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The leasing of office space fell 27 per cent in eight major cities to 5.5 million sq ft during January-March quarter due to lack of supply, according to property consultant Cushman & Wakefield.
The net absorption of office space stood at 7.4 million sq ft in the year-ago period.
Supply of office space has been affected as the real estate developers are facing liquidity crunch because of a multi-year demand slowdown in the property market.
"Net absorption declined 27 per cent to 5.5 million sq ft in Q1 2017 (January-March 2017) from 7.4 million sq ft recorded in Q1 2016 in the top 8 Indian cities," the consultant said in a statement.
The decline was primarily due to delays in quality supply during the quarter, it added.
"While occupiers maintain a healthy outlook towards expansion and up-take of office space, constraints related to delays in occupancy certificates (OCs), and deferred construction schedules by developers in most cities led to the significant drop in net absorption during Q1 2017," C&W said.
The overall supply of office space during the quarter declined by 60 per cent to 4.7 million sq ft in Q1 2017 from 11.6 million sq ft in Q1 2016.
"While activity levels in the first quarter has typically been sluggish, this year's short-term blip stems from lack of quality available stock," said Anshul Jain, MD, India, Cushman & Wakefield.
However, he said corporates continue to be optimistic on the Indian market and are now waiting to occupy Grade A office space at the right locations.
"Demand from sectors such as BFSI, consulting is likely to remain strong this year, but we do see some curtailment from the IT-BPM sector. Rampant adoption of automation, resulting in potentially lower hiring during the year could impact space take-up by the IT-BPM," Jain said.
Moreover, he said companies might be on a wait-and-watch mode owing to the protectionist policies that are likely to be introduced by the US.
He said the demand is expected to pick up in the second half of the year with uncertainties due to BREXIT and the US political scenario easing out.