Defense-tech is replacing high-tech: The shift in the office market
A Natam report for the first half of the year points to a change in the demand map for offices: software and gaming companies are reducing space, while defense-tech, cyber, and defense industry companies are becoming the growth engine. In Tel Aviv, occupancy in prime towers is approaching 99% and rent is climbing; but outside of it, there has been a decrease in occupancy and prices.
The office market in Israel is changing its face: after years in which classic high-tech companies were the dominant tenants in office towers, in the first half of 2026 a shift of the center of gravity to defense-tech, cyber, and defense industry companies is emerging. This is according to a report published today by the Natam Group (Newmark Natam), which provides real estate services to property owners, tenants, and investors, for the first half of the year.
According to the report, traditional high-tech companies, among others in the software and gaming sectors, continue to reduce space and exercise caution, while companies in the security and cyber sectors are expanding their operations. Unlike some technology companies, they also need large spaces and continuous work from the office, without the hybrid work model in the volumes that characterized high-tech in recent years. The result is a growing split between employment areas that enjoy the new demand and areas that continue to be dependent on traditional high-tech.
The report simultaneously points to pressure that continues to weigh on the industry. According to Natam, the impact of artificial intelligence and efficiency processes in technology companies are already reflected in the demand for employees and offices. The report mentions, among others, Monday, Fiverr, Lightricks, Amdocs, and others as companies that have carried out layoffs, although it is not possible to attribute all the layoffs to AI. Alongside this, there is a supply of hundreds of thousands of square meters of offices in Gush Dan cities outside Tel Aviv. Competition in Tel Aviv may increase.
Those who are currently managing to largely avoid the weakness are in Tel Aviv. According to Natam, Class A towers in the city continue to enjoy high demand, with the main employment centers almost full. The report examined 61 Class A towers in Tel Aviv and the stock exchange complex in Ramat Gan, with a total area of about 2.15 million square meters. The average occupancy rate in the first half of the year stood at 98.89%, compared to 95.83% in the second half of 2025, and the average rent rose from 124.77 NIS to 126.13 NIS per square meter.
The Menachem Begin axis is the most expensive among the areas examined: the average rent in Class A towers climbed from 146.3 NIS to 151 NIS per square meter, alongside an occupancy of 98.95%. According to Natam, accessibility to Israel Railways and the Red Line of the light rail, alongside the move of technology, cyber, and finance companies to the new towers, support the high price levels. The Yigal Alon complex is also almost full, with an occupancy of 99.1% and an increase in rent to about 139.2 NIS per square meter. In the Yitzhak Sadeh-Hassan Arfa complex, occupancy stands at 98.7%, but rent decreased from 147.5 NIS to about 143.8 NIS per square meter.
However, even in Tel Aviv, signs of a change in the balance of power are beginning to appear. One of them is the duration of lease contracts: according to the report, the average contract period has shortened to only about three years, compared to contracts for five years or more that were common in the past. Competition may yet increase: in the second half of the year, new towers are expected to enter the market along the Begin and Yigal Alon axes and in the stock exchange area. Natam estimates that the additional supply will require property owners to offer more attractive commercial terms to maintain occupancy rates.
Outside Tel Aviv: lowering prices — except for Beersheba
Outside Tel Aviv, the picture is different. In a survey of 114 Class A towers in nine employment areas within a radius of up to 30 km from Tel Aviv, it was found that although the average occupancy rate rose from 82.1% to 88.98%, rent decreased slightly. One of the most prominent figures comes from Herzliya Pituach, one of the most identified high-tech centers in Israel. In Class A towers in the area, occupancy decreased from 94.4% in the second half of 2025 to 90.57% in the first half of the year. At the same time, the average rent decreased from 100.75 NIS to 96.75 NIS per square meter. Natam attributes the trend to the reduction of space by veteran high-tech companies and the move of young companies to cheaper and more transport-accessible employment complexes. According to the company's assessment, property owners in Herzliya will be required to offer incentive packages and commercial flexibility to stop the departure of tenants.
In contrast, in Rehovot and Ness Ziona, a strengthening was recorded in Class A towers: occupancy rose from 86.3% to 95.23%. The report attributes this, among other things, to growth in the security, biotech, and pharma sectors. The most unusual figure in the report comes from Jerusalem. The average occupancy rate in Class A buildings in the city fell to 82.54%, with Har Hotzvim recording a particularly sharp drop: from 84.3% in the second half of 2025 to only 63% in the first half of 2026. According to Natam, the decline is due to a combination of a significant increase in supply following the entry of new projects and the vacating of space by several large technology companies. Despite the sharp increase in vacant space, prices have not yet fallen at the same rate: the requested rent in Har Hotzvim fell from 87.6 NIS to only 86 NIS per square meter.
In Haifa and the north, a more stable picture was recorded. The average occupancy rate in the 16 Class A buildings examined rose from 94.36% to 95.6%, but rent decreased by about 3.7%, from 81.96 NIS to 78.24 NIS per square meter. In the Matam Park, for example, occupancy rose from 91.66% to 93.04%, but the average price decreased from 100 NIS to 93.4 NIS per square meter. In Yokneam, occupancy rose to about 96%, while maintaining a price level of about 71 NIS per square meter. Natam explains that property owners are offering more attractive commercial terms with the goal of maintaining high occupancy and accelerating deals.
Meanwhile, in Beersheba and the surrounding area, a different trend was recorded. The survey included 20 buildings with an area of about 236 thousand square meters, and the average occupancy rate rose to about 90.3%. The average rent also rose. The Gav-Yam Negev Park continues to lead the local market with an occupancy of 97.5% and rent of 75 NIS per square meter. In the Omer high-tech park, occupancy rose to 90.5% and rent rose to about 53 NIS per square meter. Bottom line, while in the prime towers in Tel Aviv there are almost no vacant spaces left and prices continue to rise, a few kilometers away — and in veteran high-tech centers like Herzliya and Har Hotzvim — property owners are already forced to deal with a decrease in occupancy, price adjustments, and increasing competition for every tenant.
