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.

Also Read: Affordable Housing Crisis: Will Budget 2025-26 Turn the Tide?

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While investments declined 62% quarter-on-quarter due to a high base in Q4 2025, they registered a strong 74% year-on-year growth, reflecting sustained investor confidence despite global geopolitical and economic uncertainties.

Commercial Assets Lead Investment Activity

Commercial real estate emerged as the clear leader in Q1 2026:

• 80% share of total investments, up from 38% a year ago
• Over $1.1 billion invested
• 266% year-on-year growth despite a quarterly decline

The surge was largely driven by strong demand from Global Capability Centres (GCCs), which continue to expand their footprint in India.

Residential and Warehousing Segments Lag

Other segments saw a decline in investment activity:

• Residential:
  • $205.9 million investments
  • Down 53% QoQ and 59% YoY
  • Share increased slightly to 15%
• Industrial & Warehousing:
  • Just $22 million investments
  • Share dropped sharply to 1% from 17% in the previous quarter
• Diversified Assets:
  • Accounted for 4% share
  • Significant quarterly decline

Domestic Investors Take the Lead

A key trend emerging in Q1 2026 is the shift towards domestic capital:

• 72% share of total investments, up from 22% in Q4 2025
• Over $1 billion in investments
• Growth of 118% year-on-year and 25% quarter-on-quarter

In contrast:

• Foreign investments dropped to 13% share, from over 40% a year ago
• Co-investments declined to 15%, from 37% in the previous quarter

This shift highlights how Indian investors are stepping up amid global uncertainty.

Impact of Global Uncertainty

The decline in foreign participation is largely attributed to:

• Rising geopolitical tensions
• Global macroeconomic pressures
• Increased caution among international investors

Despite this, India continues to remain an attractive long-term destination.

Expert View

Shrinivas Rao, CEO of Vestian, said:

“With a sharp uptick in domestic investments, India’s real estate sector continues to demonstrate resilience. As foreign participation moderates, domestic capital is sustaining market momentum, while GCC demand is strengthening commercial real estate.”

What This Means for the Market

The Q1 2026 data signals:

• Continued strength in commercial real estate
• Growing importance of domestic capital
• Short-term volatility but long-term stability
• India’s position as a resilient investment destination

Even amid global headwinds, the Indian real estate sector appears to be adapting and evolving, with domestic investors playing a crucial role in sustaining growth.

Also Read: Indian Real Estate Sector Received Institutional Investments Worth USD 1.6 Bn 

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This marks a notable evolution in the country’s commercial real estate landscape, where businesses are increasingly moving beyond metros in search of scalable and cost-efficient alternatives.

Tier-2 Cities Gain Ground in Flex Office Market

The report highlights that Tier-2 cities collectively account for:

• 575+ flex workspace centres
• ~29% share of total flex centres in India
• 8.8 Mn sq ft of flex stock (~9% pan-India share)

This growth reflects a broader decentralisation trend, as companies look to reduce dependence on saturated metro markets.

City-wise Flex Space Distribution

Among Tier-2 cities, flex space supply is led by:

• Ahmedabad – 22.7% share
• Kochi – 10.2%
• Indore – 10.1%
• Jaipur – 8.5%
• Coimbatore – 8.3%
• Lucknow – 7.6%
• Mangaluru – 6.3%
• Chandigarh – 4.9%
• Bhubaneswar – 4.3%
• Dehradun – 4.0%
• Other cities (Vadodara, Surat, Vizag, etc.) – 13.1%

This spread indicates that flex workspace demand is no longer limited to a handful of cities but is broad-based across emerging urban corridors.

