A ripple effect of the West Asia war was felt on India’s office leasing momentum in the June quarter (Q1FY27). Gross absorption at an all-India level (aggregate of top seven cities) declined 6% year-on-year to 19.4 million square feet (msf) and net absorption fell by a sharper 21% year-on-year to 9.9 msf, according to Propstack data compiled by Kotak Institutional Equities.
Gross absorption is the total area leased over a specific period, while net absorption subtracts the vacated space in that span. Delays in closing of realty transactions amid the West Asia conflict hurt.
Still, vacancy levels improved as new supply of office spaces declined 3% year-on-year. The aggregate pan-India vacancy level eased to 11.3% in Q1 from 11.5% in Q4FY26 and 13.2% a year ago. The demand-supply mismatch should buoy near-term rental growth.
Among listed companies, committed occupancy exceeded the 90% mark for key real estate investment trusts (Reits) in Q1. Managements are confident that occupancy will improve, although there is some slowdown in decision-making due to the war.
Brookfield India Real Estate Trust expects this metric to reach 96-97% by FY27-end from 93% in Q1. Mindspace Business Parks Reit sees its committed occupancy (ex-Pocharam and recent acquisitions) to touch 97% by FY27-end from 95.8%.
Global capability centres (GCCs) and flexible working space operators remain the demand drivers. In Q1, GCCs contributed 48% of total office space transactions, up from 44% a year earlier, with Bengaluru recording the highest volume, said Care Edge Ratings. Despite recent rent gains, Indian offices remain far cheaper than global hubs, keeping India attractive for occupiers, it added.
GCCs contributed almost 81% of leasing activity for Embassy Office Parks Reit in Q1. Mindspace leased 51% of the area to GCCs, but for Brookfield, GCC contribution was relatively lower at 39%.
Expanding portfolios
The ongoing geopolitical uncertainty may temporarily delay leasing decisions among multinational occupiers, but it is unlikely to materially affect occupancy levels at India's listed office Reits, said Care Edge Ratings.
With supply lagging demand, listed Reits are scouting for more leasing spaces amid healthy demand and low borrowing costs. Companies are opting for both organic and inorganic routes to expand their portfolios.
The thrust on inorganic additions of operating assets should shield them from construction-related risks. But since Reits distribute surplus cash flows to their unitholders, acquisitions are usually funded through debt.
In light of vacancies bottoming out over the past few quarters, distribution per unit (DPUs) has started rising, aided by an increase in in-place rent (rent that a tenant is currently paying and could differ from market rent) and improving occupancies, said Nuvama Research.
DPU is the cash payout per unit to Reit investors. In Q1, DPU expanded by 7-15% year-on-year for key listed Reits. Nuvama reckons this trend of DPU improvement will gain pace as vacancy levels fall.
Earlier this month, parliament passed the Taxation and Other Laws (Amendment) Bill, 2026, which would reduce the tax liability at the special purpose vehicle level from 35% to 29% and should aid Reit distributions. The bill is awaiting final approvals.
Long-term lease contracts, contractual rents and a diversified tenant portfolio are among the other positives that would help Reits navigate geopolitical uncertainty. Of course, the absence of a resolution to the West Asia conflict can weigh on deal closure timelines. Plus, there is no clarity on any potential disruption in the commercial leasing space by rising adoption of artificial intelligence.