India’s office market absorption growth is likely to moderate, but will remain resilient, over FY26-FY27, as rising global capability centre (GCC) demand, sectoral diversification, and increased adoption of managed and flexible office formats cushion the impact of a potential slowdown in IT‑led leasing, according to India Ratings and Research (Ind‑Ra).

GCCs are projected to increase their share of office absorption to 42-45% by FY29-FY30, from nearly 40% currently, supporting stable occupancy and cash flow visibility. Demand is also expected to re‑rank micromarkets, favouring Grade A+ offices in peripheral business districts and benefitting from infrastructure upgrades and policy support.

“While GCCs have been the primary drivers of Grade A office space demand in recent years, the availability of ready Grade A stock supported by increased supply from flex‑space operators has strengthened the overall absorption levels. These two factors are expected to continue underpinning leasing activity, even as any potential slowdown in the IT sector— which still represents the largest occupier of ready office inventory—may act as a moderating force. We are seeing an improvement in sectoral dynamics, with rising occupancies, firmer lease rentals, and declining vacancies across our rated portfolio. At the same time, we remain watchful of evolving risks, particularly the potential impact of AI‑driven disruption on India’s IT‑led office demand,” says Mahaveer Shankarlal Jain, Director, Corporate Ratings, Ind-Ra.

GCCs to Anchor Medium‑term Office Demand despite IT Normalisation: Ind-Ra expects GCCs to remain the primary structural driver of office absorption, as they evolve from delivery‑led centres to capability‑driven hubs focused on AI, data, product engineering, and cybersecurity. This deliberate strategic shift, alongside the rise of smaller, specialised GCCs, is likely to sustain demand amid moderating IT hiring, underscoring a shift in composition and mix of talent, rather than bringing just a volumetric increase. Furthermore, increasing participation from European and Asian multinationals might reduce reliance on US‑headquartered occupiers, improving demand stability amid global macro volatility.

Diversification and Managed Offices to Cushion IT‑Heavy Installed Base: Although IT tenants continue to occupy 40%-45% of India’s 1.0–1.2 billion sq ft Grade A office stock, Ind-Ra expects rising leasing from BFSI, engineering, and flexible workspace operators to mitigate the downside risk from IT moderation. IT occupancy ranges between 30%-40% for REITs when observing tenant mix as a share of rentals. As a result, the overall risk to office space growth is likely to be cushioned by a sustained demand from GCCs.

Eliminating the need for lengthy fit-out cycles, reflecting a preference for faster setup, flexibility, and zero‑capex models, close to 86% of GCC entrants are opting for managed offices. Large GCCs are adopting a hybrid real estate approach, retaining headquarters in conventional leases while accommodating high‑growth R&D, AI, and innovation teams in managed environments. This diversification of end‑users and formats could stabilise net absorption and support portfolio resilience.

Peripheral Micromarkets to Outperform on Infrastructure and Cost Efficiency: Ind-Ra opines office demand will increasingly gravitate towards peripheral micromarkets, supported by sustained public infrastructure spending, broader policy push on infrastructure, improved urban connectivity, and availability of scalable Grade A+ supply. Grade A+ offices – defined by green certifications, energy efficiency, wellness standards, and advanced digital infrastructure – are increasingly aligned with occupiers’ sustainability mandates and talent‑attraction strategies, particularly for global firms. Bengaluru is likely to retain its leadership position, with Hyderabad and Chennai remaining strong GCC hubs, while Mumbai and Delhi‑NCR continue to gain share from a lower base. Ind‑Ra expects these peripheral districts to outperform core locations from FY27, reinforcing a multi‑hub office model aligned with hybrid working trends.

Supply Momentum and Policy Support to Limit Downside Risks: Ind-Ra expects office supply to remain healthy, supported by the ready Grade-A inventory and integrated office park management services that reduce lead time and efforts to set up business operations. Recent policy enablers such as REIT‑led monetisation of central public sector enterprises assets are expected to boost market liquidity and deepen overseas institutional capital participation. Also, the Infrastructure Risk Guarantee Fund should ease development and evolution of new micro markets into strategic hubs.

The announcement of seven high‑speed rail corridors, along with the focus on city economic regions, might significantly improve Tier‑2 and Tier‑3 connectivity, re‑rank micro markets, and support a multi‑hub office model driven by hybrid working and the growing adoption of flex workspaces.

While office developers and platforms remain moderately leveraged due to long‑tenor lease rental discounting facilities, Ind‑Ra believes demand‑supply balance, GCC‑led absorption, and growing preference for Grade A+ assets should dampen downside risks, even if AI‑led disruption in the technology sector intensifies.