Record-Breaking Leasing Led by Southern Cities

Net Grade A office absorption across India’s top seven cities reached 58.2 million sq. ft. in 2025, registering a 17% year-on-year growth. This momentum has continued into 2026, with 13.5 million sq. ft. absorbed in Q1 2026, up 5% annually.

Southern markets—Bengaluru, Hyderabad, and Chennai—have emerged as the growth engines, contributing nearly 50% of total absorption in 2025.

• Bengaluru led with 14.95 million sq. ft. (26% share)
• Hyderabad followed with 8.5 million sq. ft.
• Chennai recorded 5.9 million sq. ft.

The trend intensified in Q1 2026, where southern cities collectively recorded a 64% jump in absorption, even as markets like MMR, NCR, and Pune saw declines.

GCCs Reshape Office Demand

A major structural shift is the rise of Global Capability Centres (GCCs), which are increasingly dominating India’s office market.

• GCC share in leasing rose from 36% in 2024 to 41% in 2025
• Further increased to 47% in Q1 2026

In fact, Bengaluru alone accounted for 40% of total GCC leasing in early 2026.

India is expected to host 2,200–2,300 GCCs by 2030, representing a market size of USD 100–110 billion, with most of this demand targeting Grade A office spaces.

Vacancy Gap Widens: Grade A vs Mid-Tier

Vacancy levels highlight the growing divide:

• Grade A vacancy declined from 16.5% (2024) to 15.5% (Q1 2026)
• Mid-tier buildings continue to face 20–25% vacancy

Cities like Chennai have seen vacancy fall below 9%, while Hyderabad—despite higher vacancy—has shown stable absorption due to strong new supply.

The structural challenge for mid-tier buildings is clear: once tenants upgrade to Grade A, they rarely move back, leaving older assets with persistent vacancies.

Rentals Rising as Occupiers Pay Premium

Grade A office rentals are strengthening across cities:

• Average rents rose to ₹92/sq. ft. in 2025
• Increased further to ₹93/sq. ft. in Q1 2026

Tenants are willing to pay a 20% premium over mid-tier properties due to:

• Modern amenities (F&B, wellness, retail)
• Smart building technologies
• High-grade security systems
• Sustainability certifications (LEED, IGBC)
• Reliable power and IT infrastructure

Bengaluru led rental growth, recording:

• 9% YoY growth in 2025
• 11% QoQ growth in Q1 2026

Developers Double Down on Grade A Supply

Developers are aligning with demand trends:

• 52 million sq. ft. of new Grade A supply added in 2025 (+8% YoY)
• Southern cities accounted for over 50% of new supply

However, new completions slowed in Q1 2026:

• Down 18% YoY to 8.6 million sq. ft.

This moderation is partly attributed to global uncertainties, including geopolitical tensions.

Meanwhile, mid-tier developments are losing investor interest as:

• REITs and institutional capital prefer Grade A assets
• Demand remains concentrated in premium buildings

Outlook: A Two-Speed Office Market

India’s office market is clearly evolving into a two-speed system:

• Grade A assets: High demand, rising rents, falling vacancy
• Mid-tier assets: Weak demand, high vacancy, limited pricing power

Experts suggest that mid-tier property owners will need to:

• Upgrade assets to Grade A standards
• Or target niche segments like SMEs and flexible workspace operators

Conclusion

With GCC expansion, global occupier demand, and institutional investments driving momentum, Grade A office spaces are set to dominate India’s commercial real estate landscape. Meanwhile, the future of mid-tier office stock will depend on adaptation, repositioning, or risk long-term obsolescence.

Also Read: 65% Growth in Grade A Green Office Stock Across Top 7 Cities Since 2019

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