Trends for the next decade in Israeli real estate

Is the country headed for a greener, taller, and more expansive future?

Israel's real estate sector, often the subject of close scrutiny, is likely to reflect several major trends in the coming decade.

How green is your building?

Environmentally friendly construction and building management is moving from slogans to reality. The trend to conserve water and energy and to protect natural resources in construction has been growing in most of the Western world, but is only just starting out in Israel. This does not prevent many Israeli developers and contractors from crowing about so-called "green" projects in order to jump on the global environmentalism bandwagon.

To date, only a few residential projects have obtained the Israel Standards Institution's Green Label certification - Israel Standard 5281 - which is not very progressive anyway. An Israeli environmentally friendly construction pioneer is Shari Arison-controlled Shikun u'Binui Holdings Ltd. (TASE: SKBN), which in 2009 declared that its projects in Karkur and Netanya were recognized as green. The buildings will exploit natural light and shade, minimize energy use, and have water-conserving plants.

It should be noted that environmentally friendly construction raises construction costs by 5-10%. Nonetheless, in the face of global warming and the need to conserve energy, environmentally friendly construction will, over the coming decade, undoubtedly switch from being part of a sexy and voluntary trend to becoming mandatory.

Apartment buyers will have to grasp that environmentally friendly buildings will not only save the earth for their children, but will here and now reduce their water and electricity bills through reduced use of power for air conditioning and heating, and reduced use of water for lawns. These factors will soon become an important variable for homebuyers.

Tel Aviv's new Central Business District

Tel Aviv's future Central Business District of 50-storey skyscrapers is moving from the stages of blueprints at the various planning and building commissions to an actual master plan that has already being implemented and auxiliary plans that have been approved.

The Azrieli Towers have long graced the Tel Aviv skyline, and a slew of new skyscrapers will be built nearby over the coming decade. The North Central Business District, located westward from the Ayalon Highway and Menachem Begin Road, is intended to become the city's newest office district. It will include 500,000 square meters of the South Kirya lots and the 320,000 square meters on the old wholesale market site.

The Central Business District will include projects by Egged Israel Transport Cooperative Society Ltd., Tnuva Food Industries Ltd., the Gazit-Paz Building, and the Achtman Building. The North Central Business District building plan was approved for deposit by the Tel Aviv Regional Planning and Building Commission in August 2009.

Tel Aviv-Jaffa Deputy Mayor and Tel Aviv Regional Planning and Building Commission chairman Doron Sapir said, "The North Central Business District will have three million square meters. It will bring many employment services to the area, and will greatly strengthen all of south Tel Aviv.

"We will allow up to 25% residential use in most of the skyscrapers, so that the area won't be dead at night, as is the case at the Ramat Gan Diamond Exchange, which is an example of a bustling place during the day and a problem at night.

"In addition to offices, the mix will include cafes and restaurants, and even cinemas. A lot of cinemas were shuttered in Tel Aviv in the past decade, and the resulting monopoly of Cinema City is a mistake in my opinion."

Moving out

Over the past decade, high apartment prices in Tel Aviv have sent young couples to the city's second-ring suburbs, such as Petah Tikva, Kiryat Ono, Rishon LeZion, and Kfar Saba, and beyond to the third ring, in towns like Netanya, Ness Ziona, and Rehovot.

In the coming decade, buyers will reach what has been coined by Geocartography Knowledge CEO Dr. Rina Degani as the "fourth ring". Most young couples currently seeking to buy an apartment are looking to spend NIS 800,000-900,000, either out of necessity or voluntarily. A four-room apartment at this price can only be found in places further south toward Ashkelon or further north toward Hadera. In the coming decade, these and other towns, such as Ramle, Beit Degan, and Pardess Hanna-Karkur will likely grow, in addition to towns where massive residential construction is already underway, such as Beer Yaakov, Rehovot, Gedera, Ashdod, and Netanya.

High-rises may lose height

Despite all the talk about residential towers taking over the country, half of all current building starts in Israel are for private and semi-detached houses, only about 4% of all apartments under construction are found in high-rises, according to the Israel Union for Buildings Management Companies .

Greater Tel Aviv-Jaffa (which includes Ramat Gan) was recently ranked 50th and last in a list of the world's tall cities, with 59 buildings more than 100 meters high.

What does the coming decade herald? Israel Engineers Association for Construction and Infrastructure chairman Danny Marian recently said that, in his opinion, "Nothing in Israel prevents the construction of a building with 150 or more floors. The advantage of multistory structures is the better use of infrastructures, making land available, and the creation of green lungs."

Meanwhile, more than 50 new skyscrapers are planned for Tel Aviv in the coming years. Projects include the South Kirya (Sarona), the wholesale market, Kikar Hamedina, the site at the corner of Frishman Street and Dizengoff Street, the old Assuta Hospital compound, the Hashoftim building, and buildings in Neve Tzedek and along Rothschild Boulevard. All in all, these are hundreds of new residential units that will command Tel Aviv's skyline in the coming decade.

However, it is believed that the pace of construction of high-rises in other coastal cities, such as Ashdod and Netanya, which include luxury high-rises that grew thanks to foreign buyers, will abate over the coming decade. There are two reasons: the high construction and maintenance costs, and fairly low land values, which do not justify such massive construction of high-rises.

Reforming the real estate industry

During his years in opposition, Prime Minister Benjamin Netanyahu built up expectations of thorough reform in the real estate industry, if he were only again elected as prime minister. Since his election, barely an event has gone by in which he has not talked about his promise to streamline the corrupt industry and lower home prices.

Netanyahu is trying to streamline the supply side of the housing equation, which reached boiling point in 2009. Throughout the past decade, there was talk and plans, but Netanyahu's determination, combined with the tensions caused by the level of home prices in the past year, create hope that, maybe, this time, things will actually happen.

Two major reforms are due to be implemented during the coming decade, the seeds of which were planted in 2009: in the Israel Land Administration (ILA) and in the planning and building commissions. The ILA, whose day-to-day work for decades was focused on dealing with hundreds of thousands of tenants, is due to focus on the marketing and protection of land. The Planning and Building Law (5725-1965), which over decades built up layer upon layer resulting now in bureaucratic delays lasting years in the approval process of building plans, is currently being rewritten with the objective of creating rapid solutions for developers.

Published by Globes [online], Israel business news - - on January 17, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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