India’s office space market continued its upward trajectory in Q3 FY25, recording an impressive 18.61 million square feet of office space absorption. This marks a 17% year-over-year increase, according to a report by Vestian. The growth was driven by robust demand from BFSI and flexible workspace operators, who accounted for 39% of the total absorption—a significant rise from 20% in the previous quarter.

However, the construction of new office space dropped by 4% compared to the same period last year. Despite this, new completions rose by 3% quarter-on-quarter, reaching 12.80 million square feet. Hyderabad led new completions with a 32% share (4.10 million sq ft), followed by Bengaluru at 28%. In contrast, Mumbai and Chennai saw notable declines in new supply, with reductions of 73% and 29%, respectively.

Southern Cities Lead Absorption

Southern cities like Bengaluru, Hyderabad, and Chennai dominated office space absorption, contributing 61% of the total demand. Bengaluru alone accounted for 6.63 million square feet, a sharp increase from its 25% share in Q2 FY25 to 36% in Q3 FY25. Hyderabad followed with 2.79 million square feet of absorption.

The National Capital Region (NCR) also witnessed remarkable growth, with a 118% increase in office space take-up, largely driven by flexible workspace operators. Meanwhile, Mumbai’s share in absorption fell from 20% in Q2 to 12% in Q3, highlighting regional disparities in market performance.

Vacancy Rates and Rentals

Pan-India office space vacancy rates dropped by 90 basis points, reaching 14.8% in Q3 FY25, reflecting vigorous leasing activity. Bengaluru and Pune had the lowest vacancy rates at 8.2% and 7.2%, respectively. Average rentals remained stable across most cities, with Bengaluru seeing the highest appreciation at 1.1% quarter-on-quarter. Kolkata’s rentals remained unchanged.

Flex Spaces and BFSI Sectors Drive Demand

The BFSI and flexible workspace sectors emerged as key growth drivers, contributing significantly to the absorption figures. The “core + flex” model continued to gain traction as businesses sought adaptable office solutions to accommodate hybrid work trends. This shift highlights companies’ evolving preferences and focus on operational flexibility.

Market Outlook

India’s office space market remains resilient despite a slight dip in new construction. The combination of rising absorption rates, declining vacancy levels, and stable rental values underscores the sector’s robust health. Southern cities are expected to maintain dominance, supported by steady leasing activity and ongoing infrastructure development.

As the BFSI and flex workspace sectors continue to thrive, the market will likely see sustained growth in the coming quarters, reinforcing its importance in India’s evolving business landscape.