India's Office Market Surges Past AI Concerns

India's commercial real estate sector achieved a record 86.4 million sq ft in gross leasing volumes for 2025, a 20% year-on-year increase. This strong performance indicates the market is largely unfazed by the accelerating adoption of artificial intelligence. Brookfield's Managing Director for Real Estate, Ashank Kothari, stated that if AI were a major challenge, its effects would be visible by now, suggesting current market strength comes from fundamental drivers.

Despite global discussions about AI automating tasks and impacting jobs, India's office market has experienced a surge in demand and rental growth, particularly for high-quality spaces.

The Scarcity of Prime Space Fuels Demand

AI's limited immediate impact on Indian office demand is strongly supported by a persistent shortage of prime Grade A spaces. While India has about one billion sq ft of office space, roughly 70% is considered outdated. Prime Grade A offices, owned by institutional investors and meeting global tenant standards, are scarce. This scarcity drives a clear 'flight-to-quality,' where demand for prime, modern spaces significantly outstrips supply, leading to rental growth across major markets.

Bengaluru led the market, leasing 28.7 million sq ft in 2025. Global Capability Centres (GCCs) were major occupiers, accounting for 38% of total leasing. Hyderabad, Delhi NCR, Pune, and Chennai also surpassed key leasing benchmarks.

Favorable Demographics and Urbanization Drive Growth

Demand is further boosted by India's favorable demographics and rapid urbanization. Nearly 350 million people are expected to move to cities over the next 25 years, creating sustained demand for commercial spaces, housing, and infrastructure.

The 2025 leasing volumes of 86.4 million sq ft show a market firmly on a growth trajectory, building on a record 2024 which saw approximately 89 million sq ft leased. The BFSI sector remains a significant contributor, accounting for 23% of total leasing in 2025, alongside flexible workspace operators who took a 9% share. This diverse demand, coupled with limited new Grade A supply additions, has tightened vacancy rates for Grade A stock to about 14.4% by the end of 2025.

AI's Potential Future Impact and Risks

While AI's immediate impact on Indian office demand appears negligible, the global perspective suggests potential future disruption. Offices are the commercial real estate sector most exposed to generative AI globally, with significant impacts predicted by 2032. AI could displace jobs in administrative roles by automating tasks and enhancing human capabilities, potentially reducing office space needs per employee.

India's market is currently supported by strong fundamental demand drivers like urbanization and demographic growth, but future AI productivity gains could alter space needs. Furthermore, while prime Grade A assets benefit from the 'flight-to-quality,' older buildings face obsolescence, creating a divided market with distinct risk profiles.

Reliance on specific occupier segments, such as GCCs and the IT sector (whose leasing share fell to about 30%), carries risk if these sectors face unforeseen challenges or significant shifts in their operational models due to technological advancements.

Future Outlook for the Indian Office Market

Industry reports forecast continued resilience for India's office market, with annual leasing expected to remain strong at 80-90 million sq ft in the near term. Vacancy rates are anticipated to drop to 12.0-12.5% by March 2027, as sustained demand outpaces new supply.

Rents are expected to continue growing, particularly for ESG-compliant Grade A assets in prime areas. However, AI's long-term effect on jobs and space utilization will require continuous monitoring by institutional investors and developers. Current market dynamics remain favorable for Grade A assets due to enduring demand and a limited supply pipeline.