This marks the 11th consecutive quarter of declining vacancy, signalling a clear shift towards a landlord-driven market.

Why Vacancy Is Falling

The sharp drop in vacancy is being driven by two key factors:

• Strong leasing demand across sectors
• Significant slowdown in new office supply

New office completions stood at just 8.8 million sq ft in Q1 2026, showing a 43% drop quarter-on-quarter and 18% decline year-on-year, mainly due to project delays.

At the same time, leasing activity remained robust, tightening the availability of quality office space.

City-wise Trends: Bengaluru & Mumbai Lead

Some cities are already witnessing extremely tight office markets:

• Bengaluru: Vacancy at just 7.81%, with some micro-markets as low as 2%
• Mumbai: Vacancy down to 9.21%, with prime areas below 3%
• Chennai, Pune, Kolkata: Continued decline in vacancy levels

On the other hand:

• Hyderabad: 20.22% vacancy
• Delhi NCR: 19.03% vacancy
• Ahmedabad: Highest at 30.16%

This shows that while demand is strong overall, premium locations are getting tighter much faster.

Rents Cross ₹100/sq ft for First Time

With vacancy shrinking, rents are rising:

• Average rents crossed ₹100 per sq ft/month for the first time
• Hyderabad: ~12% annual growth
• Delhi NCR: ~10% growth
• Mumbai & Chennai: ~6% growth

This indicates that landlords are gaining pricing power, especially in high-demand micro-markets.

Leasing Activity Remains Strong

Total leasing activity (Gross Leasing Volume) stood at:

• ~22 million sq ft in Q1 2026
• 13% growth year-on-year

Top Performing Cities:

• Mumbai: 6.6 MSF (highest ever quarterly leasing)
• Bengaluru: 5.13 MSF
• Hyderabad: 3.15 MSF
• Delhi NCR: 2.80 MSF

Mumbai stood out with record leasing, largely driven by renewal deals and strong occupier demand.

Who Is Driving Demand?

The biggest demand driver continues to be Global Capability Centres (GCCs):

• Leased ~8.7 million sq ft
• Accounted for ~40% of total demand
• Recorded 38% YoY growth

Sector-wise Demand:

• IT-BPM: 23%
• BFSI: 21%
• Flexible workspaces: 18%
• Engineering & manufacturing: 15%

This shows a diversified demand base, reducing reliance on a single sector.

Supply-Demand Gap Widens

Even though demand is strong, net absorption dropped to 11.51 MSF:

• ↓28% QoQ
• ↓24% YoY

This is mainly because new supply is not getting completed fast enough, delaying occupancy of pre-leased spaces.

What Lies Ahead for 2026

Experts believe:

• Around 61 million sq ft of new supply may enter the market in 2026
• Much of it will be premium Grade A+ office space
• Vacancy may ease slightly, but remain tight overall

However, global uncertainties like the West Asia crisis could slow down expansion plans in the short term.

What This Means (Simple Takeaway)

• Office demand in India is strong
• Supply is limited, creating a shortage
• Vacancy is falling and rents are rising
• Premium office spaces are becoming harder to find

This clearly signals a landlord-favourable market, especially in top business districts.

Also Read: Hiring Wave Ahead: Office Space Demand Soars

The post Office Vacancy Falls to 13.85%, Lowest Since 2020: Demand Surges While Supply Shrinks appeared first on Square Feat India.