Vacancy Levels to Hit Multi-Year Lows; Retail Mall Operators to See Steady Growth
Mumbai, 23rd January 2025: Net absorption of commercial office space across India’s top six markets is projected to exceed 60 million square feet (msf) in FY2026, the highest ever, according to a report by ICRA. The cities—Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai Metropolitan Region (MMR), and Pune—are expected to achieve a 3-4% increase in absorption over FY2025’s estimated 59-60 msf.
Despite a surge in new office space supply of 125-130 msf across FY2025 and FY2026, vacancy levels are anticipated to decline to 14-14.5% by March 2026, marking a multi-year low. This trend is driven by robust demand from global capability centers (GCCs), domestic corporates, increased physical occupancy in offices, and revival in IT-SEZ spaces due to regulatory changes.
“Leasing activity has remained resilient, with net absorption reaching approximately 54 msf in FY2024 and 44 msf during the first nine months of FY2025. Vacancy levels dropped by 70 basis points to 14.7% as of December 2024, compared to March 2024. By March 2026, occupancies in the top six markets are expected to reach a decade-high of 85.5-86%,” said Anupama Reddy, Vice President and Co-Group Head – Corporate Ratings, ICRA.
India’s Office Market Resilient Amid Global Slowdown
The Indian office market has defied global economic sluggishness due to its cost-effective, highly skilled workforce, a growing domestic economy, and competitive rental prices. These factors continue to attract global firms, strengthening India’s position as a preferred real estate investment destination.
ICRA expects the credit profiles of office space operators to remain stable, supported by an increase in net operating income (NOI). The debt-to-NOI ratio for operators is forecasted to improve to 3.9-4x by March 2026, compared to 4.3-4.4x by March 2025. Debt service coverage ratios (DSCR) are projected to rise to 1.45-1.5x in FY2026 from 1.35x in FY2025.
Retail Malls See Growth Amid Challenges
Retail mall operators are also expected to witness growth, with rental income projected to increase by 7-8% year-on-year in FY2025 and 8-9% in FY2026. New mall supply of 9-9.5 msf each year in FY2025 and FY2026 is expected to stabilize vacancy levels at 21% as of December 2024 and maintain occupancy rates of 79-80% through March 2026.
“Retail consumption growth is expected to moderate to 6-7% in FY2025 due to the General Elections, weather disruptions, and the impact of extended monsoons. However, a rebound is anticipated in H2 FY2025, driven by the festive and wedding seasons. Segments such as food, apparel, accessories, and hypermarkets will continue to drive growth,” added Reddy.
Despite the positive outlook, challenges persist for retail mall operators, including the growing competition from e-commerce and q-commerce platforms, which are increasingly impacting even premium brands in the fashion segment.
ICRA estimates the debt-to-NOI ratio for mall operators to improve to 4.2-4.5x by March 2026 from 4.6-4.8x in March 2025, driven by rising NOI levels. DSCR is expected to remain stable at 1.45-1.5x during FY2025-FY2026, indicating a healthy financial outlook for the sector.
Conclusion
The sustained growth in India’s office and retail real estate markets underscores the country’s resilience and potential as a global investment hub, driven by its robust economic fundamentals and growing demand for quality commercial spaces.
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