Defense Tech Firms Revitalize Tel Aviv Office Market, Driving Price Hikes

The Israeli office real estate market, particularly in Tel Aviv, is experiencing a significant shift driven by defense technology companies, according to a new report from NEWMARK NATAM covering the first half of 2026. These defense and cyber firms are filling the void left by traditional high-tech companies that are downsizing, thereby rescuing the Tel Aviv office market from a recent slump. This trend is causing a divergence in rental prices and occupancy rates across the city.

While older business districts like the City (Rothschild and Ahad Ha'am) and the courthouse area are seeing stable but slowly declining prices, newer, revitalized areas, especially along Menachem Begin Boulevard (including Sarona and Azrieli), are experiencing a surge in demand and prices. Rents on Menachem Begin rose 3% to NIS 151 per square meter, and on Yigal Alon by 1.5% to NIS 139 per square meter in the first half of 2026 compared to the latter half of 2025. Even areas like Hassan Arafa and Yitzhak Sadeh, which saw a 3% rent decrease to NIS 144 per square meter, remain among the most expensive.

"We see gaps between areas that include new towers, primarily along Menachem Begin, which are also close to public transportation and very accessible, compared to areas that have not undergone renewal, such as the Weizmann area and the City, which are considered relatively less accessible and therefore less in demand," stated Or Ben Tzvi Klein, Deputy CEO of NEWMARK NATAM's Property Owners Division. The report attributes the slight decrease in Hassan Arafa to a natural correction after record highs, exacerbated by new office spaces entering the market and some companies relocating to Menachem Begin.

Overall occupancy rates in Tel Aviv climbed approximately 3% to 99%, indicating strong demand. However, this demand is concentrated in the revitalized areas like Menachem Begin, Hassan Arafa, and Yigal Alon, which boast 99% occupancy. Less sought-after areas see occupancy rates between 93%-95%, primarily from existing tenants. Meanwhile, surrounding cities and the periphery are experiencing mixed trends, with notable price drops in Rehovot (9%), Ness Ziona (9%), Rosh Ha'ayin (7%), and Herzliya Pituah (4%).