Office Construction Starts in Israel Hit 17-Year Low in Early 2026 Amid Market Slowdown
Israel's office real estate market continues to slow sharply, with new construction starts in the first quarter of 2026 reaching just 53,128 square meters, according to data from the Central Bureau of Statistics. If this pace continues, the annualized figure of 212,512 square meters will mark the lowest level since 2009. This decline reflects broader economic challenges including the ongoing war, high interest rates, and a slowdown in the high-tech sector, which traditionally drives office demand.
Outside Tel Aviv, many office buildings suffer from low occupancy rates. Ori Levin, CEO of Tadiran, noted at the EY Israel annual real estate conference that while there are signs of recovery in Tel Aviv, many buildings remain vacant for extended periods. The data shows a rapid market response to these conditions; for comparison, the first half of 2025 saw 235,087 square meters of new office construction, and the full year 2025 totaled 560,528 square meters. This is a significant drop from 2024, when 844,294 square meters began construction, and from the 2018-2023 period, which consistently exceeded one million square meters annually. In 2023 alone, 1,352,169 square meters of office space started construction, over six times the projected 2026 pace.
Economic consultant Itay Shafran emphasized the need for Israeli planning authorities to reconsider office space development, noting that some cities already have a 10-15 year supply of office buildings under construction. He called for a halt and reassessment of demand and economic viability to better align future projects with market needs.
The office sector, once a leader in construction starts aside from residential, has now fallen behind other sectors. In 2023 and 2024, retail and industrial/storage sectors surpassed it, and in the first quarter of 2026, office construction ranked near the bottom compared to sectors like commerce, hospitality, education, transportation, public buildings, and agriculture. Only healthcare had fewer new construction starts than offices in early 2026. Meanwhile, the retail sector began construction on approximately 221,000 square meters in the first quarter, signaling strong activity, alongside robust starts in hospitality and transportation sectors, suggesting these areas may see growth this year.