Cost Advantage Driving GCC Expansion

One of the biggest drivers of this shift is cost arbitrage, with Tier-2 cities offering:

• Up to 50% lower occupancy costs compared to metro cities
• Access to skilled talent pools
• Reduced operational expenses

As a result:

• 200+ companies have established
• 300+ Global Capability Centres (GCCs) across Tier-2 cities

Key sectors driving this demand include:

• IT-ITeS
• Consulting services
• BFSI
• Engineering & manufacturing

Flex Spaces Becoming Preferred Choice for GCCs

While GCCs are not the dominant occupiers of flex spaces, their presence is steadily increasing:

• ~9% of flex centres in Tier-2 cities cater to GCC-led operations
• 16% of GCC bases operate out of flex workspaces

This signals a growing preference for flexible, scalable office models among global firms entering smaller cities.

Quality & ESG Shift in Tier-2 Office Market

Interestingly, the report highlights a quality gap and opportunity in Tier-2 markets:

• Only 60% of flex centres are in dedicated office buildings
• Just 26% are in Grade-A assets

However, GCC occupiers are setting higher benchmarks:

• 53% of GCC-occupied flex centres are in Grade-A buildings
• 19% operate from green-certified spaces

This indicates that demand for premium, ESG-compliant office spaces will be a key growth driver going forward.

The Bigger Trend: Decentralisation of India’s Office Market

According to Shrinivas Rao, CEO of Vestian:

“The rise of Tier-2 cities is a defining shift in India’s expansion strategy. As infrastructure improves and flex ecosystems mature, the decentralization of GCCs will become a cornerstone of the Viksit Bharat 2047 vision.”

What This Means for Real Estate

For developers, investors, and occupiers, this trend has clear implications:

• New investment hotspots emerging beyond metros
• Rising demand for Grade-A office assets in Tier-2 cities
• Flex operators scaling aggressively in non-metro markets
• Strong linkage between infrastructure growth and commercial real estate demand

As metros face saturation, Tier-2 cities are not just alternatives anymore—they are becoming core to India’s office market expansion story.

Also Read: Flex Spaces to Play Major Role in Office Expansion, Survey Reveals

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Mumbai Powers National Growth With 47% Share

Mumbai emerged as the largest contributor, accounting for nearly half (47%) of India’s total absorption in Q3 2025. The city recorded 4.29 million sq ft, marking a 377% QoQ and 10% YoY increase.

Much of the demand centered around micro-markets such as:

• Bhiwandi
• Panvel

These two locations alone accounted for 96% of Mumbai’s absorption, signaling renewed confidence from occupiers in India’s most active logistics hub.

City-Wise Absorption Snapshot (Key Pointers)

• Mumbai: 4.29 mn sq ft | +377% QoQ | +10% YoY
• Kolkata: 1.26 mn sq ft | +950% QoQ | +186% YoY (highest ever for the city)
• NCR: 1.28 mn sq ft | +83% QoQ | -40% YoY
• Chennai: 1.13 mn sq ft | +151% QoQ | +38% YoY (best performance in 7 quarters)
• Hyderabad: 0.47 mn sq ft | +7% QoQ | -14% YoY
• Pune: 0.64 mn sq ft | -31% QoQ | -87% YoY (continued decline for 4th quarter)
• Bengaluru: 0.13 mn sq ft | -94% QoQ | -90% YoY (lowest among top cities)

Kolkata Records Its Highest-Ever Quarterly Absorption

Kolkata surprised the market with an extraordinary 950% QoQ surge, touching 1.26 million sq ft — its best performance on record. The spike reflects pent-up demand and large-scale commitments by occupiers.

Southern Markets Show Mixed Trends

• Chennai posted a strong comeback with its highest absorption in nearly two years.
• Hyderabad remained steady but saw a slight YoY decline.
• Bengaluru recorded an unusually weak quarter, marking the lowest absorption among major markets.

Pune’s Four-Quarter Decline Continues

Once a consistent performer, Pune saw absorption slide for the fourth consecutive quarter, driven by weakening occupier interest and delayed expansions.

