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India Office Space Booms: Demand Outpaces Supply
1 Dec
Summary
- Office space net absorption in top cities exceeded new supply in H1FY26.
- GCCs, flex-space, and BFSI sectors are driving demand for office spaces.
- Office vacancy levels are projected to reach an all-time low by FY26.
The Indian office space market is demonstrating strong performance, with demand consistently exceeding new supply. In the first half of fiscal year 2026, top Indian cities collectively saw a net absorption of 36 million square feet, surpassing the 30.6 million square feet of new space provided. This robust absorption is largely attributed to the sustained growth from Global Capability Centers (GCCs), particularly in healthcare, manufacturing, and technology sectors, alongside flex-space operators and the BFSI industry.
This heightened demand has led to a significant reduction in vacancy levels, which dropped from 15.6% a year ago to 13% by September. Projections indicate that net absorption will reach an all-time high of 69-70 million square feet in FY26, with vacancy rates expected to settle between 12.5% and 13%. Consequently, rental growth, which has been modest, is anticipated to accelerate, with average office rentals already increasing by 6% year-on-year by September 2025.
Listed Real Estate Investment Trusts (REITs), managing about 15% of India's office stock, are also seeing positive outcomes, with many reporting committed occupancies at or above 90% in the September quarter of FY26. Management teams are optimistic about further increases in occupancy, supported by demand and the conversion of SEZ spaces. This uptrend in occupancy is expected to bolster REIT earnings and Distribution Per Unit (DPU) growth in the coming years.
