Net leasing in office real estate set to hit all-time high by FY26: Crisil

The southern micro-markets, which comprise about half of the office stock, are likely to maintain stable vacancy levels despite strong upcoming supplies, because of continued demand from GCCs.

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India’s commercial real estate sector is poised for its most robust leasing cycle yet, with net leasing of Grade A office space projected to cross 50 million sq. ft. by FY26, according to CRISIL Ratings. That's a 7–9% compound annual growth rate (CAGR) through FY27, driven by reduced work-from-home trends and surging demand from global capability centres (GCCs). For investors—whether retail or institutional—the rebound signals a key shift in India's real estate cycle, and with it, new financial opportunities. 

"Consequently, occupancy levels are expected to improve, which will increase cash flows for commercial office players. This, coupled with prudent leverage, will keep credit profiles stable. Our study of 78 commercial office players, accounting for about a fourth of the Grade A office stock in the country, indicates as much. After a remarkable recovery in the past two fiscals post Covid-19 pandemic, India's commercial office market is set for steady net leasing growth over the medium term (see the chart in annexure), driven by reduced work-from-home arrangements and strong demand from global capability centres (GCCs)," Crisil said in a note.

 

 

Key Highlights:

• Net leasing to grow at 7–9% CAGR over two years, crossing 50 msf in FY26
• GCCs remain the largest contributors, accounting for 30–40% of demand
• BFSI and flex space to drive next leg of growth, with BFSI seeing double-digit leasing growth
• IT/ITeS growth slows, but GCCs fill the gap
• Office stock to rise to 925 msf by FY27, from ~810 msf as of March 2025
• Vacancy rates to drop to 15.5–16%, from 16.5% currently
• Improving cash flows and stable credit outlook for office developers

 

 What’s Driving the Boom?

• GCCs are still betting big on India
• With global corporations setting up high-value backend and tech ops in India, GCCs are now driving up to 40% of commercial leasing each year.
• Their demand has created a buffer against domestic slowdown in IT/ITeS leasing.

 

Flex Operators on Expansion Mode

 

Coworking and flexible office providers are riding the hybrid work wave, offering agile, scalable spaces to corporates trying to cut fixed costs.

Flex operators will continue to expand in key metros like Bengaluru, Hyderabad, NCR, and Mumbai.

 

BFSI Sector Steps Up

 

Double-digit leasing growth in banking, financial services, and insurance is being fueled by steady credit growth, employee hiring, and expansion into Tier II cities.

 

Supply Growth Calibrated, But Healthy

Supply additions dipped slightly to 47 msf in FY25 but are expected to rise to 53–55 msf in FY26 and stay at 55–57 msf in FY27.

 

Developers are treading carefully to match demand, especially in micro-markets where vacancy remains elevated.

 

 Micro-Market Trends to Watch

NCR and MMR: Vacancy could drop by 200–250 bps by FY27 thanks to BFSI and IT demand.

 

South India: Bengaluru, Hyderabad, and Chennai to hold steady as GCC hubs absorb new supply.

 

Pune: May see rising vacancy as supply outpaces absorption in near term.

 

1. REITs Could Benefit

Declining vacancies, improving rents, and falling interest rates are a potent combo for listed REITs, especially those with strong portfolios in South and West India.

 

 Rental Yields May Firm Up

With stronger demand, office rental escalations will firm up. Investors in Grade A office properties—directly or through fractional ownership—may benefit from higher yield and capital appreciation.

 

 Stable Developer Credit = Safer Investments

According to CRISIL, Debt-to-EBITDA ratio is expected to improve to 4.0–4.2x by FY27 from 4.7x currently.

 

DSCR (Debt Service Coverage Ratio) may rise to 2x, indicating better ability to meet debt obligations.

 

What to Watch For

Global headwinds: Economic slowdown in the US or EU may impact GCC leasing.

Geopolitical risks: Tensions in Asia or global interest rate volatility may affect investor sentiment.

Over-leveraging by new players: Could dampen the sector's positive credit momentum.