Chennai’s commercial real estate sector began FY2026 on a strong note, with net absorption of Grade-A office space rising to 3.1 million square feet in the first quarter, according to an ICRA report published by Hindustan Times.
The city added 1.3 million square feet of new Grade-A supply during the quarter, building on the 4.9 million square feet delivered throughout FY2025. Much of this fresh stock has already been absorbed, pointing to resilient demand.
Occupancy across Grade-A office assets climbed to 90.6% as of June 2025, up from 87.8% in March 2024. ICRA forecasts this rate to stay steady, between 90.5% and 91%, through March 2026. The momentum is largely driven by sustained leasing activity from the IT-business process management (IT-BPM) and engineering and manufacturing sectors.
One of the key growth hotspots is Pallavaram, located near Chennai International Airport. The emerging micro-market is expected to contribute roughly half of the projected 2.5 million square feet of new supply in FY2026. As of the report’s release, 21% of this upcoming space has already been pre-leased, primarily by IT and IT-enabled services firms.
With more than 89 million square feet of total Grade-A office stock, Chennai now accounts for about 8.5% of the supply across India’s six major cities. Within the city, the Old Mahabalipuram Road (OMR) and South-west corridors dominate, housing 80% of the office inventory. Submarkets such as Tharamani, Perungudi, and Mount Poonamallee Road alone account for 35% of the city’s supply. Limited new additions in these established corridors are expected to keep vacancy rates low.
Rental rates have also been on an upward trajectory. Prime office markets across the city have recorded a compound annual growth rate (CAGR) of 3% to 4% over the last five years. Similar growth is anticipated in FY2026, both at the micro-market level and citywide, the report noted.
Large developers remain influential in shaping the market, with the top 10 controlling 47% of the Grade-A stock. Eight of these developers have maintained occupancy levels above 90%, signaling strong performance. Meanwhile, regional players are also holding their ground, contributing to stable rental growth in areas like Perungudi, Tharamani, Thoraipakkam, Mount Poonamallee Road, and Guindy.
Despite the recent uptick in demand, Chennai’s office market has grown at a slower pace compared to its peers. From FY2017 to FY2025, it expanded at a CAGR of 5%, trailing the 7% growth seen across the top six Indian cities. As a result, the city’s share of total Grade-A stock has dipped from 10% in 2017 to 8.5% as of mid-2025. ICRA expects Chennai’s share to hold steady in the near term.