Defense Tech Firms Surge in Demand for Office Space, Overtaking Israeli High-Tech
Over the past two decades, Israel's office market, especially in Tel Aviv and the central region, has closely mirrored the fortunes of the high-tech sector. High-tech companies drove strong demand, shaping office buildings with amenities like gyms, bike parking, and green building standards to attract employees. Large firms often paid over 150 shekels per square meter for tens of thousands of square meters. However, the high-tech sector proved volatile, with layoffs, budget cuts, and overseas decisions quickly impacting office space needs. The COVID-19 pandemic accelerated trends toward downsizing, hybrid work, and shorter lease terms, sometimes as brief as three years.
A new trend is emerging where defense and defense-tech companies are increasingly occupying office spaces previously dominated by high-tech firms. Amid global conflicts and rising defense budgets, major players like Rafael, Elbit Systems, and Israel Aerospace Industries have significantly expanded their operations. Alongside them, dozens of startups developing security solutions have grown. Data from Colliers Israel shows that in the first half of 2026, defense companies increased their leased office space by 32% to over 140,000 square meters, up from about 106,000 square meters in the second half of 2025. Currently, defense firms are seeking an additional 145,000 square meters, accounting for roughly 30% of all active office space demand.
Sarrit Yitzhakov, CEO of Colliers Israel, noted that the defense-tech sector has become the dominant player in the commercial real estate market over the past year. Unlike high-tech, which has faced cutbacks, defense companies have steadily expanded their real estate footprint. Approximately 62% of transactions in late 2025 and early 2026 were concentrated in the Gush Dan area, including Tel Aviv, Petah Tikva, Ramat Gan, Bnei Brak, and Holon. This region has become a hub for offensive cyber, AI-based intelligence, and smart battlefield systems. In northern Israel, from Haifa to Hadera, over 38,000 square meters of deals were recorded, driven by R&D center expansions and new facilities. Small and medium defense startups are also increasingly leasing 2,000 to 4,000 square meter spaces, mainly in Petah Tikva and the Sharon region.
Industry leaders cite the October 7 attack as a turning point. According to Tzachi Agassi, CEO of 770 Offices, while SaaS and gaming companies are contracting, defense giants like Rafael, Elbit, and Israel Aerospace Industries are becoming the largest tenants. Defense tech is not a passing trend but a result of geopolitical shifts, with about one-third of Israeli high-tech investments now directed there. Guy Amosi, CEO of Avison Young Israel, highlighted Elbit’s long-term lease of roughly 40,000 square meters in Ness Ziona as emblematic of this shift. Defense companies tend to be more stable tenants, requiring larger spaces and longer leases due to security needs and significant investments in clean rooms, labs, and security systems. Unlike high-tech, hybrid work is rare in defense firms. They have also moved from peripheral campuses into city centers to compete for talent, becoming local equivalents of Google and Amazon.
Despite rising demand from defense firms, the office market remains tenant-friendly. Supply, including new construction in Tel Aviv, still exceeds demand, prompting landlords to compete aggressively for tenants even as defense companies drive growth in the sector.
