AI and Data Centers Drive Surge in Tel Aviv Commercial Real Estate Demand

The AI Boom and Tel Aviv's Golden Strip

While some expected artificial intelligence to reduce corporate office footprints, the reality is quite the opposite. Speaking at the Israel Real Estate Conference, organized by Globes and Bank Leumi, Amir Chen, Chairman of the FBC & Co. law firm, highlighted a significant surge in demand driven by the AI sector.

In a conversation with Globes journalist Yuval Nitzani, Chen explained that AI companies themselves are expanding rapidly and require substantial physical space. However, this demand is highly concentrated.

"The issue is that everyone wants to be in the exact same spot. While the 'Golden Strip' of Tel Aviv's central business district is thriving, areas outside this circle are feeling the pressure."

Chen pointed to major developments along Tel Aviv's Begin and Yigal Alon streets, including massive leasing deals in the Beyond Tower—such as the giant transaction by Moon Active—and high-value leases spanning tens of thousands of square meters in the ToHa 2 tower. He also noted the upcoming Cinerama tender by the Tel Aviv Municipality, George Horesh's Union complex on Arvei Nahal Street, and the massive Terra site, which he claims will bring concepts unseen even in New York.

Nvidia's Northern Expansion and the Data Center Rush

Commenting on Nvidia's establishment of a major development center in Israel, Chen emphasized its transformative potential for the country's periphery. "What Nvidia is going to do for the North is something beyond imagination," he stated.

Beyond AI, Chen identified defense-tech companies as a dominant force in the current commercial leasing market. He also highlighted the explosive growth of data centers, comparing them to Israel's historic agricultural booms.

"Data centers have become the new avocado. In the early days of the state, one farmer succeeded with avocados, and suddenly everyone started growing them. Now, everyone is rushing into data centers. My firm alone is handling four major data center transactions, which are providing significant momentum and replacing other types of deals."

This rapid expansion recently led the Electricity Authority to freeze new grid connection approvals until the end of the year, after receiving over 100 requests totaling 27 gigawatts.

Residential Real Estate and Alternative Financing

Addressing the residential sector, Chen noted a recovery in the last quarter, suggesting that the upcoming Knesset elections on October 27, 2026, could serve as a key turning point. While sales volume has slowed, transactions continue as buyers seek opportunities. He advised that developers with strong backing from financial institutions, sufficient equity, and patience will successfully navigate this period.

Chen also highlighted two major trends in real estate finance:

• The Return of Quality Purchasing Groups: Well-organized, direct purchasing groups are making a comeback, proving highly effective in both residential and commercial sectors.

• The Rise of Non-Bank Financing: While traditional banks remain highly profitable, non-bank financial institutions are shifting from providing mezzanine loans to securing primary debt, a trend expected to intensify.

Finally, Chen urged the government to do more to support the long-term rental market, which is recovering due to falling interest rates. He emphasized that state-backed rental projects must focus not just on construction, but on long-term operations, such as managing community infrastructure and local preschools.