Property developers ramp up on rentals as demand for offices, malls and data centres soars

Developers increase rental reliance as offices, malls and data centres surge

Top Indian real estate developers have more than doubled their dependence on rental and annuity based income in the last decade - now accounting for over 40 percent of revenue - as occupancies in offices and malls remain high at 94-99 percent, along with a rising demand for digital infrastructure such as data centres.

Much of this growth has happened in Bengaluru and Hyderabad, which together accounted for about 47 percent of India’s gross office leasing during the first half of 2025 (H1CY25), Knight Frank India Real Estate Q2 CY25 report has shown. The National Capital Region (NCR) and Mumbai remain the strongest mall rental markets, driven by luxury consumption.

Even with a booming residential housing sector - with the top seven cities recording record sales - developers are balancing cash flow with annuity based income. One case in point is DLF, which now derives more than 40 percent of its revenue from rentals.

Diversified real estate developer Prestige Estate’s malls are near full occupancy, and Macrotech Developers recorded Rs 500 crore in data centre sales during the June quarter. DLF in its FY25 annual report has guided for rental earnings before interest, tax, depreciation and amortisation (EBITDA) margins of over 70 percent, compared with 25-30 percent margins in residential projects, underscoring the strong demand in India’s commercial rental market.

Bengaluru-headquartered Prestige Estates leased 1.21 million square feet of offices at 94 percent occupancy during Q1FY26, with its malls posting 99 percent occupancy and accruing Rs 590 crore in gross turnover. The company has projected a pipeline of 5 million square feet of Grade-A offices under construction in Bengaluru and Hyderabad.

DLF has 46 million square feet of commercial space with 94 percent occupancy, and its new assets in Chennai and Gurugram are nearly fully leased, the realtor said. The company’s Vice Chairman Sriram Khattar told investors during a recent interaction, “From the existing portfolio, the rental growth is between 7 percent to 8.5 percent. But we have put in a framework where we want the growth to be in the mid-teens year after year.”

Oberoi Realty’s office portfolio too is performing strongly. Vikas Oberoi, Chairman and Managing Director of Oberoi Realty told investors, “Commerz I and entire Commerz II are for the first-time fully leased, and we are left with only Commerz III and which is in great demand.”

Industry experts attribute the shift towards rentals to growing investor appetite, supportive regulatory changes and developers seeking steady income. Ravi Shankar Singh, Managing Director – Residential Transaction Services, Colliers India sees this model growing further. “With long lease tenures and high occupancy rates, this model is considered sustainable and likely to expand further,” he said, adding that the rise of REITs and demand for commercial spaces have made annuity income far more attractive.

According to Vivek Rathi, National Director – Research, Knight Frank India concurred. “Leading developers such as DLF, Lodha, and Prestige are expanding into commercial real estate such as offices, malls, warehouses, and hospitality assets to reduce reliance on residential sales and secure stable, recurring revenue.” Rathi added that rentals help shield developers from housing market cycles and enhance brand visibility. DLF is now targetting Rs 10,000 crore in rental income over the next few years.

Data centres have emerged as a key contributor to this revenue stream, with Lodha Developers reporting Rs 500 crore in sales from this vertical during the June quarter. Prestige Estates said it has partnered with Japanese telecom major NTT to build a 100 megawatt (MW) data centre campus in Bengaluru. Groups such as Hiranandani, Adani and Reliance too are investing heavily in similar assets.

“Data centres represent long-term leases with an extremely stable tenant base. They are bound to see massive investment interest given the major focus of the government in this AI age,” Rathi said.

With occupancies near full, institutional investment rising and REIT adoption growing, developers and analysts expect annuity-based income to expand further. Colliers’ Ravi Shankar Singh said, “Digital infrastructure like data centres and high-yield commercial spaces are now central to developer strategies. These assets offer stable occupancy and predictable returns, reshaping valuations and providing resilience beyond residential cycles.”