Israeli Real Estate Giants Expand Into Residential Market Amid Office and Retail Yield Declines

Leading Israeli real estate companies Azrieli and Melisron have recently expanded into the residential sector after years focused on malls and office spaces. This strategic shift responds to declining yields in commercial real estate and regulatory constraints, prompting a search for new growth engines.

Melisron acquired control of Aviv Initiatives in 2024 for about 1.2 billion shekels. Despite an initial market slowdown, Melisron sold 166 apartments in the first half of 2026, nearly triple the volume from the same period in 2025. The surge was driven mainly by the "Aviv Bashchakim" project in Herzliya, promoted through a campaign featuring Gwyneth Paltrow. Melisron's project backlog grew 36% year-over-year to approximately 13,300 apartments, with expected revenues of around 15 billion shekels and operating profit near 2.4 billion shekels. However, the company’s net profit fell 33% to 289 million shekels, mainly due to lower subsidiary earnings.

Azrieli entered residential real estate by acquiring 67% of Tzemach Marmon in 2025 for 635 million shekels. In the first half of 2026, this segment generated 249 million shekels in revenue and 38 million shekels in profit. Azrieli’s residential assets now total about 2.35 billion shekels, including over 5,000 housing units across 27 projects. Sales more than doubled compared to the previous year, with 127 apartments sold in the first half of 2026 versus 52 in the same period of 2025. Azrieli’s overall net profit dropped from 320 million to 155 million shekels, affected by real estate revaluation losses and increased expenses, though Tzemach Marmon helped mitigate the decline.

Industry experts note that Israeli real estate firms are following a global trend of diversifying beyond offices and retail, sectors facing yield erosion and reduced demand post-pandemic. The integration of residential and office spaces is seen as a growing trend. However, it remains too early to determine if this residential expansion will prove financially successful, especially given geopolitical uncertainties and construction delays.

Key upcoming challenges for these companies include completing projects on schedule and successfully transitioning from sales to actual construction and occupancy, which will be critical to realizing the anticipated growth and profitability in the residential sector.