Israel's Office Market Faces Vacancy Challenge Amidst Corporate Relocations
Translated & summarized from Globes by baba
Large Israeli companies are moving into new, upscale office towers, leaving behind approximately 30 vacant floors in older buildings across cities like Tel Aviv and Ramat Gan. Law firms and tech companies are leading these relocations, seeking modern amenities and better accessibility. However, the vacated spaces in established buildings are proving difficult to fill, leading to concerns about market segmentation and the need for adaptation to attract new tenants. The trend is expected to continue with millions of square meters of new office space entering the market.
The story in 7 lines · by baba
- Approximately 30 floors are vacant in older office buildings as companies move to new, high-end towers.
- Law firm Meitar is vacating 13 floors in Ramat Gan, with no replacement tenant secured yet.
- Gaming company Moon Active will leave 26,000 square meters vacant in Tel Aviv upon its move.
- Bank Mizrahi Tefahot's departure from Ramat Gan's Moshe Aviv Tower leaves a significant space unfilled.
- Experts liken the office market shift to 'musical chairs', with a challenge to refill older buildings.
- Millions of square meters of new office space are projected to enter the market in the coming years.
- Vacated spaces may require significant adaptation to suit the needs of future tenants.
Israel's major cities are witnessing a significant shift in their office landscapes as large companies relocate to new, high-end towers, leaving behind substantial empty spaces in older buildings. This trend is particularly noticeable along Tel Aviv's Ayalon Highway, with new constructions like TOHA 2, BEYOND, and the Solalim Tower altering the skyline. Similar developments are occurring in Ramat Gan's Stock Exchange complex and other cities.
One prominent example is the BEYOND tower, where the law firm Meitar is vacating 13 floors, approximately 30,000 square meters, from its previous location in Ramat Gan. While Meitar is downsizing its footprint in the new tower, taking 17 floors, the 13 floors it leaves behind are yet to be filled. Gaming company Moon Active is also moving to BEYOND, occupying 11 floors totaling 22,000 square meters, but will leave behind around 26,000 square meters in its current Tel Aviv building, for which no replacement tenant has been found.
The phenomenon extends beyond Tel Aviv. Bank Mizrahi Tefahot relocated from Ramat Gan's Moshe Aviv Tower, vacating eight floors totaling 12,700 square meters, to a new headquarters in Lod. The owner of the Ramat Gan building reports no replacement tenant has been secured, projecting a drop in occupancy to 50% by 2027. Similarly, technology firm Audiocodes left its Airport City offices, leaving 17,000 square meters vacant, and Diplomat is moving its headquarters, vacating 30,000 square meters at its logistics center.
Experts describe this as a "musical chairs" game in the office market. While new towers attract strong companies with advanced amenities and accessibility, they create voids in older buildings. The challenge for the coming years will be refilling these older spaces, as new constructions are expected to add millions of square meters of office space across Israel in the next five years. This influx of new supply, coupled with companies seeking modern workspaces, is already putting pressure on rental rates and commercial terms in areas outside Tel Aviv's core.
Furthermore, the suitability of vacated spaces for the next generation of tenants is a concern. Spaces designed for specific professions, like law firms, may require significant adaptation for technology companies that prioritize density, collaborative areas, and flexible layouts. This mismatch could prolong vacancy periods in older buildings.
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