Israel's tech industry has received a huge boost in recent months by Palo Alto Networks acquisition of CyberArk, the announcement by Nvidia that it will build a new campus in northern Israel, the purchase of land in Tel Aviv for offices by Check point and Israel Canada, Rafael's purchase of offices in Tel Aviv and much more. These are just a few of the major deals that would apparently demonstrate the rejuvenation of this sector after several lean years.
However, these deals can also be seen as the exception rather than the rule. A survey undertaken by "Globes," finds an opposite phenomenon has been occurring in the office sector recently with sublease deals proliferating. In other words companies that have leased office space in a particular tower, rent it out to another tenant, in order to save money and fill empty space. Many such deals have been signed in recent months, and more companies are looking to sublet, which indicates a major amount of empty space that is not being filled.
Background: "Not a real estate issue, but a tech issue"
"The wave of subletting actually began during the Covid period in 2020, when offices emptied out due to the pandemic protection guidelines," says Avison Young Israel CEO Guy Amosi, "and we have seen this continue since, with varying intensity. We are experiencing a certain slowdown in the tech industry, partly because the world's largest companies have announced sweeping cuts in space, for a variety of reasons.
"The new offices being built today are of the highest standards in the world, so this is not a real estate issue, but a tech issue. If this industry thrives, we won't see a vacant square meter, neither in Tel Aviv nor in its satellite cities. But if high-tech falters, there may be a surplus of offices at some point, and this will also lead to more subletting transactions."
Real estate consulting firm Colliers Israel CEO Sarit Itzhakov adds, "Most of the sublets today come from high-tech companies, mainly due to the dynamic changes that have occurred in recent times. Startups and companies that have embarked on a process of internal organizational streamlining are leading the current wave. The demand for subleases exists mainly from startups, small companies or new players in the market, who are looking for temporary offices at affordable prices."
"The ‘shelf life’ for subleasing space varies by region, building level and finish, agreement period and landlord flexibility. Space offered for sublease in Class A buildings in Tel Aviv and the Ramat Gan Diamond Exchange district, for example, is taken within 3-5 months. Outside these areas it takes an average of 6-9 months."
The current situation: a long wave due to a deep change in the market
"I see a different development here compared to similar ‘waves’ in the past," continues Itzhakov. "Mainly because this is a long wave, and not a one-off reaction like we saw in 2008 or 2020, for example. This time, the change is deeper and results from the consolidation of hybrid work, the prolonged war and the change in the way companies consume space. The willingness of property owners to be flexible towards subleases has also improved significantly, and it can be seen that they are learning to adapt to the dynamic and complex situation."
The large number of cases in which tenants are seeking a subtenant also shows a growing trend in the industry, which began some time ago and seems to be pushing many companies to opt for subletting: the tendency for shorter leases than in the past.
Amosi observes, "The world is moving towards relatively short leases, between six months and two, three years at most. With the exception of the giant companies that we all know - Google, Nvidia, Meta - that can afford longer leases even today and do so, the rest of the market seeks shorter leases. There are thousands of companies in Israel that are looking for office space on such leases, and for them subletting is a good option."
"This is an internal shift within the system, which indicates the market's continued adjustment to a new reality," adds Itzhakov. "We are increasingly seeing the plug and play model, meaning a fully completed deal, so the subtenant can simply come to the office with the computer and start working. This is a model that is very suitable for startups that are in growth and cannot commit to long periods, and is also offered today by companies whose business is this, such as Switchup."
The cost: Subletting "drags" rents down
Subletting is often offered at rents lower than market prices. The reason is clear: the main tenant has an interest in attracting tenants to fill space, even at a certain loss, because it is better than continuing to pay the rent in full,
Itzhakov says, "Sublets are usually agreed at lower rents than direct leases, and sometimes at major discounts of up to 20% below average prices. There is currently a significant nationwide supply of sublease space, and this causes property owners to cut rents or offer benefits to remain competitive. So, even if the average stated rent does not change dramatically, the effective rent certainly decreases, and the size of adjustments in the offices, in favor of the needs of the subtenant, increases."
