More than a month ago, precise location and mapping startup Ception, which has 16 employees and is hiring more, leased 380 square meters on the ninth floor of the RAD building in Jerusalem's Har Hotzvim for five years. The deal cost an estimated NIS 3 million at NIS 131 per square meter per month.
Ception cofounder and CEO Tal Israel explained that the choice of Jerusalem was because there is an existing technology community there in the sector related to the company's field of endeavor. "We chose Jerusalem in advance, even though all the options were on the table. One of the things that connected us to the city was the presence of large companies like Mobileye and Lightricks as well as the Hebrew University. We also did not want to go to the central region because Jerusalem is unique in terms of access to employees from other areas."
Prices and occupancy rates are steadily rising
According to a survey conducted in Jerusalem by Natam Real Estate Services, prices of office spaces and occupancy rates are lower than in Tel Aviv. Natam checked Class A buildings in the city's five main areas: Har Hotzvim, Givat Shaul, the city center, Malkah, and Talpiot and found that the occupancy rate was 90.81% and that rents had risen by slightly more than 0.5% between the first and second halves of 2021. Natam said, "Rents are an average of NIS 86.75 per square meter and there has been a rise of about 1% in the rental payments demanded."
Natam also checked 31 Class B buildings in different areas of the city and found that the occupancy rate had fallen by about 0.5% between the first and second halves of 2021. Prices rose by more than 2% per square meter per month to NIS 73.98. In the city center prices are about NIS 80 per square meter, the highest rents found in the survey.
Einat Levy from the Giora Engelhart real estate appraisers office has conducted her own survey of Jerusalem prices. She found the highest rents were in Beit Hatayelet in Armon Hanatziv, where the average lease in 2021 cost NIS 100 per square meter per month. In Talpiot and the city center rents were NIS 88 per square meter, NIS 83 in Har Hotzvim and NIS 82 in Givat Shaul.
The area where rents were relatively cheap was the western entrance to the city, in which a large amount of office space is being built - NIS 70 per square meter per month. Management fees in all these areas ranges between NIS 15-18.6 per square meter and the average is NIS 17.1.
One of the most sought after locations in Jerusalem is Har Hotzvim, where according to Levy rents have risen almost 37% over the past two years. Mobileye (acquired by Intel) is currently building a campus there and the RAD building has the largest data center in the country. Rents in Givat Shmuel have risen 17% over the past two years - 12% between 2019 and 2020 and 5% between 2020 and 2021.
Regarding buying per square meter levy said, "The difference in price between an old and new office building is around NIS 2,000 per square meter. In Talpiot you can find prices of NIS 10,000-11,000 per square meter and new buildings reach about NIS 13,000. The Tnufa Building (in Talpiot) was first marketed at NIS 9,700 per square meter when it was on paper, and now second hand prices reach NIS 13,000, and this is a project that has just begun to bear fruit. Prices have gone up but only in new buildings."
Levy's survey found that private parking in Jerusalem will cost NIS 120,000 in the city center, NIS 110,000 in Givat Shaul, NIS 100,000 in Beit Hatayelet and Beit Hanatziv in Talpiot and NIS 90,000-95,000 in Har Hotzvim. The price at the entrance to the city is NIS 80,000.
The developers: Most existing office buildings are old
"We looked around in Jerusalem several years ago and we identified a new market based on the desire of companies to move their offices to the city or set up satellite offices to attract employees in the city, students and haredim," said Sufrin Group deputy chairman Tsahi Sufrin.
Sufrin Group has two projects in Jerusalem - one will be built in Talpiot and in Givat Shaul the company is building the Atid Tower, a project of 100,000 square meters designed for commercial space and offices. "Most of the office buildings in Jerusalem are old - Class B and C - and most of the offices are occupied by government institutions. We almost didn't find any modern office buildings," Sufrin said.
But is there demand?
"Demand in Jerusalem comes from two directions. From one direction, there are small businesses that until now were in the city center in apartments, which now have a higher value than the value of offices and so they have decided to leave for an office and vacate the apartment. From the second direction are businesses that want to expand but until now have not had the option of moving to a Class A office."
Companies want to bring in talented employees from throughout Israel
Full stack machine learning operating system company cnvrg.io currently has a 400 square meters office in JVP - Margalit startup city in Jerusalem and a lease for three years. Cnvrg.io cofounder and CEO Yochay Ettun is a Jerusalemite with a special sentiment towards the city. "I think there is a special quality about Jerusalem and there is no other place like it. It's connected to both the people that we work with and it's very good for building a company and organizational culture. Engineering students at the Hebrew University focused on the subject of AI and we see this in the numbers of candidates that we receive from there.
"What is happening in Jerusalem is mainly the outcome of the difficulty in hiring employees throughout Israel. Companies are trying to think of creative ways to take in quality employees and are setting up branch offices in order to make the company accessible for employees."
The need for offices has not been hit by the shift to hybrid working?
Tal Israel said, "No. Companies like ours cannot allow employees to work at home all the time because contact is required with equipment and hardware. Hybrid working does give flexibility but it's important to be in the office for two or three days a week."
Jerusalem Municipality and the Jerusalem Development Authority are managing a unique program to encourage tech companies to move to the city including setting up research infrastructures and taking advantage of the city's many students and 7.5% company tax rate under the Law for the Encouragement of Capital Investment.
Shuttle buses would help
Jerusalem is also building an improved public transport system. Earlier this month the plans were approved for the construction of the light rail Purple Line, which will join the existing Red Line and the Green Line, which is under construction.
Israel said, "Access to out of the city is the real challenge. We have a problem with the last kilometer and the jams to Har Hotzvim. A network of shuttle buses to the industrial park would help a lot. When we thought about where to lease our offices, we were torn between offices near the new railway station, which would increase the chances of hiring employees from outside Jerusalem, or to go for Har Hotzvim, where it is easier to get to by car. In short, there is no perfect place."
Published by Globes, Israel business news - en.globes.co.il - on February 16, 2022.
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