Commercial real estate in India’s top cities saw some moderation in 1QFY27, with lower gross and net absorption, likely on account of delays in closing real estate transactions against the backdrop of the West Asia war, Kotak Institutional Equities said.

Notwithstanding the lower absorption, vacancy levels declined 13 basis points quarter-on-quarter to 11.3%, down 190 basis points year-on-year, on the back of measured supply addition at 10.1 million sq ft, down 3% year-on-year. GCCs and flexible workspace operators continue to drive demand for office spaces across cities.

Market rentals are reflecting the strength in demand, with occupancy levels across REITs inching toward 95% by end-FY2027. Kotak said reasonable construction pipelines, coupled with contractual escalations and mark-to-market opportunities, “could continue to support double-digit earnings growth” for REITs, although distribution yields of 5.5-7% on FY2027E remain rich.

All-India commercial real estate stock across the top seven cities stood at 757 million sq ft as of June 2026, up 6% year-on-year. New supply declined 3% year-on-year to 10.1 million sq ft, leading to further improvement in vacancy levels.

Kotak highlighted robust demand from GCCs and flex operators despite some delays in tenant decision-making. Most listed asset owners are already above 90% occupancy, with targets to improve toward 95% by end-FY2027.

The brokerage also noted that asset owners are “aggressively adding new area” to their portfolios. DLF has 13 million sq ft of under-construction area on an operational portfolio of 49.5 million sq ft, with another 14 million sq ft in pipeline. Embassy REIT has 6.2 million sq ft under construction and 2.6 million sq ft of future development area, while Mindspace REIT has 6.6 million sq ft under construction and 3.5 million sq ft of future potential.

Distribution yields currently stand at 5.5-7% for FY2027E, while Kotak expects improvement on the back of leasing traction, higher occupancy, future pipeline visibility and lower interest rates. Flexible workspace operators continue to deliver strong earnings and cash-flow growth, with valuations at 10-12x FY2028E EV/EBITDA “attractive” for long-term compounding opportunities.