NEW DELHI: Total supply in Indian commercial real estate es expected to grow five per cent to six per cent year-on-year in the financial year 2025-26, taking the total inventory to about 1,360 million sq ft, according to India Ratings and Research (Ind-Ra).
New office supply is expected to decline to about 52 million sq ft in FY26. This is because, against the likely excess supply of about 106 million sq ft entering the market in FY25, contributed mainly by Bengaluru and Mumbai Metropolitan Region (MMR), absorption might grow at a faster rate of 7-8% year-on-year in FY26 than the likely 21% year-on-year in FY25.
MMR and Chennai will lead the absorption rally, and are expected to grow at 60% and 22%, respectively.
The under-construction supply to absorption ratio, which reflects the supply to demand scenario, improved to 4.96x in FY24 from 6.83x in FY23.
Ind-Ra expects the ratio to drop in the range of 4x-4.25x in FY25 and FY26, owing to the robust demand scenario in the country.
Bengaluru and Chennai had the lowest ratio, thereby, having better prospects in terms of rental growth and vacancy rates, whereas it remained higher for the National Capital Region (NCR), Hyderabad and Ahmedabad.
Leasing activity soared in the top eight cities, with a record leasing expected at around 60 million sq ft and 64 million sq ft in FY25 and FY26, respectively.
Mahaveer Jain, director, corporate ratings, Ind-Ra said, “We anticipate the CRE sector to maintain robust leasing momentum in FY26, on back of increased demand from GCCs, engineering, BFSI and co-working end-user segments.”
Even after the strong leasing activity, the rating agency expects rentals to grow moderately at 3-5% year-on-year in FY26, on account of contracted growth rates and MTM negotiations.
Growth in property prices is expected to be muted at 2-3% year-on-year in FY26 (FY25: 3-7%), and hence the rental yields might improve slightly over FY26. Vacancies are expected to slightly improve and remain range-bound between 14-18% for major cities.
Ind-Ra also expects real estate investment trust (REIT) assets to keep performing much better than non-REIT in FY26, due to asset and tenant diversification benefits, leading to an ability to handle a tenant churn.
As of H1 FY25, REITs held 122 year-on-year of CRE and retail assets, which is expected to continue to rise as more assets are acquired and developed by existing REITs and as more REITs are formed.
Financially, REITs are expected to put up a stable performance in FY26, with EBITDA margins being maintained in the range of 70-80% and net leverage ratios of 5x-6x.
