Chennai Office Market Holds Steady, Rentals to Rise in FY2026: ICRA

Chennai, August 29, 2025: Chennai’s commercial real estate office market is expected to maintain stable occupancy levels at 90.5-91 per cent by March 2026. According to ICRA, this follows a period of strong performance with fresh Grade-A office supply of 4.9 mn sq fr (MSF) in FY2025 and 1.3 MSF in Q1 FY2026, which was matched by robust net absorption of 4.8 MSF and 3.1 MSF, respectively.

The strong leasing activity, particularly from the IT-BPM and engineering and manufacturing sectors, drove occupancy up to 90.6 per cent by June 2025 from 87.8 per cent in March 2024.

A significant portion of the upcoming supply is concentrated in the Pallavaram micro-market. Of the total 5 MSF of new supply anticipated in FY2026, roughly 2.5 MSF is located in this area. Pallavaram is gaining traction due to its proximity to the Chennai International Airport and a growing presence of IT/ITES firms. Approximately, 21 per cent of the new supply expected in FY2026 is already pre-leased.

Chennai’s Grade-A office market accounts for about 8.5 per cent (89 MSF) of the total stock across the top six cities as of June 30. Within Chennai, the OMR and South-west regions collectively hold 80 per cent of the city’s Grade-A office stock. The top contributors to the city’s office supply are the micro-markets of Tharamani, Perungudi and Mt. Poonamallee Road, which represent 35 per cent of the total. Vacancy levels in these three micro-markets are expected to remain low in FY2026 due to limited upcoming supply and strong absorption momentum.

Rental rates in Chennai’s top five micromarkets—Perungudi, Tharamani, Thoraipakkam, Mt. Poonamallee Road and Guindy—have seen a CAGR of about three to four per cent over the past five years. The citywide average rental rate is also projected to increase by the same percentage in FY2026.

The top 10 developers in Chennai hold 47 per cent of the Grade-A office supply with eight of them maintaining occupancy rates above 90 per cent. Regional players are also showing strong occupancy.

ICRA noted that the Chennai office market recorded a CAGR of approximately five per cent between FY2017 and FY2025, which is lower than the seven per cent observed across the top six cities. As of June 30, Chennai’s share of the total office supply in the top six cities was 8.5 per cent, down from 10 per cent on March 31, 2017. This share is projected to remain steady in FY2026.