APG is to invest in Indian commercial real estate with the Xander Group.

The Dutch pension fund asset manager will invest up to $500m in India’s office sector, targeting existing properties with low levels of vacancy.

Xander said the two companies were looking to capitalise on “continued strong tenant demand for office space”.

The joint venture, with an initial $300m to invest, will focus income-generating, institutional-grade properties – ideally let to IT and financial firms in Mumbai, NCR, Bangalore, Hyderabad, Chennai and Pune.

Sachin Doshi, APG head of non-listed real estate for Asia-Pacific, said that, despite a recent slowdown, India’s top six cities had consistently witnessed the largest net absorption of office space in the Asia-Pacific region.

He said: “This, combined with limited new development starts for office projects in India, creates a unique demand-supply gap for good quality office space that our venture aims to target.”

Office space absorption is likely to rise 7% this year, according to research by DTZ. The agent forecasts that 29 million sqft will be sought by in India’s major cities. Last year, absorption in Delhi-NCR, Mumbai, Bengaluru, Chennai, Pune, Hyderabad and Kolkata. In its March report on India office demand and trends, DTZ also projected that office rentals would remain stable in most markets in the first half of 2014 and the rents would begin to rise in the second half of this year.

Earlier this year, APG invested a further €35m in Indian hotel chain Lemon Tree, doubling its stake in the company to 13%.