New Delhi — India’s commercial real estate (CRE) sector is projected to expand by 5-6% year over year in the 2025-26 fiscal year, bringing the total inventory to approximately 1,360 million square feet, according to a report by India Ratings and Research (Ind-Ra), as published by The Economic Times.
Despite the overall growth, new office supply is expected to decline to roughly 52 million square feet in FY26. This comes after an anticipated surplus of about 106 million square feet in FY25, primarily driven by Bengaluru and the Mumbai Metropolitan Region (MMR). However, office space absorption is expected to increase at a rate of 7-8% year over year in FY26, following a projected 21% rise in FY25.
MMR and Chennai are expected to lead in office space absorption, with estimated growth rates of 60% and 22%, respectively. The under-construction supply-to-absorption ratio—a key indicator of supply-demand dynamics—improved from 6.83x in FY23 to 4.96x in FY24. Ind-Ra forecasts the ratio to further decrease to between 4x and 4.25x in FY25 and FY26 due to sustained demand.
Bengaluru and Chennai posted the lowest supply-to-absorption ratios, suggesting stronger prospects for rental growth and lower vacancy rates. In contrast, the National Capital Region (NCR), Hyderabad, and Ahmedabad recorded higher ratios, signaling potential oversupply concerns.
Leasing activity across India’s top eight cities remains robust, with record-breaking transactions expected to reach 60 million square feet in FY25 and 64 million square feet in FY26.
“We anticipate the commercial real estate sector to sustain strong leasing momentum in FY26, supported by increased demand from global capability centers (GCCs), engineering firms, banking, financial services, and insurance (BFSI) sectors, as well as co-working spaces,” said Mahaveer Jain, director of corporate ratings at Ind-Ra.
Despite the leasing surge, rental growth is expected to remain moderate at 3-5% year over year in FY26 due to contracted escalation rates and market-to-market (MTM) negotiations. Property price growth is projected to slow to 2-3% in FY26, compared to 3-7% in FY25. As a result, rental yields could see slight improvements. Vacancy rates are expected to remain stable, fluctuating between 14% and 18% across major metropolitan areas.
Ind-Ra also highlighted the continued outperformance of real estate investment trusts (REITs) over non-REIT assets in FY26. The report attributed this to REITs’ diversified asset portfolios and tenant bases, which help mitigate the impact of tenant turnover.
As of the first half of FY25, REITs controlled 122 million square feet of commercial and retail real estate. This number is expected to grow as existing REITs expand their portfolios and new REITs enter the market. Financially, REITs are projected to maintain stable EBITDA margins of 70-80% in FY26, with net leverage ratios ranging from 5x to 6x.
The commercial real estate sector is poised for steady growth, driven by rising leasing demand and an improving supply-demand balance. While rental and property price appreciation may remain subdued, the sector’s overall stability, particularly in REIT-backed assets, is expected to strengthen investor confidence in the coming fiscal year. Ind-Ra expects real estate investment trusts (REITs) to continue outperforming non-REIT assets, benefiting from asset and tenant diversification. Moreover, vacancies are expected to slightly improve and remain range-bound between 14-18% for major cities, while property price appreciation is anticipated to be muted at 2-3% year over year.