India office market set for stronger rental growth as consolidation gathers pace: Report
New Delhi, July 20
India's office space market is seeing consolidation, with robust demand expected to support a marginal decline in vacancy levels and drive stronger rental growth over the medium term, according to Nuvama Institutional Equities.
According to the report, India's gross office leasing declined 3 per cent year-on-year to 20.6 million sq ft in Q2CY26, as the US-Iran conflict affected corporate decision-making timelines.
At the same time, net leasing fell 19 per cent YoY and 1 per cent QoQ to 11.1 million sq ft, while supply stood at 10.9 million sq ft, down 8 per cent YoY but up 47 per cent QoQ. "Net leasing declined as delay in completion of offices limited realisation of pre-committed demand," it noted.
Noting that vacancies slid 190bp YoY/10bp QoQ to 12.9 per cent in the top-seven cities, Bengaluru led both demand and supply, accounting for 31 per cent and 53 per cent, respectively.
Bengaluru recorded the lowest vacancy rate among the top seven cities at 8.7%, while Hyderabad and the NCR reported the highest at 18.6% each. The NCR's vacancy rate was its lowest since CY12, while vacancies in the Mumbai Metropolitan Region (MMR) declined to 8.9%. Rents rose year-on-year across all cities.
At the same time, IT-BPM companies were the largest occupiers, accounting for 22% of leasing in H1CY26, followed by flexible workspace operators at 20%, BFSI firms at 19% and engineering and manufacturing companies at 16%. Notably, Global Capability Centres (GCCs) accounted for around 38% of gross leasing during the quarter.
While the upcoming office supply is estimated at ~171 msf by CY28E, some projects may be deferred. Completions are expected at 55-60 msf annually over CY26-28E, broadly matching demand, which should support a marginal decline in vacancy levels and accelerate rental growth.
"We anticipate vacancy levels to decline marginally over the medium term and expect annual rental growth to gain momentum ahead," Nuvama noted.
— ANI
Reader Comments
Good to see India's office market holding up despite global tensions. The GCC numbers (38%) are impressive—shows multinationals are betting big on Indian talent. Rental growth might hurt small businesses though.
As someone in HR for a BFSI firm, we are definitely seeing this shift. Flexible workspace operators at 20% is huge—companies are saving on capex and employees love the hybrid model. But will rental growth translate to better salaries? 🤔
NCR vacancy at lowest since 2012 is a big deal. With the Dwarka Expressway and new tech parks coming up, maybe NCR will catch up. But 18.6% vacancy is still high—need better infrastructure and connectivity. Potholes in Gurgaon don't help!
The US-Iran conflict note is interesting—global geopolitics affecting even office leasing decisions in India. But 55-60 msf annual supply seems aggressive. Hope developers have enough absorption lined up or we'll see more vacancy.
Happy to see MMR vacancy declining to 8.9% but rents rising in Mumbai is a double-edged sword. IT companies moving to Navi Mumbai and Thane is smart. But the report doesn't mention Tier-2 cities' potential—that's where the next wave is.
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