India's office leasing record pace poised to continue in FY26
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India's commercial office market has witnessed a landmark year in fiscal year 2025, with office leasing hitting record levels and the momentum is expected to sustain in FY2026, driven by sustained demand from key sectors such as Global Capability Centres (GCCs), Banking, Financial Services and Insurance (BFSI) institutions, flexible workspace operators, and domestic Information Technology-Business Process Outsourcing (IT-BPM) firms, said ratings agency ICRA ..The net absorption of commercial office space across the top six cities—Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai Metropolitan Region (MMR), and Pune—reached a record high of 65 million sq ft in FY2025, a growth of 14% year-on-year. This surge in demand surpassed the 58 million sq ft of supply for the year, indicating strong pace of growth.'The momentum has carried into the first quarter of FY2026, with 17 million sq ft of net absorption, nearly matching the supply of 17.7 million square feet. ICRA expects this trend to continue in FY2026, with net absorption levels remaining strong and vacancy levels projected to decline further to 13.0–13.5% by March 2026 from all-time low levels of 13.9% as of March 2025 and 15.5% as of March 2024, reflecting strong fundamentals.' said Abhishek Lahoti, Assistant Vice President and Sector Head, Corporate Ratings at ICRA.One of the major trends highlighted by the ratings agency is the shift in leasing activity, with the slowdown in leasing from global IT firms being more than compensated by the growing demand from GCCs and BFSI segments. ICRA expects these sectors to continue driving leasing activity and to account for the majority of space uptake in FY2026.As of June end, the total Grade A office stock across the six major office markets stood at alround 1,030 million sq ft with Bengaluru having the highest share of 26%, followed by Delhi-NCR and MMR. The supply for FY2026 is estimated at approximately 63–64 million sq ft.City-level vacancy trends suggest a healthy outlook for the upcoming year: Bengaluru is expected to see a decline in vacancy rates, from 9.8% to 9.0–9.5% despite 16.5 million sq ft of new supply.Chennai is likely to maintain a stable vacancy rate of 9.0-9.5% despite an additional 5 million sq ft of supply. Delhi-NCR is projected to see a slight easing in vacancy rates, from 22.4% to 21.5–22.0%, with 12 million sq ft of new supply, the ratings agency said.Hyderabad is expected to maintain steady vacancy rates of around 17.5-18.0% with 15.5 million sq ft of new space. Mumbai Metropolitan Region (MMR) and Pune are expected to see a decline in vacancy rates, reflecting strong net absorption and sustained demand in these markets.ICRA's analysis also points to a positive outlook for the credit profile of office players, with a stable growth trajectory in net operating income (NOI) driven by higher rentals. As a result, the leverage metrics, measured by debt-to-NOI, are expected to improve, falling to a range of 5.0x–5.5x by March 2026, down from 6.0x in FY2025.Additionally, with the reduction in interest rates and a rise in NOI, debt service coverage ratio (DSCR) is projected to improve and remain healthy, reaching 1.35x–1.40x in FY2026, compared to 1.3x in FY2025.In conclusion, India's office leasing market is poised to continue its growth trajectory, with strong demand from key sectors and positive financial metrics expected to drive further expansion in FY2026.
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