Falling Office Starts Could Strengthen Occupied Prime Assets
Office construction starts have fallen to a 17-year low. Occupied prime assets could benefit first from a smaller future pipeline, while current vacancies and projects already under construction remain a burden.
The sharp fall in office construction starts is a positive signal for owners of existing assets, but it is not an office-market recovery. Projects that do not start today reduce the space that will be completed several years from now. They do not fill a vacant floor in Bnei Brak, sign a tenant in a project already under construction or recover development spending already committed. The earlier beneficiaries are therefore more likely to be landlords with occupied, accessible assets in prime locations, where tenants approach renewal dates with fewer new alternatives ahead. Companies with weak occupancy, less attractive locations or large unleased pipelines must first absorb the stock already available. Company reports already show that split: some portfolios operate at 96% to 98% occupancy, while certain office segments and individual assets are at 81%, 67% or even 53%, alongside large projects that are only partly leased. The conclusion is not that every income-producing real-estate company benefits equally from lower future supply. Falling starts increase the value of existing occupancy and can shorten the path to renewal power only where the landlord does not first need to solve a leasing problem. The proof must appear in occupancy, effective rent, renewals and preleases, not in the starts figure alone.
Fewer Starts Do Not Mean Less Space Today
A Globes analysis of CBS data found that 53,128 square meters of office construction began in the first quarter. Annualized, that is 212,512 square meters, the lowest pace in 17 years. By comparison, 560,528 square meters began construction in 2025, about 844,294 square meters in 2024 and roughly 1.35 million square meters in 2023. This is not a marginal change. It is a sharp contraction in the flow of new projects.
Starts are a flow, while vacant offices and projects under construction are a stock. Several years of planning, construction and lease-up separate a decision not to start a project from an actual shortage of completed space. During that interval, projects approved and funded under different market conditions continue to reach completion. A Bizportal survey of the office market described pressure on rents and low occupancy in new or weaker buildings in Bnei Brak, Holon and Rishon LeZion early this year, alongside greater stability in central Tel Aviv, along the Ayalon corridor and in newer towers. That report is not a basis for ranking companies, but it explains why one national figure cannot describe every submarket.
The economic mechanism has two stages. First, fewer starts reduce future competition for tenants. Second, and only after space already under construction is absorbed, an occupied landlord can renew leases against a thinner set of new alternatives. If demand remains weak, the second stage can be delayed. Tenants can also move from an old building to a new one without expanding total demand. Future scarcity is therefore no substitute for examining current occupancy, location quality and lease duration.
Occupancy Determines Who Feels the Change
The following comparison is not a ranking. It maps the mechanism each company brings to the thesis, based on its existing portfolio and the space that still needs to be leased.
| Company | Signal from the existing portfolio | Space or pipeline still requiring proof | What needs to change |
|---|---|---|---|
| Azrieli Group | Average occupancy of about 98% in Israel, excluding newly completed assets in initial lease-up | About 0.7 million square meters in ten projects under construction in Israel | Retention and renewals must offset the risk embedded in the large pipeline |
| Amot | Occupancy of 92.2%, or 93.4% excluding properties reclassified from construction in 2025 | 168 thousand square meters in three projects under construction and another 440 thousand square meters in five development projects | Leasing pace and completion spending matter more than the national starts figure |
| Gav-Yam | Occupancy of 97% and a weighted lease duration of five years | 259 thousand square meters under development | The existing portfolio is relatively protected, but projects must turn into leases and occupancy |
| Mivne | Group occupancy is 92%, but office occupancy is 81.3% and average monthly office rent is NIS 59.3 per square meter | 516 thousand square meters of offices in the existing portfolio | Improvement must first appear in absorption of current space, not only in lower future competition |
| Airport City | 354 thousand square meters of offices, with new 2025 office leases at Airport City averaging about NIS 73 per square meter per month | A planned 159 thousand square meter office project in Israel, with 32% of the area covered by leases at the end of 2025 | Leasing the remaining area is the main test. The company data in this row are from its latest annual report |
| REIT 1 | Overall occupancy of 91.3%, or 95.7% excluding Infinity Park Raanana | Infinity Tower is 80% leased and Infinity Campus is 53% leased | Access to roads and rail must convert the remaining space into signed leases |
| Isras | Group occupancy of 88% and LTV of 36.5% | The disclosed office assets show a wide occupancy range of 53% to 100% | Improvement depends on the asset and location, so the group average hides weak points |
| Sella Capital Real Estate | A broad office portfolio and low leverage according to company disclosures | The 2027 estimate assumes average occupancy of 75% at Beit Mani and 50% in the Mizrahi-Tefahot floors at Moshe Aviv Tower | Assumptions must turn into leases and cash flow rather than remain occupancy targets |
| Menivim REIT | Overall occupancy of about 96% and contractual lease duration of about four years | Marketing of about 12,500 square meters in the Lavanda office tower in Tel Aviv | The existing portfolio is stable, but the company itself notes limited office demand across several locations |
| Melisron | Occupancy of 96.3% in office and high-tech parks, which contribute 27% of NOI | Development rights and construction alongside the yielding portfolio, although marketing of Landmark Tower B has been completed | Real increases in renewals and new leases must continue beyond one project |
Three types of exposure emerge from this map. Azrieli Group, Gav-Yam and Melisron's office activity start from high occupancy. That does not remove their development pipelines, but it gives them a better chance of reaching lease renewals without first carrying a large stock of empty space. Melisron has already disclosed one narrow operating signal: in the first quarter, real rent increased 1% on renewals and exercised options and 10% on leases with replacement tenants. This does not prove a market-wide turn, but it is precisely the type of evidence that lower starts should reinforce over time.
