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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