NEW DELHI: India’s commercial real estate sector is poised for another year of steady expansion, with gross leasing across the top eight office markets expected to rise 12%–14% year-on-year to 85-90 million sq ft in FY27, according to a whitepaper by India Ratings & Research (Ind-Ra) in association with ETRealty.
The agency estimates gross leasing at 79–80 million sq ft in FY26, up about 10% year-on-year. While 1HFY26 leasing stood at 29.5 million sq ft, down 8% year-on-year due to a high base and limited ready grade-A supply in prime markets, Ind-Ra expects activity to pick up in the second half of FY26 and carry momentum into FY27.
GCCs anchor demand; flex scales up
Global capability centres (GCCs) continue to be the primary demand driver, accounting for 35–45% of annual leasing in 2025. Expansion by GCCs across technology, BFSI and engineering functions, along with increasing deal sizes, is expected to underpin absorption in FY27.
Domestic occupiers, led by IT-BPM, BFSI, manufacturing and flexible workspace operators, remain key contributors to demand. Despite slower net hiring among large IT services firms and productivity gains from AI tools, GCC-led leasing has cushioned overall absorption.
Flexible and managed office formats are emerging as structural components of leasing strategy rather than cyclical add-ons. India is now the largest flex workspace market in Asia-Pacific and is expected to cross 100 million sq ft of flex stock by 2026. Ind-Ra notes that flex adoption enables faster portfolio ramp-ups and supports occupiers seeking speed to market and agility.
City-wise trends: supply tightness to ease
Leasing trends were mixed across cities in H1 FY26. Pune (up 37% year-on-year), Hyderabad (up 18%) and Kolkata (up 35%) outperformed, while Mumbai Metropolitan Region (MMR), Bengaluru, Chennai, NCR and Ahmedabad saw moderation, reflecting normalisation from last year’s surge.
Ind-Ra expects MMR, Bengaluru and Chennai to see 15–25% year-on-year growth in absorption in FY27, supported by active pipelines and GCC-led take-up. Much of the deferred demand in H1 FY26 is expected to convert as projects are handed over through FY26–FY27.
Supply growth disciplined; stock to reach 1.5 billion sq ft
Office stock across the top eight cities is projected to reach 1,391 million sq ft by March 2026 (up 9% year-on-year) and 1,507 million sq ft by March 2027 (up 8%). Supply in FY26 is expected to be completion-led, driven by delivery of committed projects, followed by a measured pipeline rebuild in FY27.
As of H1 FY26, total stock stood at around 1,300 million sq ft. Ready stock increased 12% year-on-year, while under-construction (UC) inventory declined 14%, reducing UC’s share to 13% from 16%. The UC share is expected to edge up to 15-16% by FY27, still below the 19-21% levels seen in 2023, indicating disciplined additions rather than oversupply.
India is also expected to contribute about 40% of Asia-Pacific’s grade-A office completions in 2026, led by Bengaluru, NCR and Mumbai.
Rentals to normalise after FY26 uptick
Pan-India office rentals are expected to rise 5-7% in FY26 before moderating to 4–6% in FY27.
In H1 FY26, Bengaluru and Hyderabad recorded sharper increases of 12% and 10% year-on-year, respectively, reflecting tight ready-to-occupy space in core tech corridors. MMR and NCR saw 4% growth, while Pune rose 5%, indicating steady demand for prime micro-markets.
Ind-Ra expects rental growth to ease in FY27 as new completions relieve supply pressure, particularly in tech-heavy submarkets. Larger gateway markets such as Chennai, NCR, MMR, Bengaluru and Pune are likely to see rental growth of 3-4%, while supply-catch-up markets such as Hyderabad and Ahmedabad may see 1-2% growth.
Prime, green-certified and amenity-rich assets are expected to retain pricing power, as occupiers continue to demonstrate a flight-to-quality preference.
Vacancy to remain range-bound
Vacancy levels across most top cities are projected to remain within a 12-18% range in FY27, supported by sustained leasing and return-to-office trends.
Vacancies declined in six of the eight tier-I cities in H1 FY26 compared to FY25. However, Pune and Ahmedabad saw increases to 23% and 25%, respectively, due to inventory build-up amid moderate absorption.
Ind-Ra expects vacancy in most cities to decline 1-4% year-on-year in FY27, with Kolkata potentially seeing sharper contraction due to limited new supply.
AI: two-speed impact on demand
The whitepaper highlights an evolving risk from AI adoption in the IT sector. While AI-driven productivity gains may slow expansion by traditional IT services firms and encourage densification or managed solutions, capability-led GCCs and flex operators are expanding their footprints.
This dynamic is sharpening the divergence between institutional Grade A portfolios and mid-tier assets in weaker micro-markets. Institutional owners with high-quality, ESG-compliant assets and stable tenant profiles are expected to capture the bulk of GCC- and flex-led demand, while leveraged mid-tier assets may face slower leasing velocity and softer rental growth.
Credit metrics to strengthen
Improving occupancies (90-95%), contractual rent escalations and mark-to-market uplifts on renewals are expected to support revenue and EBITDA growth for commercial real estate companies in FY27.
Ind-Ra projects stable net leverage at 4.5x–5.5x and interest coverage at 2.0x–2.25%, supported by firmer cash flows and healthy pre-commitments. The regulatory allowance for bank investments in REIT units is also expected to deepen liquidity and improve refinancing visibility for Grade A platforms.
Overall, the agency’s outlook suggests that while AI and IT hiring moderation may reshape space utilisation patterns, India’s office market remains structurally supported by GCC expansion, flex adoption and disciplined supply, positioning FY27 as another year of steady, quality-led growth rather than cyclical overheating.