Sector Outlook: E-commerce and 3PLs Driving Revival

Shrinivas Rao, FRICS, CEO of Vestian, said renewed demand from E-commerce and 3PL (third-party logistics) players is driving the turnaround:

“Mumbai, Kolkata, and NCR are leading the revival. The resurgence in occupier demand, coupled with momentum in e-commerce and 3PL, shows the sector’s strengthening fundamentals. Network optimisation and Grade-A warehouse preferences will reshape the market in coming quarters.”

Also Read: Industrial and Warehousing real estate industry

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According to Vestian Research, this dominance is largely due to India’s skilled workforce, cost-efficiency, and robust infrastructure. The top six Indian cities – Bengaluru, Hyderabad, NCR, Mumbai, Pune, and Chennai – account for 94% of all GCCs in the country. However, emerging Tier-2 cities like Indore, Kochi, Trivandrum, Surat, and Bhubaneswar are beginning to attract significant investments.

The Union Budget 2025 has further accelerated this shift by proposing a national framework to support GCC expansion in Tier-2 cities. As a result, India’s total number of GCCs is projected to cross 2,100 by FY 2028, growing at a CAGR of 8%, with around 150 new centers expected annually.

Sectoral Breakdown:

• IT-ITeS dominates with 49% of all GCCs
• BFSI follows with a 17% share
• Combined, Healthcare & Lifesciences, Engineering & Manufacturing, Consulting, and Telecom & Media contribute 19%

City-Wise GCC Distribution:

• Bengaluru: 487 GCCs (29%) – India’s undisputed GCC capital
• Hyderabad: 273 GCCs (16%) – Fastest-growing GCC hub
• NCR: 272 GCCs (16%) – Attracts global firms with strategic location
• Mumbai: 207 GCCs (12%) – Strengthening position with ongoing expansions
• Pune: 178 GCCs (11%) – Emerging tech and R&D destination
• Chennai: 162 GCCs (10%) – Rapidly growing innovation center

“India’s leading office markets continue to offer a compelling value proposition to GCCs, characterized by competitive costs, a highly skilled workforce, and a conducive business environment,” said Shrinivas Rao, FRICS, CEO, Vestian. “Our GCC Market Entry Index helps companies identify optimal locations aligned with their long-term goals.”

India’s dominance in the GCC landscape is not just about numbers — it reflects a larger shift in how the world’s corporations view India: not just as a cost center, but as a center of innovation, value creation, and future-ready talent.

Also Read: India’s Office Market Witnesses Strong Tenant Demand 

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Quarter-wise Institutional Investment Trends

Residential Sector Takes the Lead

The residential sector was the top performer, accounting for 62% of all institutional investments in Q1 2025, up from 41% in Q1 2024. Investment value surged 125% YoY, reaching USD 506.1 million.

Foreign Investment Skyrockets Over 3,000%

The biggest story of Q1 2025 is the resurgence of foreign capital. Foreign investors contributed USD 346.9 million, up from just USD 11 million in Q1 2024 — a staggering 3,054% increase. Their share jumped from 2% to 43%, signaling growing international trust in India’s real estate fundamentals.

Expert Commentary

Shrinivas Rao, FRICS, CEO of Vestian, commented:

“Investor confidence in India’s growth story remains strong, with both foreign and domestic players showing increased commitment to long-term investments. As investment activity gains momentum, we anticipate a significant uptick in future inflows, further reinforcing India’s position as a dynamic and attractive investment destination.”

Outlook

Despite a 63% drop in investments compared to Q4 2024, the long-term outlook remains highly optimistic. With rapid infrastructure development, macroeconomic resilience, and rising foreign participation, India’s real estate sector is poised for sustained institutional growth throughout 2025 and beyond.

Also Read: Institutional investments in alternatives cross USD2.0Bn in 5 years; foreign investments rise 6X since 2019

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The country witnessed its highest-ever office space leasing last year, touching 70.7 million sq ft — a 16% jump from 2023 levels. This growth comes at a time when major global cities such as New York, Seattle, Boston, Hong Kong, and Shanghai are experiencing declining office rents due to rising vacancy rates and evolving workplace dynamics.

