The war and defense needs in Israel and the West are affecting the office real estate market in Israel. Defense-tech companies have rescued the Tel Aviv office market from the crisis it has undergone in recent years, according to a survey of the first half of 2026, conducted by office management and research company Newmark Natam..
According to the survey, the market’s main growth engine has shifted. While traditional tech companies are reducing space, defense-tech and cybersecurity companies are driving demand. However, demand is of a very specific nature, and alongside the boom in new and renewed areas of Tel Aviv, which are close to public transport lines, there is a striking decline hitting the office market in relatively old areas of the city, in surrounding cities and in the periphery.
A look at rents and occupancy rates in high-end office towers (Class A) reveals a mixed picture. While towers In the City area (Rothschild and Ahad Ha'am) and the courts area (Weizmann Street, Museum Tower, etc.) rents are maintaining the levels of recent years, but with a slow downward trend. In the redeveloped areas, and especially on the Menachem Begin Street area, which includes Sarona, the Azrieli area, Yigal Alon and the new towers being built there - there is a noticeable increase in demand and rents.
Rises on Menachem Begin Street
On Menachem Begin Street, rents rose 3% between the second half of 2025 and the first half of 2026 to NIS 151 per square meter, and in Yigal Alon by 1.5% to NIS 139 per square meter. Another notable Tel Aviv business area is new towers in Hassan Arafa and Yitzhak Sade Street, where rents fell about 3%, but it is still the second highest in rents at NIS 144 per square meter.
Newmark Natam VP real estate services Or Ben Zvi Klein says, "We see differences between the areas that include new towers, primarily the Menachem Begin Street area, which are also close to public transport and very accessible, compared with areas that have not undergone renewal, such as the Weizmann area and the city center, which are considered relatively less accessible, and therefore are less sought after."
He sees the decline in the Hassan Arafa area as a natural correction after the peak levels recorded there in the previous quarter. The move of several companies to the Menachem Begin area, along with the entry of additional rental space onto the market, has increased supply office space in the area, and also contributed to the correction in rents. But it is still one of the most expensive places in the city.
The high rents are the result of high demand, which was also reflected in occupancy rates. Overall, occupancy rates in Tel Aviv increased by about 3% from 96% to 99%, which indicates the extent of demand that has poured onto this market. But just as with prices, demand flowed selectively: in the Begin, Hassan Arapa and Yigal Allon areas, they reached a very high level of 99% of all space in the first half of the year, while in less sought-after areas of the city, occupancy reaches levels of 93%-95%, and it comes mainly from long-time tenants.
"High supply of space"
However, in general, the review writes, "Property owners are still dealing with a high supply of new space that has come onto the market, which leaves the power mainly in the hands of tenants and creates erosion in rents in secondary properties outside the first circle (outside Tel Aviv)."
When it comes to the first circle, surrounding Tel Aviv, where a mixed trend was recorded, which mainly includes decreases. In Rehovot and Ness Ziona, the biggest decrease of 9% was recorded to an average price level of NIS 73.80 per square meter. In Rosh HaAyin rents fell 7% to NIS 52.8 per square meter, in Bnei Brak by 2% to NIS 67.9 per square meter and in Herzliya Pituah by 4% to NIS 96.8 per square meter.
A decrease of 3%-5% was seen in peripheral regions between the second half of 2025 and the first half of 2026.
Published by Globes, Israel business news - en.globes.co.il - on September 3, 2026.
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