All time high! Net annual office leasing in India may hit a record; soar to 50 million square feet
Grade A commercial office space
leasing in India is projected to achieve a 7-9% CAGR through 2027, surpassing 50 million sq ft in financial year 2026-27, according to Crisil ratings agency.
Annual supply is anticipated at 53-57 million sq ft, contributing to a 6.5-7% CAGR expansion in overall office inventory during this period.
This trend will lead to improved occupancy levels and increased cash flows for commercial office developers. Credit profiles will remain stable, supported by prudent leverage, as per Crisil's analysis of 78 commercial office space developers representing approximately a quarter of India's Grade A office stock.
"With healthy demand absorbing the elevated supply, the overall vacancy level for India's Grade A office market is expected to decline to 15.5-16.0% by the end of fiscal 2027. That will mark a 100 basis points (bps) improvement over fiscal 2025. While overall vacancy is expected to reduce over this period, the trend will vary across micro-markets," said Gautam Shahi, Director, Crisil Ratings according to an ET report.
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Following strong recovery post Covid-19, the commercial office sector is positioned for steady growth, supported by reduced remote working and robust GCC demand.
GCCs remain crucial for sector growth, attracted by India's skilled workforce and cost benefits, contributing 30-40% of annual commercial office space net leasing across sectors.
The next two years will see net leasing driven by significant growth in BFSI and flexible workspace sectors. BFSI expansion reflects credit growth, increased assets under management and workforce expansion. Flexible workspace operators continue offering adaptable, efficient solutions.
IT/ITeS sector leasing growth is expected to be moderate at 5-6%, primarily driven by GCCs, whilst domestic IT company demand remains subdued.
Supply of commercial office space, which decreased to 47 million sq ft last fiscal, is expected to reach 53-55 million sq ft this fiscal as ongoing projects reach completion.
Crisil forecasts steady supply at 55-57 million sq ft next fiscal, with developers adjusting plans considering higher vacancies in certain areas. Total office stock is expected to reach 920-925 million sq ft by fiscal 2027, increasing from 810 million sq ft in March 2025.
Mumbai Metropolitan Region and National Capital Region, comprising one-third of commercial office inventory, are likely to see vacancy reduction of 200-250 bps, driven by BFSI, flexible workspace and IT/ITeS demand.
Southern markets, representing half the office stock, should maintain stable vacancy levels despite new supply, supported by continued GCC demand.
Pune may experience increased vacancies due to substantial upcoming supply potentially exceeding demand growth.
"Declining vacancy levels, along with contracted rental escalations and recent interest rate cuts by the central bank, are expected to improve cash flows of commercial office players. This, along with prudent leveraging by developers, should keep their credit profiles healthy this fiscal and the next. As a result, the annual DSCR5 is expected to improve to 1.9-2.0 times this fiscal and the next from 1.7 times last fiscal," said Snehil Shukla, Associate Director, Crisil Ratings.
Debt to EBITDA ratio is forecast to improve to 4.0-4.2 times by March 2027 from 4.7 times as of March 2025. However, geopolitical developments, global economic slowdown affecting GCC leasing, and potential excessive leveraging remain areas of concern.
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