Vestian attributes India’s continued momentum to a combination of factors — robust demand from IT and Global Capability Centers (GCCs), competitive rental rates, a growing economy, and ongoing infrastructure development across key metros.

“The Indian office market is witnessing a unique growth cycle, largely driven by the influx of global companies looking for cost-effective, scalable, and talent-rich locations,” said Shrinivas Rao, CEO of Vestian.

Sub-Dollar Rentals Drive Growth

India’s top seven cities continued to offer office spaces at sub-dollar rentals, making them attractive for both domestic and international occupiers. Cities like Delhi, Bengaluru, Pune, and Hyderabad saw annual rental increases between 9.8% and 13.9% in 2024. Mumbai remained the highest-priced Indian city in terms of average monthly rent, at USD 1.6 per sq ft.

By comparison, global cities showed mixed results. While London and Miami reported strong five-year rental growth of 31% and 53% respectively, others like Hong Kong (-35.7%), Seattle (-5.5%), and Shanghai (-18.2%) saw significant declines during the same period.

Premium Indian Locations See Strong Demand

Prime Indian business hubs like Mumbai’s Bandra-Kurla Complex (BKC) and Delhi’s Connaught Place continue to command high office rents, averaging between USD 3 to 4 per sq ft per month — a fraction of the cost in comparable Western markets, yet indicative of India’s premium-grade office supply.

A Bright Future Ahead

The Vestian report predicts that India’s commercial real estate sector will maintain its upward trajectory in the coming years, powered by favorable demographics, steady economic growth, and a wave of new infrastructure projects.

As multinational corporations continue to recalibrate their global strategies in the post-pandemic era, India is emerging not just as a back-office hub, but as a global headquarters destination.

“India’s unique advantage lies in its affordability, talent availability, and scale. With demand showing no signs of slowing down, the office market here is poised for a strong decade of growth,” Rao added.

Also Read: Supply Trends – Key Office Markets in India

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Domestic investors followed a similar trend, with their share dropping to 30% in 2024 from 35% in the previous year. However, they too recorded a 36% growth in investment value.

A notable highlight was the rise of co-investments—joint funding by foreign and domestic investors—which surged to 16% of total investments in 2024, compared to a negligible share in 2023. Co-investments registered a remarkable 61-fold increase in value, as foreign investors leveraged the local expertise of domestic partners amid macroeconomic uncertainty.

Institutional investments in real estate reached USD 6.8 billion in 2024, marking a 61% year-on-year increase and surpassing pre-pandemic levels. This resurgence comes after a four-year decline, driven largely by the industrial and warehousing sector, which benefited from robust e-commerce and quick-commerce demand.

Shifts in Asset Investment

The commercial real estate segment, which has traditionally dominated investments, accounted for 35% of total investments in 2024, down from 61% in 2023. The decline reflects a slowdown in the IT-ITeS sector, although growing demand for Global Capability Centers (GCCs) is expected to renew interest in office spaces.

Meanwhile, the residential sector attracted USD 2 billion in investments, representing 30% of the total and a 171% increase from 2023. Similarly, the industrial and warehousing sector grew by 203%, increasing its share from 15% in 2023 to 28% in 2024.

Yearly Investment Trends

Institutional investments rebounded in 2024 after consecutive declines since 2020. The yearly investment trend highlights the following:

Expert Outlook

Shrinivas Rao, FRICS, CEO of Vestian, noted, “Despite a slow start, institutional investments in 2024 exceeded pre-pandemic levels. However, 2025 could pose challenges due to geopolitical tensions, global economic slowdown, and elevated inflation. A potential repo rate cut by the RBI could stimulate real estate activity, attracting more investors.”

Return-to-office policies, government initiatives like the Production Linked Incentive (PLI) scheme, and a focus on affordable housing are expected to boost real estate demand and investor participation in the coming years.

