Commercial and office giants have expanded into the residential sector. Has it paid off for them?
In search of new growth engines, Azrieli and Melisron are becoming dominant residential developers. Sales and the backlog are growing, but the industry warns that it is too early to determine if the move will yield the desired return.
After years of focusing on malls and offices, income-producing real estate giants have turned to the residential market in recent years. Azrieli, which acquired Tzemach Hammerman, and Melisron, which entered Aviv Yezum, illustrate this move, which stems from the erosion of yields in offices and commerce and the search for new growth engines, partly due to restrictions by the Competition Authority. Now, with the publication of the financial reports, it is possible to examine what the activity has contributed.
The Gwyneth Paltrow effect
Melisron acquired control of Aviv Yezum in 2024 at a valuation of about 1.2 billion shekels. Despite an initial slowdown in the market, in the first half of 2026 the company sold 166 apartments - almost three times more than in the corresponding period in 2025. The main jump came from the "Aviv ba-Shchakim" project in Herzliya, which was marketed in a campaign starring Gwyneth Paltrow. The campaign generated 56 deals from May until the report was published, and another 55 apartments were sold in July.
The project backlog of Aviv Melisron grew by about 36% per year to about 13,300 apartments. According to an analysis by Bank Hapoalim, the projects with high certainty are expected to generate revenue of about 15 billion shekels and operating profit of about 2.4 billion shekels for the company. At the same time, the backlog of unrecognized revenue climbed by 24% to 1.35 billion shekels, with a gross profit of about 270 million shekels. At Hapoalim, they explained that "sales preceded execution and some of the apartments were sold even though construction had not yet begun."
The number of apartments under construction currently stands at about 550 in 4 projects, and the company plans to increase it to about 2,300 by the end of 2026 and to about 4,000 later, with the entry of 8 additional projects. However, at Hapoalim, they note that Melisron's test is shifting from marketing to the ability to execute on the ground, and emphasize that "a substantial part of the projected growth depends on the completion of projects and their occupancy on time." Simultaneously, in the rest of the activity, Melisron showed a 5% increase in NOI to 412 million shekels. However, net profit decreased by about 33% to 289 million shekels, mainly due to a decrease in revaluation profits compared to the corresponding quarter.
Azrieli's growth
Azrieli also entered the residential field when it acquired 67% of Tzemach Hammerman in 2025 for 635 million shekels. In the first half of 2026, the activity generated revenue of 249 million shekels and a profit of 38 million shekels. Today, the group's residential assets stand at about 2.35 billion shekels and include more than 5,000 housing units in 27 projects, alongside land reserves and urban renewal projects.
During the half-year, Tzemach Hammerman sold 127 apartments (54 in Azrieli's share) for 254.9 million shekels - a jump compared to only 52 apartments in the corresponding period. The average price was 2 million shekels per apartment. The momentum continued afterwards, when from July until the report was published, 21 apartments were sold for 63.3 million shekels, at an average price of 3 million shekels per apartment.
Jump in apartment sales - first half of 2025 vs. first half of 2026
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Aviv Melisron: 166 apartments sold in 2026 vs. 60 in 2025 (almost 3x jump).
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Tzemach Hammerman (Azrieli): 127 apartments sold in 2026 vs. 52 in 2025 (more than 2.4x jump).
At the end of the quarter, Azrieli recorded a slight increase in NOI to 651 million shekels and in FFO to 426 million shekels. On the other hand, net profit plummeted from 320 million shekels to 155 million shekels, mainly due to a fall in real estate revaluation profits and an increase in expenses. However, Tzemach Hammerman contributed about 30 million shekels to the group's gross profit for the half-year, and helped mitigate the erosion.
"Like the rest of the world"
"Income-producing real estate companies must look for new growth engines for themselves beyond commerce, offices, and logistics, where yields are starting to erode," explains CPA Guy Amosi, CEO of Avison Young Israel, in a conversation with Globes. "Beyond the immediate suspects, such as server farms, residential is a field that most companies avoided in the past, and in recent years they have been taking steps to enter it, whether through establishing activity or acquiring activity."
According to Amosi, the move is consistent with what is happening in the world. "The trend of shrinking office space began during COVID all over the world and has not fully recovered. Israel is a somewhat unusual market, and the war in the last three years has created uncertainty and a halt in construction starts, but we will see this trend expand in the near future. In addition, mixed-use is a growing trend, and there is a lot of logic in combining residential and offices in the same complexes."
However, Amosi believes it is too early to know if the entry of the income-producing real estate giants will prove profitable for them. "Today we are only seeing the beginning of the activity. Due to the complex geopolitical situation, it is difficult to draw conclusions, and it will be possible to assess the feasibility of the move only in the coming years."
