indian Real Estate

Knight Frank’s Viral Desai charts a mechanical link where record commercial leasing generates 6 new residential homes for every 1,000 sq ft of office space

January 31, 2026Real Estate

Key Takeaways

A structural correlation exists where every 1,000 square feet of new office demand generates approximately six new residential homes due to job creation.
With 2025 establishing a benchmark of approximately 85 million square feet in gross leasing volume, the market enters 2026 with a verified pipeline of residential inventory requirements.
The dominant trend across all sectors is premiumisation as occupiers use high-end office space for talent retention and homebuyers prioritise amenities and larger living spaces.

The Mathematics of Growth

India’s real estate sector has established a "fantastic ecosystem" that fundamentally alters the mechanics of market growth. Moving beyond speculative cycles, the market now operates on a mechanical correlation where commercial absorption actively underwrites residential demand, insulating the sector from broader global volatility.

In an exclusive interview between Viral Desai, Senior Executive Director at Knight Frank India, and Gustavo Favaron, Global CEO & Managing Partner at the GRI Institute, this mechanical link was identified as the primary differentiator for the Indian market.

Unlike global counterparts grappling with negative leverage and hybrid-work vacancies, India’s office sector is acting as a predictable upstream generator for housing demand.

The arithmetic is precise: 1,000 square feet accommodates 8-10 jobs, which translates directly into 5-6 households entering the residential market.

Volume as the New Fundamental

The scale of this mechanism was vividly demonstrated in 2025, where the market compressed a full year of historical activity into just six months. The first half of the year alone recorded 49 million square feet of leasing volume - rivaling the total annual volume of 2017.

For domestic developers and investors, the approximately 85 million square feet transacted in 2025 now serves as a critical baseline for 2026. It suggests that the ongoing residential surge is not a bubble driven by cheap credit, but a structural output of commercial expansion and industrial diversification, particularly as manufacturing bases shift to India to de-risk global supply chains.

Viral Desai and Gustavo Favaron in a candid interview on Indian Real Estate

Viral Desai and Gustavo Favaron in a candid interview on Indian Real Estate

In 2025, the Indian market moved with such speed that it compressed a full year of historical leasing activity into just six months. (GRI Institute)

Premium vs Affordable

However, Desai cautions that the rising tide is not lifting all boats. A distinct bifurcation has emerged where "premiumisation" is no longer a marketing buzzword but a survival metric.

The affordable housing segment (ticket sizes below INR 10 million) is facing significant headwinds, unable to align with a post-Covid consumer base that now views real estate through the lens of experience and amenities.

Whether in commercial leases or residential sales, the demand is exclusively for Grade-A assets that act as talent retainers or lifestyle enablers. This shift renders non-premium stock increasingly obsolete, forcing a repricing of legacy assets that fail to meet these new experiential thresholds.

The Capital Arbitrage Window

For sophisticated capital, the entry point remains technically undervalued despite the volume boom. Prime rentals in Mumbai’s BKC or CBD trade at approximately USD 60 annually per square foot (USD 5-6 per month) - a fraction of the occupancy costs in London or New York, despite offering comparable asset quality. Tech hubs like Bangalore offer even deeper value, with prime rentals trading between USD 24-36 annually per square foot (USD 2-3 per month).

While the convergence of bond yields (India at around 6.5% vs US at around 4.5%) has structurally altered the carry trade for Western institutional capital, the liquidity gap is being aggressively filled by long-term patient capital from Japan and Singapore.

These investors are bypassing the currency hedging friction to bet on the volume depth of the Indian consumer story. Yet, as the Blackstone precedent demonstrates, the only viable conduit for this capital remains deep-rooted local partnerships capable of navigating the regulatory and execution nuances of the region.

Watch the full interview with Viral Desai here.