Key Insights:

• Foreign Investors: 54% share, USD 3.7 billion investments.
• Co-Investments: 16% share, 61-fold increase in value.
• Sector Growth: Residential investments up by 171%; industrial and warehousing up by 203%.
• 2024 Total Investments: USD 6.8 billion, up 61% year-on-year.

Also Read: cross-border investment

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Despite this, India’s REIT market remains in its early stages compared to global peers, with only four listed REITs, covering an area of 125 million square feet across the retail and office markets. However, REITs are steadily gaining popularity among both foreign and domestic investors, primarily due to attractive dividend returns. Since their inception, Indian REITs have distributed ₹16,800 crore in dividends, surpassing the entire NIFTY Realty Index in terms of payouts. Yet, despite these better returns, the market capitalization of India’s REITs is still relatively low, accounting for just 13.7% of the total listed real estate sector. This is a stark contrast to more mature markets like the USA (98.9%), Australia (94.8%), and the UK (92.5%).

Among the four listed REITs—Embassy REIT, Mindspace REIT, Brookfield India REIT, and Nexus Select Trust REIT—the returns since inception have varied, with Embassy REIT leading at 24%, followed by Mindspace REIT at 18%, Brookfield India REIT at 6%, and Nexus Select Trust REIT at 39%. However, the BSE Realty Index has significantly outperformed REITs, generating a return of 317% over the past 66 months. Despite this, experts believe that India’s favorable regulatory environment, improved returns on investment, and a growing office market will provide a substantial boost to the REIT sector.

City-wise Breakdown of REIT-Worthy Stock

Vestian’s report also provides a city-wise analysis of the REIT-worthy stock across India’s top seven cities. Bengaluru leads with 33% of the total REIT-worthy office stock, followed by Hyderabad (21%) and NCR (15%). Mumbai and Pune together account for 21% of the REIT-worthy stock, while Chennai holds 10% and Kolkata contributes just 1%.

City Breakdown (in million square feet):

Bengaluru boasts the largest share of REIT-worthy stock, while Hyderabad leads in the proportion of REIT-worthy inventory, with around 74% of its office inventory deemed eligible for REITs. In contrast, Kolkata has the smallest share, with only 24% of its total office inventory qualifying as REIT-worthy.

Sustainability Driving REIT-Worthy Stock

An increasing focus on sustainability is evident, as nearly 67% of India’s REIT-worthy stock is green-certified. Green-certified buildings offer a rental premium of 12-14% over non-green buildings, making them more attractive to investors. These premium rentals translate into higher dividend distributions, enhancing the appeal of REITs in India’s commercial real estate market.

“India’s economic growth has spurred a surge in demand for Grade A office spaces, particularly for flexible and managed offices. While supply remains constrained, developers are focusing on meeting this demand with new projects in the pipeline. With REITs currently holding a small share of the Grade A office market, the growing demand presents a significant opportunity for REITs to expand their footprint and enhance their portfolios, delivering greater value to investors.”
— Amal Mishra, Founder and CEO, UrbanVault

The Future of REITs in India

The future of REITs in India looks promising. As mutual funds and corporations progressively increase their stakes in REITs, several are also planning to launch dedicated schemes focused on REIT performance. This influx of capital is expected to improve the liquidity of REITs, making it easier for them to secure funding at competitive rates.

Additionally, the launch of the SM REIT, which targets smaller value assets, represents a step forward in improving liquidity in the sector. As India’s regulatory environment continues to mature, more REIT listings are expected, including expansion into new real estate segments. With continued government support and favorable policies from SEBI, India’s REIT market is poised for significant growth in the coming years.

In conclusion, while REITs are still in the early stages in India, they are expanding rapidly. The favorable regulatory environment, growing demand for office space, and the focus on sustainability make REITs an increasingly attractive investment tool, offering consistent income and diversification for investors.

Also Read: Data Benchmarking Institutions Launched to Empower Indian REIT Investors

The post Huge Upside Potential for REITs in India, INR 4.5 Lakh Cr Worth of Prime Office Stock Identified as REIT-Worthy appeared first on Square Feat India.