Chennai’s commercial real estate sector is witnessing a strong growth cycle, with absorption of Grade-A office space surging to 3.1 million square feet (msf) in the first quarter of FY2026, according to ratings agency ICRA. The momentum reflects sustained demand from IT-BPM, engineering, and manufacturing companies, even as new supply continues to flow into the market.
ICRA’s report highlighted that Chennai added 4.9 msf of new Grade-A supply in FY2025, while maintaining high occupancy levels. In Q1 FY2026 alone, 1.3 msf of fresh space entered the market, yet demand kept pace, underscoring the city’s resilience as a key office hub in India.
Occupancy Levels Near Record Highs
Occupancy in Chennai’s office market rose to 90.6% by June 2025, compared with 87.8% in March 2024. The trend is expected to hold steady through FY2026, with projections of 90.5–91% occupancy by March next year. Analysts attribute this stability to consistent leasing activity from global capability centres (GCCs), IT/ITES firms, and diversified occupiers in the engineering and manufacturing space.
“Chennai continues to be an attractive destination for occupiers, supported by its talent pool, cost competitiveness, and improving infrastructure. We expect vacancy levels to remain tight in established corridors, even as new micro-markets emerge,” ICRA said.
Pallavaram Emerging as Growth Hotspot
One of the most significant trends is the rise of Pallavaram, an emerging micro-market near Chennai International Airport. Nearly 2.5 msf of upcoming supply in FY2026 is concentrated in this belt, of which 21% has already been pre-leased. The region is drawing interest from IT/ITES occupiers seeking proximity to transport links and alternative business hubs beyond traditional corridors.
The report noted that OMR (Old Mahabalipuram Road) and the south-west corridor continue to dominate, accounting for 80% of office stock. Sub-markets such as Tharamani, Perungudi, and Mount Poonamallee Road contribute around 35% of this supply. Limited fresh stock in these established hubs will likely keep rental values elevated in FY2026.
Rentals to Rise 3–4%
Rental values in Chennai’s leading office micro-markets have grown at a compound annual growth rate (CAGR) of 3–4% over the last five years. ICRA expects this trajectory to continue in FY2026, with citywide rentals projected to rise 3–4% next fiscal.
“Steady absorption and controlled vacancy will ensure healthy rental growth across Chennai’s office market. Developers with quality supply in key corridors are well-positioned to benefit from the current demand cycle,” ICRA’s report said.
Market Share
As of June 2025, Chennai’s Grade-A office stock stands at over 89 msf, representing 8.5% of the total supply across India’s top six office markets. While this marks a slight dip from 10% share in 2017, analysts expect Chennai’s position to remain stable in FY2026.
The city’s office market grew at a CAGR of 5% between FY2017 and FY2025, slightly slower than the 7% growth seen in top metros like Bengaluru and Hyderabad. Despite this, Chennai remains one of the country’s most attractive real estate destinations, particularly for GCCs, thanks to its cost advantages and workforce availability.
Top developers account for 47% of Grade-A office stock in Chennai, with eight out of ten maintaining occupancy levels above 90%. Regional developers too have demonstrated resilience, adding competitive supply to micro-markets.
ICRA noted that the market’s strength lies in its balanced ecosystem—large institutional developers deliver premium supply, while regional players cater to niche occupier demand. This combination has kept the market competitive and stable, even in a challenging macroeconomic environment.
Chennai is set for another year of steady performance. The city is expected to absorb nearly all of the 5 msf of supply scheduled in FY2026, driven by pre-commitments and ongoing leasing momentum. The concentration of supply in Pallavaram could reshape the city’s commercial geography, while constrained availability in OMR and Perungudi will sustain rental growth there.
With occupancy levels projected at 90.5–91%, rentals rising 3–4%, and developers ramping up Grade-A stock, Chennai’s office market appears well-placed to maintain momentum through FY2026.
Chennai has carved out a strong position as a hub for IT-BPM, GCCs, and diversified occupiers. While its national market share has dipped marginally, the city continues to deliver consistent absorption and stable rentals, making it one of the most dependable office markets in India, ICRA report concluded.
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