Rentals on rise: Robust office space demand set to benefit landowners

Office space owners are looking at good times ahead as rentals are expected to rise due to demand for Grade A office spaces outpacing supply that has been sluggish due to construction delays, long gestation periods and developers’ interests shifting to residential. 

Recent office demand has been driven by global capability centres (GCCs), flex space operators, and domestic businesses. But since 2021, new completions have lagged behind strong leasing activity, pushing vacancy rates lower. For instance, office space is hard to find in central and secondary business districts across cities as vacancy rates stand at low single-digits. 

Submarkets such as BKC (Mumbai), Prime NH-8 (Gurgaon), ORR (Bengaluru), Hitec City, SBD East-Pune, and SBD OMR-Chennai are seeing tighter vacancies between 5-10 per cent, said Samantak Das, chief economist & head of research & REIS, India, JLL. 

“Vacancy rates don’t tell the full story. Much of the available space is outdated or doesn’t meet modern occupier needs. The real gap is in well-located, high-quality, enterprise-ready space,” said Kunal Mehra, president & co-CEO, Table Space. Construction delays due to regulatory hurdles, supply chain issues, and rising costs have further limited the availability of quality space. 

According to Knight Frank, only 53 per cent of total office stock is grade A, indicating a large share of space fails to meet global standards in design, ESG compliance, and tech readiness. “Developers are ramping up new grade A supply to meet this growing demand,” said Anuj Puri, chairperson, Anarock. This imbalance has shifted market power to land owners, driving up rents despite global uncertainties. 

According to Knight Frank, all major markets recorded rental growth. Mumbai saw 12 per cent growth, NCR 8 per cent, and Bengaluru 7 per cent. Average rentals in Mumbai stood at ₹129 per square foot per month, while those in NCR stood at ₹94 per square foot per month, as of June 2025.

 

“There is huge interest in Mumbai from companies expanding here. In the coming time, rents will go through the roof. I hope there will be some rationalisation, and the supply has to increase for that. There are unreasonable rents in some micro-markets,” said Boman Irani, chairman and managing director, Rustomjee Group, which is venturing into office spaces. 

“India has consistently seen 75-80 million square feet (msf) of gross leasing and 50 million sq ft of net absorption, but supply is only 40-50 million sq ft annually. There’s a significant gap between demand and supply,” said Anshul Jain, CEO, India, SEA & APAC tenant representation, Cushman & Wakefield. 

A key reason behind this shortage is being attributed to developers’ focus increasing on residential projects, post-Covid, attracted by faster sales, quicker returns, and easier financing through pre-bookings. 

In contrast, commercial projects require upfront capital, longer timelines, and post-construction leasing, making them more complex. 

“One has to understand this business, have deep, even global relationships. A lot of developers prefer the easier route, residential,” said Alok Aggarwal, MD & CEO, Brookfield India Real Estate Trust (Reit). He added that demand is high in micro markets near talent hubs, while supply is skewed toward infill micro-markets and often uneven. 

The lack of immediate supply is prompting forward leasing deals, with companies signing up for buildings set to be completed in 2026-2027, said Gulam Zia, senior executive director, research, advisory, infrastructure, and valuation Knight Frank. 

A spokesperson from an established Reit added, “Residential is so attractive now that if a developer can choose between office and housing, they prefer residential. Hence, office supply suffers.” 

Some analysts noted that, in certain cases, land initially zoned for commercial use has been redirected for residential projects.

“Demand has really shot up since H2FY24, but supply takes time. Commercial projects have longer tenures and can’t start and stop like residential,” one analyst noted. 

Rentals on rise

 

Lower vacancies in key micromarkets of Mumbai, NCR, Bengaluru, and Hyderabad

Demand rate outpacing supply, particularly that of premium, grade-A supply

Construction delays, approval challenges, etc. among key issues