New Delhi

India's office space market is seeing consolidation, with robust demand expected to support a marginal decline in vacancy levels and drive stronger rental growth over the medium term, according to Nuvama Institutional Equities.

According to the report, India's gross office leasing declined 3 per cent year-on-year to 20.6 million sq ft in Q2CY26, as the US-Iran conflict affected corporate decision-making timelines.

At the same time, net leasing fell 19 per cent YoY and 1 per cent QoQ to 11.1 million sq ft, while supply stood at 10.9 million sq ft, down 8 per cent YoY but up 47 per cent QoQ. "Net leasing declined as delay in completion of offices limited realisation of pre-committed demand," it noted.

Noting that vacancies slid 190bp YoY/10bp QoQ to 12.9 per cent in the top-seven cities, Bengaluru led both demand and supply, accounting for 31 per cent and 53 per cent, respectively.

Bengaluru recorded the lowest vacancy rate among the top seven cities at 8.7%, while Hyderabad and the NCR reported the highest at 18.6% each. The NCR's vacancy rate was its lowest since CY12, while vacancies in the Mumbai Metropolitan Region (MMR) declined to 8.9%. Rents rose year-on-year across all cities.

At the same time, IT-BPM companies were the largest occupiers, accounting for 22% of leasing in H1CY26, followed by flexible workspace operators at 20%, BFSI firms at 19% and engineering and manufacturing companies at 16%. Notably, Global Capability Centres (GCCs) accounted for around 38% of gross leasing during the quarter.

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While the upcoming office supply is estimated at ~171 msf by CY28E, some projects may be deferred. Completions are expected at 55-60 msf annually over CY26-28E, broadly matching demand, which should support a marginal decline in vacancy levels and accelerate rental growth.

"We anticipate vacancy levels to decline marginally over the medium term and expect annual rental growth to gain momentum ahead," Nuvama noted.