Flex and IT/ITeS sectors anchor stable H1 demand amid diverse occupier activity

• Q2 gross leasing reached 2.3 million sq ft, down 14.6% y-o-y, though H1 2026 totaled 4 million sq ft, remaining stable compared to H1 2025. IT/ITeS led with 25.3% share af leasing activity, followed by flex at 24.5% and BFSI at 14%, showing diverse sector demand.
• Net absorption grew 13% q-o-q, with H1 2026 at 2.1 million sq ft, down 8%, due to cyclical tenant exits from lease expiries and prior relocation or consolidation strategies. SBD OMR and PBD OMR showed strong Q2 performance.

Limited supply and strong space take-up cause vacancy to decline by 120 bps q-o-q

• Two new projects, SKCL Summit and Arihant Vayu, in CBD and SBD OMR submarket, were completed in Q1, adding 0.18 million sq ft to the city’s office Grade A stock.
• Vacancy across core markets remained in single digits, reflecting solid occupancy in existing stock. During H1 2026, new supply reached 1.3 million sq ft, representing a 9% increase from the same period in 2025.

Rents and capital values up marginally q-o-q

• PBD OMR recorded the highest rent growth in Q2 2026 at 10.8% y-o-y due to strong leasing momentum in the submarket. SBD OMR rents rose 5.8% y-o-y, propelled by new premium developments and rent increases across existing high-quality properties.
• Capital values increased by 5.9% y-o-y, aligning with rental growth. As a result, yields remained stable with no change recorded.

Outlook: Strong demand and supply anticipated in the coming years

• For the 2026-2027 period, the Chennai Grade A office market is anticipated to receive approximately 10 million sq ft of new supply. PBD OMR and SBD are projected to contribute two-thirds of this total.
• Leasing demand is expected to stay healthy, driven by flexible workspace operators, and GCCs across tech, manufacturing, and BFSI. The market is projected to remain balanced with strong net absorption similar to new supply, keeping vacancy steady at below 7.0%.