NEW DELHI: According to India Ratings and Research (Ind-Ra), the commercial real estate sector in India’s office market is expected to stay strong, with FY26 absorption predicted to increase by over 10% year-on-year, reaching around 79-80 million sq ft.
For FY27, the rating agency forecasts a 12-14% year-on-year growth in office leasing, anticipating total leasing to hit 85-90 million sq ft. Vacancy rates are expected to stabilize between 12-18%, while rental prices may see a 4-6% increase year-on-year, driven by global capability centres (GCCs) and flexible workspace operators.
Ind-Ra notes that volatility linked to the Middle East and the Strait of Hormuz is unlikely to significantly impact occupier demand in the short term. However, factors such as rising crude prices, rupee fluctuations, imported inflation, hedging expenses, and construction costs could slow down capital investments and the progress of ongoing projects.
The agency asserts that completed Grade-A properties, REIT portfolios, and core GCC-led micro-markets are poised to remain steady, while developers navigating under-construction and leveraged projects may encounter heightened execution and refinancing risks.
“In an environment marked by various volatilities, execution discipline, interest in capital structure, and asset quality will distinctly differentiate credit ratings across office CRE portfolios, beyond mere leasing figures,” says Aditya Aggarwal, associate director at the company.
Demand is expected to be bolstered by GCC expansion and the enterprise-focused adoption of flexible workspaces. Key sectors driving demand include technology, banking, financial services, insurance, engineering, research and development, manufacturing, consulting, e-commerce, and domestic enterprises.
According to the agency, large global companies may stagger their campus commitments, postpone discretionary expansions, or favor flexible and managed-office formats until budget clarity improves. This could introduce some quarterly leasing volatility, but is not likely to affect the medium-term demand outlook.
GCCs are projected to account for 45-50% of total office demand, while flexible leasing is expected to represent 25-35% in FY27. Pune continues to be a leading market for flexible workspaces, with operators constituting over 50% of leasing activity recently.
Ind-Ra indicates that supply remains well-managed, with developers prioritizing project completions and pre-commitments rather than speculative developments. The agency estimates the overall office stock to grow to approximately 1,507 million sq ft by March 2027, up from about 1,391 million sq ft in March 2026, with under-construction stock tightly controlled at 15-16%.
In Q4 of FY26, completions reached 8.8 million sq ft, against a net absorption of 11.5 million sq ft, causing a tightening of usable supply in certain markets.
Increased costs related to fuel, logistics, and fit-out may delay the timeline for project completions and the start of rent payments for ongoing projects. For debt investors, key focus areas have shifted from oversupply concerns to execution schedules, project deliveries, and the under-construction-to-absorption ratio, the agency adds.
The agency conveys that prime Grade-A assets in Bengaluru, Chennai, Mumbai Metropolitan Region, and specific areas in Pune and the National Capital Region are expected to remain in high demand. Conversely, peripheral or oversupplied markets, such as parts of Pune and Ahmedabad, may lag behind.
Rental prices are anticipated to grow by 4-6% year-on-year in FY27, compared to the 5-7% growth in FY26. Premium, stabilized, tech-enabled, and green-certified assets are expected to retain pricing power.
The agency believes that artificial intelligence will not negatively impact office demand directly. Though it may reduce headcount growth in certain areas, it might boost the demand for specialized offices geared toward AI, cybersecurity, data engineering, research and product development teams.
Ind-Ra suggests that the primary effect of macroeconomic volatility lies in its impact on capital flows rather than operations. Although India provides Grade-A office yields of 7-8%, fluctuations in the rupee, escalating hedging costs, and global risk aversion might delay investments and increase return expectations.
Investment capital is likely to be allocated strategically, favoring completed, leased, and REIT-quality assets. REITs appear well-positioned, boasting 90-92% occupancy rates, 23-25 million sq ft of annual leasing, 15-40% re-leasing spreads, and a carefully managed, predominantly pre-leased pipeline of about 25 million sq ft.
The agency concludes that ongoing disruptions are unlikely to derail the office real estate cycle but may deepen the divide between institutional Grade-A assets and weaker, oversupplied micro-markets.
