The Office Isn’t Dead: Why Shrewd Investors Are Buying Buildings in Israel

While headlines lament empty towers and the triumph of remote work, a different story is unfolding in Israel’s commercial real estate market. The smart money isn’t running away from the office; it’s running towards a very specific kind of opportunity.

The post-pandemic narrative has been deceptively simple: work-from-home is permanent, and the office is a relic. This has led to a climate of uncertainty, with reports showing a challenging period for new properties struggling to find tenants. Yet, this surface-level view obscures a crucial market shift. The office market isn’t dying; it’s bifurcating. A deep “flight to quality” is underway, creating a chasm between undesirable, poorly located buildings and the premium, amenity-rich assets that companies are competing for to lure talent back. For the contrarian investor, this disruption is where value is found.

Beyond the Headlines: The Real Market Shift

The Israeli office market is currently in a state of flux. Overall vacancy rates have been pushed up by a combination of new supply and a slowdown in the tech sector, which has historically driven demand. Recent data indicates a plunge in average rental prices in 2023, reflecting this softening. However, this doesn’t tell the whole story. While the market faces headwinds, including higher government levies and interest rates, it is projected to grow significantly, from USD 19.21 billion in 2025 to USD 26.36 billion by 2030.

The key is understanding the split. On one side are older, Class-B or C buildings in less desirable areas, which are struggling. On the other are Class-A, modern, well-located towers that are not just surviving but thriving. Companies are realizing that to encourage employees to commute, the office must be more than just a place to work; it must be an experience. This means high-end amenities, sustainable design, and prime locations with excellent transport links. For investors, the opportunity lies not just in buying these premium assets, but also in identifying undervalued buildings in prime locations that are ripe for renovation and repositioning.

Where the Smart Money Is Hiding: Three Key Battlegrounds

Forget a blanket approach. Acquiring an office building in Israel requires a laser-focused, neighborhood-specific strategy. Each major hub offers a distinct risk and reward profile.

Tel Aviv CBD: The Flight to Prestige

Tel Aviv remains the undisputed heart of Israel’s commercial world, commanding premium prices per square meter that can reach ₪55,000–₪65,000 in prime corridors like Rothschild Boulevard. While yields here are tighter, averaging around 2.5%, the appeal lies in prestige, high liquidity, and long-term capital appreciation. The contrarian play here isn’t to shy away from high prices, but to hunt for value. This could mean acquiring a full floor in a slightly older, well-built tower and investing in a state-of-the-art renovation to attract high-caliber tenants who want a prime address without the “new build” price tag. Companies are actively seeking renovated, high-quality spaces in top locations to attract and retain employees.

Ramat Gan (Bursa District): The Fortress of Stability

Just across the Ayalon Highway lies the Bursa, Ramat Gan’s diamond and financial district. Often seen as a more pragmatic alternative to Tel Aviv, this area is a hub for financial institutions and established firms. The investment thesis here is built on stability and cash flow. While new high-end projects have faced leasing challenges amidst market uncertainty, the district’s fundamental appeal remains its connectivity and concentration of professional services. For an investor, buying a building here is less about speculative growth and more about securing a reliable asset with a strong tenant base, providing a defensive position in a fluctuating market.

Herzliya Pituach: The Tech Rebound Bet

Long considered Israel’s Silicon Valley, Herzliya Pituach’s office market is intrinsically linked to the fortunes of the high-tech industry. The recent global tech slowdown has weakened demand and put pressure on landlords. However, with the tech sector showing signs of recovery and major players like Google reaffirming their commitment to Israeli offices, this could be a strategic entry point. The play here is to acquire modern office complexes at a moment of market softness, betting on the inevitable rebound of Israel’s innovation engine. As companies compete for tech talent, owning a high-quality campus-style building in Herzliya could become an incredibly valuable asset.

Decoding the Numbers: An Investor’s Checklist

Buying an office building is a serious capital commitment. Beyond the purchase price, a thorough due diligence process is what separates a successful investment from a financial drain. Here are the critical terms you must understand:

• Yield (תשואה): This is your annual return from rent before expenses, expressed as a percentage of the purchase price. While residential yields in Israel average 2-4%, commercial properties can offer higher returns, with some analyses suggesting an average of around 7%. However, prime office yields can be lower due to high entry costs.
• Arnona (ארנונה): This is the municipal property tax, and it’s a major operational cost. Rates vary dramatically by city, neighborhood, and building use (commercial rates are several times higher than residential). For example, a 200-square-meter office in Jerusalem could incur an annual Arnona of over ₪68,000. This must be factored into your cash flow projections.
• Tenant Quality & Lease Structure: Your income depends on your tenants. Look for long-term leases (3-5 years is common for commercial) with strong, reliable companies. This provides income stability that is less common in the annually-renewed residential market.
• Capital Appreciation & Renovation ROI: While yield covers today’s costs, capital appreciation is your long-term profit. In supply-constrained markets like central Tel Aviv, property values have shown resilience. Consider the “value-add” potential: the Return on Investment (ROI) from renovating an older building can be substantial if it allows you to attract higher-paying tenants and increase the asset’s overall value.