Tech cos takes over Tel Aviv office market
“The income-producing real estate market in Tel Aviv continues to grow at a pace of a capital market we haven’t experienced before,” said Yoram Blumenthal, co-managing partner of Cushman & Wakefield Israel (Inter Israel). “The developers are asking for prices of 140 NIS per square meter, 150 NIS or even more and that exceeds any forecasts we had. It was only in the two weeks before the start of the holidays that we felt some calming down. “
Israel and the income-producing international real estate market are currently trying to recover from the severe blow inflicted by the Covid pandemic. Most of Israel’s income-generating real estate market is still stagnant, but in Tel Aviv, where prices are rising rapidly, that’s another story.
According to Cushman & Wakefield’s survey for the first half of 2021, Tel Aviv led the way with rental prices of 107 NIS per square meter per month on average, followed by Herzliya (92 NIS per square meter), Ramat Gan ( 90 NIS per square meter), and Ra’anana, Rehovot and Ness Ziona (72 NIS per square meter).
Other real estate services companies like CBRE and Natam found slightly different prices but the same ranking with Tel Aviv far ahead. Cushman & Wakefield’s figure of 107 NIS per square meter per month for the first half of 2021 is just over 106 NIS in 2019 and 98 NIS in 2020 after the Covid pandemic. And it is now becoming clear that prices have jumped sharply in Tel Aviv in the third quarter of 2021, which is about to end.
A good example is the Meuhedet Health Fund, which is interested in purchasing the WE building, located between the Ayalon Expressway and the Menachem Begin road north of the Azrieli center. The building of 13,000 square meters and 180 parking spaces belongs to the Weiss Pandom group and is said to be worth 350 million Nis without finishing. Translated to rental price which would be around 140 NIS per square meter per month.
In this part of Tel Aviv, Blumenthal says, prices can be even higher in high-end projects like Azrieli’s new spiral tower, in which financial technology firm Rapyd has leased 14,000 square meters for NIS 160. per square meter per month. Rapyd also rented 11,000 square meters and a 2,400 square meter balcony in Azrieli’s triangular tower for NIS 140 per square meter. These transactions closed in the first half of 2021, paving the way for even higher prices in this half year.
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Blumenthal said: “I can’t recall a situation where the market fell 10% in terms of occupancy price of space and corrected the decline with less than two quarters, and all in one very small area: Menachem Begin Road, Yigal Alon Street, Rothschild Boulevard and Shaul Hamelekh. It hardly extends to the Ramat Gan Diamond Exchange area. “
According to Cushman & Wakefield, agreements for 190,000 square meters of office space have been reached in 2021 to date. “It’s 24% above the annual forecast we made at the start of the year, and it was very optimistic, and we’re only in September,” said Blumenthal.
Another example of the booming Tel Aviv office market (the boom does not include Ramat Hahayal) is Africa-Israel and Melisron’s Landmark project in Sarona, where 90% of the 40’s new project space floors has already been rented.
Blumenthal observes that service providers like banks, insurance companies and law firms are moving to places a little more distant, even if it is in Tel Aviv. Take for example Gornitzky & Co. which is moving to the Vitania tower near the La Guardia interchange and Shibolet is moving from the museum tower to Hassan Arafe. Herzog Fox Neeman also moves from Asia House to Hassan Arafe and Firon moves to Yad Eliyahu. The banks are moving to the Haelef project in Rishon Lezion and Lod and it started years ago when Mizrahi Tefahot moved to Ramat Gan.
He said: “What is happening now is that high tech, these organizations that for the first time we are seeing employees hire through TV commercials, which have raised tremendous amounts of money over the years. last year, settle in this space vacated by older organizations. “
Blumenthal said the companies replacing banks, insurance companies and law firms are not global companies. “We’re talking about unicorns, startups and a lot of them have had IPOs on the Nasdaq but their management is entirely Israeli: SimilarWeb, ironSource, Riskified and a long list of companies. Google and Microsoft are not in this game and are not in a position to respond – they have been left in their wake. Companies like Amdocs, Microsoft, SAP and others have been left behind. “
“These companies raised a lot of money and now they hire a lot of employees, and the employees have to sit in an office and besides needing to give them the best pay, you also have to offer them the best office. in the best And it all revolves around this little geographic area and that’s where all the companies that have raised about $ 10 billion in the last five months have gone. “
Beit Pelephone by Beit Havarod in Givatayim, which has 18,000 square meters of space, was leased to a startup after it failed to find space along the Menachem Begin Road area. Riskified rented all the space from Europa House which previously housed the Raved Magriso Benkel law firm, which merged with Shiboleth and moved to offices on Shaul Hamelekh Boulevard. monday.com has rented thousands of square meters in the Rubinstein Twin Towers to Hassan Araffe. Switchup, which rents office space in apartment buildings and tailors them to customer needs, recently rented a lot of space, all in Tel Aviv.
Is this trend likely to persist and hasn’t the Covid persuaded companies to reduce office space so that employees can work more from home?
Blumenthal does not see it that way. “Real estate is about long-term processes. It’s about locating the space, signing contracts and building. represents an exceptional marker.
“These companies understood before anyone else that teleworking did not work. It may work on certain days of the week, but there has to be a situation where the whole business is together. Even if it only happens two or three days a week, you need space to bring all the employees of the company together under one roof. Not everything we’ve heard about the transition to working from home is happening. The first to identify it were in fact the technology companies. home is mainly not high-tech companies. “
You cannot ignore the fact that the residential real estate market is also booming. Is there something that connects the two markets, or is it just a coincidence?
“I think cheap money is what the two have in common. The housing market is booming because of cheap money ie low interest rates and for high tech, when do you see the last time a series of companies advertised to hire employees on television? Usually television is used to advertise household items, cleaning products and toiletries and all of a sudden you see TV campaigns and billboards. In this world too there is a lot of money which is the result of big public offers. “
Another thing they have in common is that Tel Aviv opens up a big gap compared to the rest of the country.
“The geographic area we are talking about is very small and barely overflows on the east side of Aylaon and does not touch the satellite towns of Tel Aviv, or Ra’anana, or Kfar Saba or Petah Tikva and that is something very unusual. “
Posted by Globes, Israel business news – en.globes.co.il – on September 20, 2021
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