Defense Tech Boom Fuels Tel Aviv Office Real Estate Market
The defense technology and cybersecurity sectors are revitalizing Tel Aviv's office real estate market after several challenging years, according to a first-half 2026 review by Newmark Natam reported by Globes. Amidst ongoing conflict and increased demand for new armaments from Israel and Western nations, the market's demand structure has shifted. Traditional tech companies are downsizing their office footprints, making way for defense and cybersecurity firms.
Demand is concentrated in new Tel Aviv areas, particularly those near public transportation lines. Older neighborhoods, adjacent cities, and peripheral areas are experiencing weaker market conditions, especially for Class A office towers. In established business districts like Rothschild Boulevard, Ahad Ha'am Street, Weizmann Street, and the Museum Tower area, rental rates are stable or slightly declining.
Conversely, updated business zones, including the Menachem Begin Road area (encompassing Sarona and the Azrieli Center) and Yigal Alon Street, are seeing rising demand and rental prices. Rents on Menachem Begin increased by 3% to 151 shekels per square meter in the second half of 2025 and the first two quarters of 2026. Yigal Alon Street saw a 1.5% rise to 139 shekels per square meter.
In contrast, new towers in the Hassan Arafa and Yitzhak Sadeh Street areas experienced a roughly 3% decrease in rents, settling at 144 shekels per square meter, though this area remains the second most expensive in Tel Aviv. Newmark Natam's Or Ben-Tzvi Klein attributes these differences to infrastructure quality, noting new towers' proximity to public transport. The decline in Hassan Arafa is seen as a natural correction after previous peak values, influenced by new supply entering the market.
Overall office occupancy in Tel Aviv rose to approximately 99%, with prime areas like Menachem Begin, Hassan Arafa, and Yigal Alon reaching full capacity. Less sought-after parts of the city maintain 93-95% occupancy, with long-term tenants occupying significant space. Outside Tel Aviv, the market faces greater pressure, with significant rent drops in Rehovot and Ness Ziona (9%), Rosh Ha'ayin (7%), Herzliya Pituah (4%), and Bnei Brak (2%). Peripheral areas saw 3-5% decreases. The continued influx of new office space outside the city benefits tenants, keeping secondary market rates under pressure.
