According to Vestian Research, new office completions across India fell drastically by 36% quarter-on-quarter to 9.7 million sq ft in Q1 2026—the lowest level seen in the past four quarters. The decline was led by major cities such as Bengaluru, Hyderabad, and Mumbai, where developers slowed down project deliveries due to supply chain disruptions and geopolitical concerns.

Hyderabad saw the steepest fall, with new completions plunging by a staggering 95%—from 6.0 million sq ft in Q4 2025 to just 0.3 million sq ft in Q1 2026. Mumbai and Bengaluru also reported notable declines in new supply on a quarterly basis, reflecting a broader trend of cautious project execution.

However, in stark contrast to the supply slowdown, office leasing activity remained robust. Total absorption rose 20% year-on-year to 21.53 million sq ft in Q1 2026, indicating sustained demand from occupiers despite global macroeconomic challenges.

This resilience has been largely driven by India’s growing appeal as a global business hub. Companies—especially Global Capability Centres (GCCs)—continue to expand operations in India due to cost efficiency, talent availability, and scalability. Stable macroeconomic factors such as steady GDP growth, controlled inflation, and relatively stable interest rates have further supported business expansion.

City-wise, Bengaluru continued to dominate the office market, recording 4.91 million sq ft of leasing activity, followed by Pune at 3.92 million sq ft—its highest-ever quarterly absorption. Hyderabad also showed strong demand with a 47% year-on-year growth in leasing.

Mumbai, despite a slight dip in absorption, retained its position as India’s most expensive office market, with rentals touching ₹152.6 per sq ft per month during the quarter.

The imbalance between strong demand and slowing supply has started tightening vacancy levels across major cities. Pan-India vacancy rates dropped to 9.5% from 10.8% in the previous quarter. As a result, rental values have continued to rise, especially in prime office locations, signaling a shift toward a landlord-driven market.

Industry experts believe this trend could continue in the near term. While supply constraints may persist due to global uncertainties, demand is expected to remain strong, fueled by rapid GCC expansion and increasing preference for sustainable and high-quality office spaces.

Looking ahead, India’s office real estate market appears poised for long-term growth, even as short-term supply-side challenges continue to shape the sector’s dynamics.

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Data from industry leader Awfis Space Solutions highlights this shift — its Tier-2 city presence expanded by nearly 25% in the last year, with new signings in high-quality Grade A assets forming 100% of additions between June 2024 and June 2025.

The appetite for flexible workspaces in Tier-2 locations is being driven by:

• First-time mid-sized GCC entrants setting up operations outside metros
• Expanding back-office and satellite setups by large enterprises
• Landlords in smaller cities upgrading to Grade A inventory
• Businesses seeking to reduce operational costs without compromising quality

Awfis’ operational capacity grew 40% YoY to 1,40,186 seats in June 2025, with 59% of its total portfolio now occupied by large-format 100+ seat cohorts. The company’s strong Tier-2 momentum mirrors a broader sector trend — smaller cities are now seen as profitable, scalable markets rather than experimental outposts.

Occupancy trends remain healthy, with 84% utilisation in centres older than 12 months and 73% overall. Operators are increasingly targeting high-potential micro-markets in cities like Indore, Coimbatore, Jaipur, and Chandigarh, where corporates are actively seeking ready-to-move-in premium offices.

Financially, Awfis’ numbers back the demand narrative — Q1FY26 revenue rose 30% YoY to ₹335 crore, with operating EBITDA margins hitting 37.8%. These gains are being supported by landlord confidence in Tier-2 markets and the availability of institutional-grade spaces.

As the flexible workspace market matures, Tier-2 cities are emerging as the next big battleground, offering operators a combination of cost efficiency, fresh demand pipelines, and untapped enterprise relationships.

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