A survey by Maalot the Israeli Rating Company on Israel’s office space market has found substantial improvement over the past two years, including for income-producing properties. This improvement has been driven by a business recovery, including in high tech, a drop in the interest rate last year, higher proceeds by shopping centers, and higher occupancy rates for office and high-tech space in Tel Aviv and its environs.
Maalot believes that the opportunities for establishing real estate investment trusts (REITs) since January 2006 is selectively boosting property values, especially in demand areas in central Israel, as well as properties leased to the government and tier-one tenants.
Maalot says that, in view of these factors, as well as the plunge in building starts and completions, the positive trend in the income-producing real estate market would probably continue in the near future, especially in demand areas in central Israel. Factors behind this trend are a reduction in available office space, the improved security situation, and Israel’s emergence from recession.
Maalot stresses that there is a wide rental differential between isolated office buildings and those located in high-tech parks, with rents in the latter 10-20% higher than rents for isolated office buildings.
An analysis by Maalot found that income-producing building starts fell 36.5% in January-February 2006, compared with the corresponding period of 2005. Despite this, Maalot believes the office space market improved substantially during 2005, after a four-year slump. Both occupancy rates and rent rose by about 10% last year.
The survey found that the average office space rent in Tel Aviv was $12.30 per sq.m. per month in 2005 and that the occupancy rate rose from 73% in 2004 to 82% in 2005. The average office space rent in Petah Tikva rose 12% in 2005 to $11.30. The average office space rent in Herzliya Pituah rose 13.5% in 2005 to $12.60 per sq.m. per month, and the occupancy rate rose from 77% in 2004 to 88% in 2005. The average office space rent in Rehovot was $9.70 per sq.m. per month in 2005, and the average in Haifa was $10.30.
Published by Globes [online], Israel business news - www.globes.co.il - on March 19, 2006
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