After a decent first half (H1FY26), the demand for Grade-A office spaces is expected to sustain in H2FY26 as well. The top six Indian cities saw net absorption of 36 million square feet (msf) in H1, outpacing 30.6msf of new supply, ICRA data showed. Net absorption is the total square feet that is physically occupied, minus the total square feet that is physically vacant during a specific period.
Global capability centres (GCCs), flex-space operators and banking, financial services, and insurance (BFSI) sectors remain the driving forces. Among them, GCCs spread across healthcare, manufacturing and technology industries are doing the heavy lifting. GCCs are typically companies of foreign origin that set up their back-office operations and R&D activities in India.
Faster absorption of available office units has pushed occupancies higher and vacancies lower. Vacancy level slid to 14% in March from 15.6% a year earlier, and dropped further to 13% by September. ICRA projects net absorption to hit an all-time high of 69-70msf in FY26 and vacancy level at 12.5-13%.
If this hope materializes, then rental growth, which has been hovering in the single digit, should get a leg-up. In the first nine months of 2025, monthly office rentals rose 6% year-on-year to around ₹90/sf at an all-India level, showed Anarock Property Consultants data. Bengaluru saw the highest jump during this period, with rentals rising 9% year-on-year.
In line with this industry trend, listed real estate investment trusts or Reits, estimated to account for around 15% of the total office stock across top cities in India, saw a healthy September quarter (Q2FY26). A highlight of the quarter was committed occupancies touching or breaching the 90% mark for key Reits. Committed occupancy rate includes properties where leases have already been signed with tenants but have yet to commence. Their managements are confident that occupancies will trend up from these levels, aided by the conversion of special economic zone (SEZ) spaces into non-SEZ spaces amid healthy demand.
Embassy Office Parks Reit eyes portfolio occupancy of 93% by area (including Embassy Quadron) from 90% in Q2. Similarly, Brookfield India Real Estate Trust has guided for portfolio occupancy to be at 93% from 90%. Mindspace Business Parks Reit management anticipates committed occupancy to touch 95% (excluding Pocharam) from 93.8% in Q2.
Rising occupancies bode well for the earnings prospects of listed Reits. Here, distribution per unit (DPU) becomes crucial. DPU is the total amount of income (like rental income or dividends) that a Reit distributes to its investors for each unit they hold. In other words, DPU helps gauge the income potential of a Reit investment. As per Nuvama Research estimates, Mindspace and Embassy could generate DPU CAGR of 11% and 13%, respectively, over FY25-FY28. Brookfield could see a relatively lower DPU CAGR of around 7%, it said.
On the flipside, macroeconomic concerns could play a dampener for demand, leading to rentals stagnating at current levels. The impact from the second-round effects of US-led tariffs and ongoing geopolitical tensions is not clear yet. This could elongate decision-making cycles of large companies situated in foreign countries. Plus, the IT/ITeS sectors—once key drivers of office space demand–are still struggling with muted revenue growth and tepid hiring. In the case of lower third-party outsourcing, these sectors may not generate increased demand for office spaces. At a micro level, office units that do not hold green certifications may not see much demand, given the increasing preference for these among tenants. Thus, making timely physical upgrades is vital for office asset managers.
