Chennai sees strong demand as Grade-A office absorption surges to 3.1 million sq ft in Q1 FY2026

Chennai added 4.9 msf office space in FY25 with 90.6% occupancy; Pallavaram to see major supply, rentals likely to grow 3–4% in FY26, says ICRA

Chennai’s commercial real estate market added 4.9 million sq. ft. of new Grade-A office space in FY2025, with the majority being absorbed. In Q1 FY2026, an additional 1.3 million sq. ft. was introduced, while net absorption jumped to 3.1 million sq. ft., indicating robust demand, a report by ICRA has said.

Chennai added 4.9 msf Grade-A office space in FY2025; Q1 FY2026 saw 1.3 msf new supply and 3.1 msf absorption, ICRA said. (Representational photo) (Pixabay)

Occupancy levels rose to 90.6% by June 2025, up from 87.8% in March 2024, and are projected to remain stable at 90.5–91% by March 2026, driven by sustained leasing activity from the IT-BPM and engineering & manufacturing sectors, the report said.

ICRA pointed out that the trend is expected to hold, with occupancy projected to remain at 90.5–91% by March 2026, led by robust leasing from IT-BPM and engineering and manufacturing firms.

Half of the new supply due in FY2026, around 2.5 msf, is concentrated in Pallavaram, an emerging micro-market near Chennai International Airport. The area is attracting IT/ITES companies, with 21% of the upcoming supply already pre-leased, the report said.

Chennai’s Grade-A stock now stands at over 89 msf, representing 8.5% of total supply across India’s top six cities. Within the city, the OMR and South-west corridors account for 80% of office stock, with micro-markets such as Tharamani, Perungudi, and Mt. Poonamallee Road contributed 35%. Limited fresh supply in these hubs will keep vacancies low in FY2026, it noted.

Rental values across Chennai’s leading micro-markets have grown at 3–4% CAGR over the last five years and are expected to see similar growth in FY2026. Citywide rentals too are forecast to rise 3–4% next fiscal, the report added.

Top developers drive nearly half of the supply. The top 10 developers hold 47% of Grade-A stock, with eight maintaining occupancy above 90%. Regional players also show robust performance. Rental growth across major micromarkets, Perungudi, Tharamani, Thoraipakkam, Mt. Poonamallee Road, and Guindy, has averaged 3–4% CAGR over the last five years, and a similar growth trend of 3–4% is projected in FY2026, ICRA said.

Between FY2017 and FY2025, Chennai’s office market grew at a CAGR of about 5%, slower than the 7% seen across India’s top six cities. The city’s share of total stock has slipped from 10% in 2017 to 8.5% in June 2025, but ICRA expects this to remain stable in FY2026.