Kolkata: The city’s office market is showing signs of a sustained recovery, with leasing activity rising 27% year-on-year in the third quarter of 2026, driven by steady demand from IT services firms, domestic businesses, flexible workspace operators and manufacturing companies. The improvement, coupled with limited fresh supply, has pushed vacancy rates to their lowest level since 2018 and rents to their fastest growth among India’s eight major office markets, according to Knight Frank India.The city recorded office transactions totalling 1.5 million sq ft during January-September 2026, marking the second-highest nine-month leasing volume since 2017. Although the figure was 9% lower than the 1.64 million sq ft recorded during the corresponding period last year, the market gathered momentum as the year progressed. Quarterly leasing rose from 0.37 million sq ft in Q1 to 0.46 million sq ft in Q2 and 0.67 million sq ft in Q3, indicating a steady improvement in occupier sentiment.The recovery has been particularly significant against the backdrop of limited fresh supply. New office completions stood at just 0.28 million sq ft during the first nine months of 2026, following a year in which no new supply was added. This has helped absorb available inventory and improve occupancy levels.The city’s office vacancy rate fell to 26.1% in Q3 2026 from 31.9% a year earlier, a decline of 582 basis points. The rate was also substantially lower than the 43.5% recorded in Q3 2021, pointing to a gradual tightening of the market after years of elevated vacancies.The improvement in occupancy has translated into stronger rentals. Average transacted rents rose 13% year-on-year to Rs 52 per sq ft per month in Q3 2026, up from Rs 46 a year earlier. The increase was the highest among the country’s eight major office markets. Rentals were also 37% higher than in Q3 2019, reflecting the combined impact of improving occupancy, sustained demand and limited availability of quality office space.The preference for better-quality office assets has emerged as another defining feature of the market. Grade A properties accounted for 94% of transactions during the first nine months of 2026, underlining occupiers’ growing preference for efficient, professionally managed and non-strata office spaces.Third-party IT services companies remained Kolkata’s largest occupier group, leasing 0.57 million sq ft and accounting for 38% of total transactions during January-September. India-facing businesses followed with 0.47 million sq ft, or 31% of leasing activity, while flexible workspace operators leased 0.41 million sq ft, accounting for 27%. Global capability centres contributed a smaller share of 3%, with transactions totalling 0.05 million sq ft.An industry-wise analysis showed that IT and IT-enabled services (ITeS) accounted for 47% of office transactions, followed by flexible workspace operators at 27%. Manufacturing, however, emerged as the fastest-growing segment, with leasing surging 256% year-on-year to 0.23 million sq ft. Its share of total transactions rose to 15% during the first nine months of 2026, from just 5% in the corresponding period last year.The growing contribution of manufacturing companies is adding depth to Kolkata’s office demand, traditionally dominated by IT services and domestic-facing businesses. Flexible workspace operators, too, have strengthened their presence, increasing their share of leasing from 24% in January-September 2025 to 27% in the corresponding period this year.Joydeep Paul, senior director (occupier strategy and solutions and industrial & logistics) and Kolkata branch head at Knight Frank India, said the market was witnessing steady occupancy trends, supported by limited new supply and stronger leasing through the year.“IT services, India-facing businesses and flex operators remain important sources of demand, while manufacturing has gained ground. Rents have risen at the fastest pace among India’s major office markets, even as vacancy has declined to its lowest level since 2018. Together, these trends reflect a market in which occupier demand and the availability of quality non – strata space is increasingly important to pricing,” he added.Real estate developers are also reporting the impact of the shift towards higher-quality office spaces, with rising demand offering fresh impetus to commercial projects.Saket Mohta, managing director of Merlin Group, said the increasing preference for Grade A offices had further strengthened the market.“The resurgence reflects growing economic activity, sustained corporate demand and the expansion of the IT and ITeS sectors. IT services continue to be a major driver of office space demand while manufacturing companies have significantly increased their share of office transactions. We are witnessing this positive momentum firsthand. The first phase of our World Trade Center Salt Lake project is almost sold out,” he added.Harshavardhan Neotia, chairman of Ambuja Neotia Group, described the 27% rise in office leasing as an encouraging indicator of the city’s economic prospects.“This shows Kolkata’s growing economic confidence. Offices are often where the first signs of a city’s economic momentum become visible, well before they translate into wider growth. With new investments taking shape and greater convergence between the State and Centre on infrastructure and development priorities, Bengal has an opportunity to build on this momentum, attract more businesses and create meaningful employment,” he added.Ravindra Chamaria, chairman and managing director of Infinity Group, which has been among the pioneers of IT office space development in Kolkata, said the IT and ITeS market was buoyant, with quality office space becoming increasingly difficult to find.“It seems that in the coming three years there will be hardly any stock in the pipeline. Last year many new companies came to Kolkata, shooting up demand for commercial space. Even several IT companies that had been on the brink of exit from the state have also begun expanding their operations now,” he added.Beyond large corporate occupiers, demand from smaller businesses and start-ups is also contributing to the market’s recovery.Rameswar Prasad, director of Prasad Group, said the growth in office space demand, despite the market being affected by global macroeconomic turmoil, had renewed optimism among real estate developers in Bengal.“There is a noticeable rise in demand for small offices with a consequent rise in rental. This trend has been due to the increasing number of start-up owners,” he added.Sanjay Jain, managing director of Siddha Group, said a more positive perception of Bengal, backed by a conducive business environment, could help Kolkata retain talent, attract fresh investment and sustain annual office market growth of 30–50% in the coming years.Suhel Saraf, managing director of Sugam Group, also pointed to the changing composition of demand, noting that manufacturing’s share of leasing had tripled to 15%.Alongside IT services and flexible workspace operators, manufacturing is emerging as an increasingly important driver of office absorption, reflecting the state’s renewed emphasis on infrastructure development and industrialisation.
