India’s commercial real estate market is witnessing a notable recovery, particularly in the Grade A office space segment. According to the latest CRISIL Ratings report, net leasing of Grade A commercial offices is anticipated to rise by 10-12% this fiscal year, reaching 41-43 million square feet. This growth represents a return to pre-pandemic leasing levels and is expected to help mitigate the rising vacancy rates currently affecting the sector.

The anticipated increase in net leasing is largely driven by robust demand from global capability centres (GCCs), the banking, financial services, and insurance (BFSI) sector, and various manufacturing industries. GCCs alone are projected to contribute 40-45% of the net leasing, a testament to India’s competitive office rental rates and its skilled workforce, particularly in prominent cities like Bengaluru and Hyderabad.

The CRISIL Ratings report highlights that the commercial real estate sector is gaining momentum after a period of gradual recovery spanning four years. The high supply of commercial office spaces is expected to continue, further supporting this growth. The recent amendments to the SEZ Act, which allow for floor-wise denotification, are also seen as beneficial. These amendments are enhancing cash accruals and improving the credit profiles of commercial real estate entities.

Despite the positive outlook, the report notes that the vacancy rates are likely to plateau around 17.4-17.5%. This stability in vacancy rates reflects the sector’s ongoing challenges but also its resilience in the face of evolving market conditions. Demand from sectors such as IT/ITeS, engineering, manufacturing, and BFSI remains strong, providing a stable foundation for continued leasing activity.

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However, potential economic slowdowns could impact leasing dynamics. The overall strength of the Indian commercial real estate market is supported by a combination of favorable legislative changes, sustained demand from key sectors, and a competitive rental market.

In summary, the CRISIL Ratings report paints an optimistic picture for India’s Grade A commercial office leasing market. With net leasing expected to rise significantly, the sector is well-positioned to address rising vacancy rates and strengthen its financial health, driven by strong demand from GCCs, BFSI, and other key industries.

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