ISRAEL: An Introduction

2024 at a Glance

Throughout 2024, the Israeli economy and the Israeli legal market demonstrated surprising resilience. Since the outbreak of the war, commencing with the Hamas attack on 7 October 2023, Israel has been facing hostilities on multiple fronts. Concurrently, civic protests have continued, challenging government policies and demanding the immediate release of the hostages still held by Hamas. As of March 2024, the Israeli economy began adjusting to the new reality, fostering a drive to rebuild and innovate. The local M&A market experienced a noticeable uptick in activity, and the real estate sector, initially slowing down, is showing signs of recovery. Local regulators, acknowledging the difficulties faced by the local market, introduced certain incentives and programmes to assist the national recovery efforts.

Innovation and Technology

Israel’s tech sector demonstrated resilience in 2024, navigating ongoing challenges while laying the groundwork for cautious recovery. The continuation of the war in Gaza weighed on investment flows, but the significant reduction of external threats from Hezbollah, Iran, and other regional adversaries by year-end brought a sense of relative stability to the market.

Global investor interest, though more measured than in previous years, began to gradually return, particularly in sectors where Israel continues to excel: AI, cybersecurity, healthtech, fintech and, given the circumstances, defence technologies. While deal sizes remained smaller, and fundraising cycles were extended, strategic investments from the USA and Europe stabilised.

Domestically, Israeli tech companies adjusted to the new realities of tightened funding and macroeconomic uncertainty by prioritising operational efficiency and fiscal discipline. Downsizing and cost-cutting measures persisted across the sector, particularly among mid-to-late-stage startups. Early-stage innovation remained vibrant, but funding dwindled in light of the local high-risk environment and the personnel requirements of the security effort.

The Israel Innovation Authority expanded its role as an important lifeline for the ecosystem by bolstering R&D funding and introducing new support mechanisms for early-stage companies, establishing investor clubs and investor consortia, implementing fast tracks for innovation grants and increased support for the importation of technologies from abroad. Policy reforms provided further stabilisation. Recent amendments to the Israeli Research and Development Law eased some restrictions on international technology transfers, facilitating cross-border collaboration while maintaining safeguards to protect Israel's strategic interests.

While optimism was tempered by the realities of prolonged conflict and economic pressure, Israel’s tech sector retained its global prominence, driven by its deep pool of talent, entrepreneurial spirit and unwavering commitment to innovation. Notably, sectors such as AI, defence technology and digital health showed resilience and growth, addressing both local needs and global market demands.

Infrastructure: Electricity, Gas and Transportation

Israel’s infrastructure momentum continued in 2024. Despite governmental expenditure being generally reduced owing to the Iron Swords War, none of the major infrastructure projects, whether transportation- or energy-related, were adversely affected. In addition, it was announced that additional budgets will be diverted between 2025 to 2027 to build emergency infrastructures to safeguard various sectors, including the gas, cyber and energy efficiency sectors, and the marine gas platform.

The government also launched a major reform in the electricity sector, offering for sale five of the gas power plants of Israel Electric Corporation (IEC). Israel’s electricity sector reform includes dismantling the IEC’s monopoly and introducing a new network manager (Noga) and market model allowing independent power producers (IPPs) to sell directly to consumers from January 2024.

Meanwhile, the gas sector continues to benefit from the huge gas discoveries of the last decade, with substantial investments in gas infrastructures and the entry of new global players, especially since the signing of the Abraham Accords.

Investments and Capital Markets

The resilience of the Israeli economy was also felt in the local capital market, even though the country was at war. The Israeli military achievements of the second half of 2024 (including the electronic device attack on Hezbollah, known as the “Beeper Attack”) restored the confidence of local and foreign investors and translated into a year filled with capital market achievements, including a growing number of companies commencing IPO processes, particularly in the real-estate and urban renewal fields. In addition, during 2024, a number of important regulatory amendments came into effect, keeping the Israeli financial regulatory landscape in line with the standards of the global major economies.

Real Estate

The year 2024 yielded mixed results for the Israeli real estate market. The residential segment reached a balance thanks to a combination of moderate price increases alongside a decline in demand. The lower demand was partly due to the higher-interest-rate environment. Conversely, construction starts picked up, and projects that were halted shortly after the outbreak of the war resumed construction, with many projects significantly reducing timeline gaps.

The commercial real estate segment remained stable, partly due to the reduction in international travel options to and from Israel, which led local shoppers to turn to shopping at local malls and commercial centres.

Outlook for 2025

Entering 2025, Israel’s economy is expected to pick up, driven by post-war developments and a strong return-to-business atmosphere. The technology sector is set to see significant growth in both cyber and defence technologies, leveraging wartime experience, alongside technologies such as AI, fintech and healthcare.

Foreign investments, particularly from the USA, are expected to surge after a wartime slowdown. Global macroeconomic factors, including lower interest rates, recovering capital markets and ongoing geopolitical processes, are anticipated to further support Israel’s economic recovery.

Investments in transportation infrastructures are also expected to gain momentum, supported by the re-awakened involvement of several major international entities in those projects. The existing mega projects in the transportation sector are expected to be followed by heavy investments in the rebuilding of a variety of elements in Israel’s southern and northern regions that were damaged as a result of the hostilities.

Real estate and urban renewal are showing signs of revival, with streamlined planning processes, accelerated large-scale projects and rising demand in the office market. The real estate sector is expected to lead the return of companies to the Tel Aviv Stock Exchange (TASE), with the number of IPOs growing as companies seek diversified financing options.

Alongside real estate companies, defence companies may also be looking to list on TASE through IPOs or reverse mergers, balancing disclosure requirements with national security considerations. Initially, we expect to see more debt offerings, but as the year progresses the expectation is for a growing number of equity offerings.