India's Commercial Real Estate Poised for Record Leasing Growth by FY26
India's commercial real estate sector is on track for its most robust leasing cycle yet, with net leasing of Grade A office space projected to surpass 50 million sq. ft. by FY26, driven by reduced work-from-home trends and surging demand from global capability centres (GCCs).
Commercial Real EstateNet LeasingGrade A Office SpaceGlobal Capability CentresReal Estate InvestmentReal EstateJul 17, 2025
Consequently, occupancy levels are expected to improve, which will increase cash flows for commercial office players. This, coupled with prudent leverage, will keep credit profiles stable. Our study of 78 commercial office players, accounting for about a fourth of the Grade A office stock in the country, indicates as much. After a remarkable recovery in the past two fiscals post Covid-19 pandemic, India's commercial office market is set for steady net leasing growth over the medium term, driven by reduced work-from-home arrangements and strong demand from global capability centres (GCCs).
Key Highlights:
- Net leasing to grow at 7–9% CAGR over two years, crossing 50 msf in FY26
- GCCs remain the largest contributors, accounting for 30–40% of demand
- BFSI and flex space to drive next leg of growth, with BFSI seeing double-digit leasing growth
- IT/ITeS growth slows, but GCCs fill the gap
- Office stock to rise to 925 msf by FY27, from ~810 msf as of March 2025
- Vacancy rates to drop to 15.5–16%, from 16.5% currently
- Improving cash flows and stable credit outlook for office developers
What’s Driving the Boom?
- GCCs are still betting big on India
- With global corporations setting up high-value backend and tech ops in India, GCCs are now driving up to 40% of commercial leasing each year.
- Their demand has created a buffer against domestic slowdown in IT/ITeS leasing.
Flex Operators on Expansion Mode
Coworking and flexible office providers are riding the hybrid work wave, offering agile, scalable spaces to corporates trying to cut fixed costs. Flex operators will continue to expand in key metros like Bengaluru, Hyderabad, NCR, and Mumbai.
BFSI Sector Steps Up
Double-digit leasing growth in banking, financial services, and insurance is being fueled by steady credit growth, employee hiring, and expansion into Tier II cities.
Supply Growth Calibrated, But Healthy
Supply additions dipped slightly to 47 msf in FY25 but are expected to rise to 53–55 msf in FY26 and stay at 55–57 msf in FY27. Developers are treading carefully to match demand, especially in micro-markets where vacancy remains elevated.
Micro-Market Trends to Watch
- NCR and MMR: Vacancy could drop by 200–250 bps by FY27 thanks to BFSI and IT demand.
- South India: Bengaluru, Hyderabad, and Chennai to hold steady as GCC hubs absorb new supply.
- Pune: May see rising vacancy as supply outpaces absorption in near term.
REITs Could Benefit
Declining vacancies, improving rents, and falling interest rates are a potent combo for listed REITs, especially those with strong portfolios in South and West India.
Rental Yields May Firm Up
With stronger demand, office rental escalations will firm up. Investors in Grade A office properties—directly or through fractional ownership—may benefit from higher yield and capital appreciation.
Stable Developer Credit = Safer Investments
According to CRISIL, Debt-to-EBITDA ratio is expected to improve to 4.0–4.2x by FY27 from 4.7x currently. DSCR (Debt Service Coverage Ratio) may rise to 2x, indicating better ability to meet debt obligations.
What to Watch For
- Global headwinds: Economic slowdown in the US or EU may impact GCC leasing.
- Geopolitical risks: Tensions in Asia or global interest rate volatility may affect investor sentiment.
- Over-leveraging by new players: Could dampen the sector's positive credit momentum.
Frequently Asked Questions
What is the projected net leasing growth for Grade A office space in India by FY26?
Net leasing of Grade A office space in India is projected to cross 50 million sq. ft. by FY26, with a 7–9% compound annual growth rate (CAGR) through FY27.
What are the key contributors to the growth in commercial real estate leasing?
Global capability centres (GCCs) are the largest contributors, accounting for 30–40% of demand. BFSI and flex space are also driving the next leg of growth.
How is the BFSI sector contributing to the growth in commercial real estate?
The BFSI sector is seeing double-digit leasing growth, fueled by steady credit growth, employee hiring, and expansion into Tier II cities.
What is the expected trend in supply additions for office space in India?
Supply additions are expected to rise to 53–55 msf in FY26 and stay at 55–57 msf in FY27, with developers carefully matching demand in micro-markets.
What are the potential risks to the commercial real estate sector's growth?
Potential risks include economic slowdowns in the US or EU, geopolitical tensions, and over-leveraging by new players in the market.
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