India's Office Property Market Poised for Faster Rental Growth as Consolidation Gains Momentum: Report

India's commercial office real estate market is undergoing a phase of consolidation, with healthy demand expected to gradually reduce vacancy rates and support stronger rental growth in the coming years, according to a report by Nuvama Institutional Equities. The report noted that gross office leasing across the country slipped 3% year-on-year to 20.6 million square feet during the second quarter of calendar year 2026 (Q2CY26). The slowdown was attributed largely to delays in corporate decision-making caused by geopolitical uncertainty stemming from the US-Iran conflict.

Net office leasing witnessed a steeper decline, falling 19% compared to the same period last year and 1% sequentially to 11.1 million square feet. Meanwhile, fresh office supply stood at 10.9 million square feet, down 8% year-on-year but 47% higher than the previous quarter. According to the report, delays in the completion of office projects limited the conversion of pre-committed demand into actual leasing activity.

Vacancy levels across India's seven largest office markets continued to improve, dropping 190 basis points year-on-year and 10 basis points quarter-on-quarter to 12.9%. Bengaluru remained the strongest performer, contributing 31% of total leasing demand and more than half (53%) of new office supply during the quarter.

Among the top seven office markets, Bengaluru reported the lowest vacancy rate at 8.7%. Hyderabad and the National Capital Region (NCR) recorded the highest vacancy levels at 18.6% each. Even so, the NCR's vacancy rate reached its lowest point since 2012, while the Mumbai Metropolitan Region (MMR) saw vacancies decline to 8.9%. Office rentals increased across all major cities on an annual basis, reflecting sustained demand for quality workspaces.

Sector-wise, IT and business process management (IT-BPM) companies remained the largest occupiers of office space, accounting for 22% of total leasing during the first half of CY26. Flexible workspace operators followed with a 20% share, while banking, financial services and insurance (BFSI) companies contributed 19%. Engineering and manufacturing firms represented 16% of leasing activity. Global Capability Centres (GCCs) continued to play a significant role, making up nearly 38% of gross office leasing during the quarter.

Nuvama estimates that around 171 million square feet of office space is in the development pipeline through CY28, although some projects could face delays. Annual office completions are expected to range between 55 million and 60 million square feet during CY26-CY28, broadly aligning with projected demand. With supply and demand expected to remain balanced, the brokerage believes vacancy levels will continue to edge lower over the medium term, creating favourable conditions for landlords and supporting faster rental growth across India's office market.