India commercial office vacancy levels to dip on healthy leasing growth: CRISIL

Vacancy levels in India’s Grade A commercial office space are expected to decline by around 50 basis points this fiscal on the back of healthy leasing growth, Crisil Ratings said on Tuesday.

However, global uncertainties and disruptions from artificial intelligence could pose risks to occupier sentiment, according to the report.

The ratings agency said vacancy levels are likely to ease to 15.5-16% by the end of the current fiscal, continuing the trend of annual declines seen over the past two fiscals.

Despite emerging risks from AI-led disruptions and geopolitical uncertainties, the credit profiles of commercial office space players are expected to remain stable due to steady rental cash flows, lower vacancy levels and prudent leveraging, it added.

The assessment is based on a study of 120 commercial office assets rated by Crisil Ratings, accounting for nearly a fourth of the country’s Grade A office stock.

“Overall, the net leasing is expected to grow at 6-7% this fiscal. However, this is exposed to risks related to disruptions in the IT/ITeS sector on account of AI, which may impact hiring and expansions,” Crisil Ratings Senior Director Gautam Shahi said.

He said rising geopolitical uncertainties and tariff-related issues could also affect leasing plans of Global Capability Centres (GCCs).

“While these pose short-term challenges, India’s long-term structural advantages, including a large and skilled talent pool, cost competitiveness, policy-level support from central and state governments and broader economic stability, are expected to help the sector tide over the hiccups,” Shahi added.

Crisil said leasing growth this fiscal would be driven largely by double-digit expansion in the flexible workspace segment, which is ramping up capacity to meet rising demand.

Demand from domestic IT/ITeS firms and engineering and manufacturing companies is expected to remain moderate, while continued expansion of GCCs across sectors is likely to support overall leasing activity.

The National Capital Region and Mumbai Metropolitan Region are expected to see vacancy levels decline by about 100 basis points due to limited new supply.

The southern office markets of Bengaluru, Chennai and Hyderabad, which together make up around half of the country’s office stock, are also expected to see vacancy levels fall by up to 50 basis points, aided by demand from flexible workspaces and GCCs.

Pune’s vacancy levels are expected to remain steady after a sharp rise last fiscal due to substantial new supply entering the market.

Crisil said stronger demand and lower vacancy levels over the past two years have enabled landlords to secure favourable lease renewals, resulting in mark-to-market gains.

Lease rentals of Crisil-rated commercial office players have recorded annual growth of 8% over the past two fiscals through fiscal 2026.

“Contracted rental escalation and sustained low vacancy levels are expected to continue to enhance cash flows for Crisil-rated commercial office players,” Crisil Ratings Associate Director Snehil Shukla said.