Amosi agrees, "Sublets are usually at a lower rent than the market, mainly because the main tenant is trying to cut costs. In addition, the subtenant has much lower costs - in many cases they hardly need to bring anything from home, just connect to the computer station and start working."
However, it is worth paying attention to another interesting phenomenon in the field. Recently, quite a few sublease deals have been signed, initiated by some of the biggest companies on the market, and in some of the most prestigious and newest office towers that the office sector has to offer today, at rents similar to the rent to which the companies originally committed.
Clal Industries subleased 400 square meters of its offices on the 41st floor of Azrieli's Triangle Tower in Tel Aviv, at a monthly rent of NIS 145 per square meter. Natural Intelligent subleased 860 square meters on the 21st floor of the TOHA1 Tower in Tel Aviv, at a price of NIS 165 per square meter (including furnishings); Run:ai subleased 980 square meters in the Millennium Tower in Tel Aviv at a similar price, (including furnishings); and Argus sublet to Mixer in its offices in Ramat Gan, for NIS 135 per square meter, (including furnishings). All of these amounts are based on market estimates.
In Melisron and AFI Properties' Landmark Tower, Meta (Facebook) relinquished seven of the 20 floors it had leased. In this instance, it was not a sublease, but giving up space to other companies, which leased directly from the owner. But Meta sought and found tenants to replace it, with Melisron and AFI Properties' approval regarding the identity of the tenant, the length of the lease, and the rent. Cyara, Tenable, and Workday leased these seven floors, with according to industry sources, the rent per square meter unchanged at about NIS 155 per square meter from the Meta deal - and even more. "Globes" has learned that both SolarEdge (which is building a huge campus in Glilot) and Amdocs (which moved to a campus in Ra'anana) are looking for subtenants for some of their space.
Bonus: Both parties can benefit
Although subletting is initiated by the main tenant, and is primarily intended to ease the burden of paying for and maintaining unnecessary space, the tenant is not the only beneficiary. This step benefits both parties.
"On the subtenant's side, in addition to the lower costs I mentioned earlier, the advantages are expressed in more flexible and shorter contracts, and in the fact that the offices are ready for immediate use in many cases," says Amosi. "Subtenants do not have to invest much before entering the office, and can get very good spaces, in excellent locations. The tenant of course reduces their costs dramatically, while at the same time maintaining operational flexibility: with advance notice within a certain period of time, the tenant can evict the subtenant relatively quickly and allow themselves to expand. All this happens while the tenant keeps the real estate they rented, and does not have to initiate reopening the lease or exiting from it."
"Subtenancies fit in optimally at the present time, since they are temporary, not binding for the long term and do not require investment in construction or finishing, they allow businesses to act cautiously in a period of uncertainty," says Itzhakov.
Subletting also have disadvantages, including lack of stability, since the main tenant usually has the right to evict the subtenant at relatively short notice. Therefore, most sublets are not for very large areas, but for a few hundred square meters per company.
The biggest challenge with subleases is from the landlords. "When there are multiple subleases in a building, the building owners (those who signed the contract with the main tenant) actually start competing for their customers," explains Amosi. "When a new tenant comes to such a building, he can choose between a contract with the building owner, or entering as a subtenant. The owners don't always like this situation, so there are those who prohibit, in the contract, the possibility of subleasing. I, as a broker in large office transactions, would never agree to this, since the company that is prohibited from subleasing space could get into a lot of trouble in the future because of this.
"Subleasing can also harm the subletters themselves. If, for example, they let a rival company into the space they are offering, or if the company that entered tries to 'steal' their employees. These are risks that every company that offers space for sublease should take into account."
Published by Globes, Israel business news - en.globes.co.il - on August 12, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.