Retail mall operators in India are poised for substantial rental income growth over the next two fiscal years, according to a recent report by ICRA. The rental income is projected to rise by 7-8% year-on-year (YoY) in FY2025 and 8-9% in FY2026, driven by sustained occupancy levels, increasing trading values, and rental escalations.

Key Growth Drivers for Retail Mall Operators

ICRA highlights that the Indian consumption story remains a crucial factor propelling growth. Consumption in retail malls is expected to moderate to 6-7% in FY2025 from 9% in FY2024 due to disruptions like the General Elections, heatwaves, and extended monsoons in the first half of FY2025. However, consumption is expected to pick up in the second half, fueled by the festive and wedding seasons. Key sectors like hypermarkets, food, apparel, accessories, and jewelry are projected to drive this growth, alongside a recovery in family entertainment centers (FEC).

Despite a temporary rise in vacancy levels to 21% as of December 2024 due to the influx of new supply, the occupancy rate is projected to stabilize at 79-80% by March 2025 and remain steady through FY2026.

Challenges and Competition

E-commerce and quick-commerce players, particularly in the fashion segment, continue to pose challenges for retail mall developers. Even premium brands are not immune to the competitive threat from digital platforms, underscoring the need for retail malls to innovate and enhance their customer experience.

Office Space Market Trends

India’s office space market is also witnessing sustained resilience, with vacancy levels in the top six cities—Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai Metropolitan Region (MMR), and Pune—expected to decline to multi-year lows of 14-14.5% by March 2026. Net absorption of commercial office space is estimated to grow by 10-11% to 59-60 million square feet (msf) in FY2025, followed by an additional 3-4% growth in FY2026.

“Leasing activity has remained strong, with net absorption reaching ~54 msf in FY2024 and ~44 msf in the first nine months of FY2025,” said Anupama Reddy, Vice President and Co-Group Head of Corporate Ratings at ICRA. This trend is supported by increased demand from global capability centers (GCCs) and domestic corporates, higher physical occupancy, and regulatory reforms around IT-SEZ floor-wise denotification.

Financial Stability of Retail and Office Operators

The credit profiles of both retail mall and office space operators are expected to remain stable, supported by an improvement in net operating income (NOI). For retail mall operators, the debt-to-NOI ratio is forecasted to improve from 4.6-4.8x in FY2025 to 4.2-4.5x by FY2026, with a comfortable debt service coverage ratio (DSCR) of 1.45-1.50 times. Similarly, for office players, the debt-to-NOI ratio is expected to improve from 4.3-4.4x in FY2025 to 3.9-4x in FY2026, with a DSCR of 1.45-1.5 times.

India’s Office Market Resilience

“In a period of global economic sluggishness, India’s office market remains resilient, thanks to its cost-effective talent pool, a growing economy, and high-quality office spaces at competitive rentals,” added Ms. Reddy. Occupancy rates are expected to reach decadal highs of 85.5-86% by March 2026, underscoring India’s appeal in global firms’ real estate strategies.

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Mumbai: Optimism Fueled by Infrastructure Growth

Mumbai’s commercial real estate market remained optimistic in H1 2024, as economic conditions improved and occupancy rates rose. Key infrastructure projects, including the much-anticipated BKC metro line, are expected to further boost market activity. With rising demand for office spaces in prominent business districts like Bandra-Kurla Complex (BKC) and Nariman Point, Mumbai is set to maintain its position as one of the top commercial hubs in India.

NCR: Gurugram and Noida Show Strong Growth

The NCR region, particularly Gurugram and Noida, saw a surge in occupier interest, with several new office locations attracting significant demand. In Gurugram, popular office hubs such as DLF Cyber City, Golf Course Extension Road, NH-48, and Udyog Vihar were hotspots for office leasing activity, leading to several high-profile deals. In Noida, sectors like 135, 142, and 18, particularly along the Noida-Greater Noida Expressway, also witnessed an uptick in demand for office spaces.

The region’s diverse office offerings, along with its proximity to Delhi, make NCR a preferred destination for businesses, especially in the IT and services sectors.

Bengaluru: Steady Demand Despite Temporary Supply Hold

Bengaluru’s office market continues to show strength, buoyed by its status as a tech and startup hub. Although some office supply has been temporarily delayed due to the 2024 Lok Sabha elections, the city’s long-term demand for office spaces remains strong. Ongoing infrastructure investments, such as the expansion of metro lines and the development of new office clusters, are expected to support continued growth in the sector.

Bengaluru remains a key player in the Indian commercial real estate landscape, with strong demand from technology, startup, and e-commerce sectors ensuring a steady pipeline of leasing activity.

Chennai: Affordable and Growing Demand for Office Spaces

Chennai’s office market remains competitive, benefiting from a strong economy, skilled workforce, and well-established infrastructure. The city offers lower occupancy costs compared to other major markets, making it an attractive choice for businesses. As a growing business hub, Chennai’s office market continues to experience steady demand, driven by both domestic and international occupiers seeking affordable and quality office spaces.

Chennai’s cost advantage, coupled with its strategic location in South India, positions it as a key player in the regional commercial real estate market.

Hyderabad: IT Sector Drives Office Leasing Demand

Hyderabad is witnessing growing demand for office spaces, largely driven by the city’s high quality of life, extensive infrastructure, and influx of talent. The resurgence of the IT sector in 2024, along with increased hiring by Global Capability Centers (GCCs), is expected to further boost commercial leasing demand in the city.

However, despite rising demand, an expected oversupply of office spaces in the coming years could temper rental growth. Still, Hyderabad’s real estate market remains strong, especially as it continues to attract businesses and professionals from across the country.

Kolkata: Rental Increases as Demand Surges

Kolkata’s office market saw a rise in average office rents during the first half of 2024, particularly in key locations such as Rajarhat (New Town) and Salt Lake City Sector V. Rents in these areas increased by 9% and 6% year-on-year, respectively, driven by strong demand from businesses and limited availability of quality office spaces. The demand for modern office spaces in these growing commercial hubs has made Kolkata an increasingly attractive market for both occupiers and investors.

Pune: Rise of Flexible Workspaces

Pune’s office market is seeing the rise of flexible workspaces, driven by the growing startup ecosystem and the widespread adoption of hybrid work models. Traditional businesses are also demanding more office spaces as they adapt to post-pandemic business environments. Pune’s dynamic market, with a blend of corporate and startup tenants, is making it a thriving hub for office leasing.

The demand for flexible office spaces, combined with the city’s strong economic fundamentals, positions Pune as one of the key commercial real estate markets in India.

Conclusion

The first half of 2024 reflects a positive outlook for India’s commercial real estate sector, with demand continuing to rise across key markets. Infrastructure developments, favorable economic conditions, and changing work patterns are driving leasing activity in major cities like Mumbai, NCR, Bengaluru, Chennai, Hyderabad, Kolkata, and Pune. As businesses adapt to new working models and the economy recovers, the commercial office market in India is expected to remain strong, with long-term growth prospects across these key cities.

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