The annual net leasing growth is seen healthy at 7-9% compound annual growth rate (CAGR) over this fiscal and the next, amid steady growth in suppl. Consequently, overall vacancy in India's office market is expected to decline 100 basis points (bps) to 15.5-16.0% by end of next fiscal, compared with last fiscal.
The Covid-19 pandemic has had a significant impact on this market, with vacancy rising to unprecedented 17% in fiscal 2024 from 11.5% in fiscal 2020 as work-from-home flourished. This was driven by significant decline in leasing by the companies even as supply remained steady due to the completion of ongoing projects.
Over the past two fiscals, however, net leasing has rebounded strongly with a 15-17% CAGR, surpassing the pre-pandemic levels last fiscal, and reaching approximately 45 million square feet (msf). There were two tailwinds here — a gradual and increasing return-to-office, and multinationals setting up global capability centers (GCCs).
Looking ahead, the annual net leasing growth is expected to stabilize and remain healthy, reaching around 48–53 msf over the next two fiscals driven by the continued strong demand from GCCs and sectors such as BFSI and flexible workspaces (flex).
The GCC drive
GCCs, which account for 30-40% of net leasing activity in India, have been a key driver of growth in the office space market. Net leasing by them grew a strong 14% over the three years through fiscal 2025. They are expected to maintain a growth of 12-14% annually over the next two fiscals.
Multinationals have been drawn in by India's skilled and large talent pool and cost advantages in executing high-end work. GCCs today have evolved beyond traditional support services and emerged as strategic hubs that leverage innovative technologies and analytical capabilities of Indian talent.
As new GCCs emerge and existing ones expand, they will drive growth in the office space market, particularly in Bengaluru and Hyderabad, which account for around two-thirds of such demand.
GCCs are undergoing transition and span across multiple sectors now including IT/ITeS, engineering and manufacturing, BFSI and consulting among others, which was earlier dominated by IT/ITeS.
Sectoral trends: BFSI, Flex in the lead
From a sectoral perspective, net leasing over the next two fiscals will be driven by double-digit growth from BFSI and flex companies. Growth in BFSI will be driven by steady credit growth, increasing assets under management and employee additions while flex operators continue to expand by offering agile, cost-effective, and hybrid-friendly solutions to companies.
In contrast, growth in the IT/ITeS is expected to remain moderate, with demand rising around mid-single digit. This will largely be driven by GCCs, as net leasing by domestic IT/ITeS companies remains low.
Narrowing demand-supply gap
Though demand remains healthy, on the supply side, developers remain cautious and are likely to continue to calibrate their annual supply to around 53-57 msf, amid higher supply in certain micro-markets and unavailability of land in key micro-markets within cities.
Net-net, the demand-supply gap is expected to narrow to 5-6 million square feet (msf) in the current and next fiscal, thereby returning to the pre-pandemic levels. This is a notable decline from the pandemic-era highs of 12-20 msf seen between fiscals 2021-24. This is likely to drive the reduction in vacancy levels over the medium term.
Regional trends vary
While the overall vacancy is expected to moderate, the extent will vary across cities and micro-markets. Within cities, the National Capital Region and Mumbai Metropolitan Region, which account for around a third of the total office stock, are expected to see a decline in vacancy levels due to strong demand from the BFSI, flex, and IT/ITeS sectors. Southern cities, which account for around half of the stock, are likely to hold steady due to strong demand from GCCs.
In contrast, Pune may see a slight increase in vacancies due to significant upcoming office supply over the next two years. Similarly, within cities, some micro-markets continue to outperform others.
Credit profile remains healthy
Declining vacancy levels, along with contracted rental escalations and recent policy rate cuts by the Reserve Bank of India are expected to improve the cash flows of commercial office players. This, and prudent leveraging by the office players rated by us, should keep their credit profiles healthy this fiscal and the next.
As a result, the DSCR is also expected to improve to 1.9-2.0 times in current and next fiscal from 1.7 times in fiscal 2025. The ratio of debt to Ebitda is projected to decline to 4.0-4.2 times by March 2027 from 4.7 times as of March 2025.
All said, changing global dynamics and economic slowdown can impact leasing activity by GCCs and will remain monitorable.