At the other end, Mivne shows why group occupancy is not enough. Offices account for 43% of its yielding property value, yet occupancy in that segment is materially below occupancy for the portfolio as a whole. At Isras, the gap between a fully occupied office asset and another at 53% occupancy matters more than the national starts number. Sella Capital Real Estate also includes assets whose lease-up remains partial in its forward plans. For all three, falling starts can improve the future setting, but the first required step is a move from available space to paying leases.
Committed Development Delays the Turning Point
The main risk to the thesis is not an immediate rebound in construction starts. It is that much of the future supply has already passed the start decision. At Amot, the three projects under construction carry a total cost of about NIS 3.2 billion, of which about NIS 1.8 billion has been invested. The national drop in starts does not reduce the remaining investment and does not sign tenants. At Gav-Yam, 259 thousand square meters under development are expected to add NIS 282 million of annual NOI after stabilization, but completion and leasing come first. A five-year weighted lease duration in the existing portfolio reduces immediate pressure, while also meaning that changes in market rent enter gradually at renewal dates.
REIT 1 illustrates the timing gap clearly. Infinity Tower contains 61 thousand square meters and is 80% leased, while Infinity Campus contains 90 thousand square meters and is 53% leased. The company expects the two assets to produce NIS 80 million to NIS 85 million of annual NOI at full occupancy. Their location near roads 4 and 531 and a rail station fits the stronger side of the thesis, but the unleased space is a current fact. Fewer future projects can help complete the lease-up. They do not turn stabilized NOI into current income.
Airport City also combines a transport node with a development burden. At the end of 2025, leases covered 32% of its large Israeli office project and estimated remaining completion cost was about NIS 140 million. This is a useful reminder that a strong location does not replace preleasing. At Menivim REIT, high overall occupancy and lease duration provide a base, but the Lavanda tower still has 12,500 square meters in marketing and the company noted limited office demand in several locations. That disclosure is more useful than a broad assumption that fresh demand will lift the entire sector.
Leverage influences which landlord can wait until lower supply becomes local scarcity. Azrieli Group reported leverage of about 35%, Isras an LTV of 36.5%, Melisron an LTV of 40% and Menivim REIT net leverage of about 47%. These figures are not fully comparable because the companies differ by business mix, geography and asset stage. They are not a ranking. They indicate the capacity to carry investment, interest and vacant space through the waiting period. The larger the pipeline and the lower the preleasing, the stronger the required proof that the balance sheet can fund the gap without weakening project economics.
Reports Must Show a Shift from Volume to Power
The thesis will strengthen if occupancy rises specifically in weaker assets, if renewals at prime properties show consistent real increases, and if projects under construction advance in preleasing without an unusual increase in remaining cost. It will weaken if new completions keep adding vacant space, tenants move between buildings without expanding demand, or new leases require discounts and incentives that are not visible in headline rent. The national data already show that the distant pipeline is becoming narrower. They do not yet show that near-term stock has been absorbed. The current read is therefore constructive mainly for occupied, central and accessible assets, and more cautious toward weak properties or large unleased pipelines. The real turning point will arrive when companies show occupancy, effective rent, renewals, preleasing and remaining development spending together. Until then, the collapse in starts is a selective future advantage, not an immediate cure for the office market.
Disclosure: Deep TASE analyses are general informational, research, and commentary content only. They do not constitute investment advice, investment marketing, a recommendation, or an offer to buy, sell, or hold any security, and are not tailored to any reader's personal circumstances.
The author, site owner, or related parties may hold, buy, sell, or otherwise trade securities or financial instruments related to the companies discussed, before or after publication, without prior notice and without any obligation to update the analysis. Publication of an analysis should not be read as a statement that any position does or does not exist.
The analysis may contain errors, omissions, or information that changes after publication. Readers should review official filings and primary sources before making decisions.