Will Tel Aviv's Kikar Hamedina regain its crown as a focus for Tel Aviv's haute couture fashion brand stores? Will the 450 luxury apartments in three towers with no commercial premises meet the needs of the market?
In the distant past, almost every high-end brand was located in Kikar Hamedina. Today there is only a small selection of exclusive stores and in their place are service stores, neighborhood stores and a relatively large range (11 out of 160) of empty stores. In the Ramat Aviv Mall, which has become the home for Israel's high-end and most successful brands, monthly rental for a store is NIS 460 per square meter, while in Kikar Hamedina it is just NIS 250-300 per square meter (in smaller stores but less in bigger stores).
In Tel Aviv there are many streets that benefit from a high level of economic performance, relative to shopping centers and other streets in Israel. However, most of them are far from looking, performing and offering what is found in the central and famous streets of leading European cities. In Milan, Rome and Munich, monthly rents of about €500 per square meter and more per month are received, in Paris and London rents can cost even more than €1,000 per square meter per month - 10 times more than in Tel Aviv.
A city of extremes
According to Tel Aviv's statistical yearbook, at the end of 2021 the city had about 470,000 residents. Of these, about 18% are children up to the age of 15, 27% are young people aged 18-35 (with fewer children than the national average and more young people), 28% and 23%, respectively. About 15% of the city's residents are over the age of 65 - higher than the national average of 12%. Meaning, a city of "extremes."
In 2021, Tel Aviv recorded negative migration, with more people leaving the city than moving to it, but due to natural reproduction and international migration, the city's population grew. About 13,300 residents in 6,000 households live in the streets around Kikar Hamadinah.
According to Czamanski & Ben Shahar's data, 55% of commercial space in Tel Aviv is along streets and 45% in shopping centers. Tel Aviv has 825,000 square meters of retail commercial space of which 295,000 square meters is in shopping centers. This commercial space serves the entire country and not just the residents of Tel Aviv.
Why has 10,000 square meters disappeared?
The plan for Kikar Hamedina includes three spiral-shaped residential towers with 453 apartments. Each tower will have 40 floors with four underground floors for parking. In addition, there will be two public buildings - an elementary school and community center - as well as an artificial lake, green areas and pedestrian avenues that will help the area retain its original character.
Financing the project has been complex because of the large number of private landowners. After petitions and objections by local residents only 60 square meters of commercial space will be built on the entire square, which will become a café or kiosk. Originally 10,000 square meters of commercial space was planned.
In our estimation, if a large area of commercial space had been built in this location, in a district with very large purchasing power potential, this would have strengthened Kikar Hamedina and would have been financially successful. An example of this can be seen in the DUO Tel Aviv project (which we advised at the beginning of its planning process) built at the corner of Ibn Gvirol and Arlozorov, where a relatively large area of commercial space will be developed on several floors.
According to Czamanski & Ben Shahar's data, in 2012 there were 148 stores in Kikar Hamedina covering 8,500 square meters, of which 88 were up-market stores. Today, the square has 160 businesses covering a similar area of which 82 are up-market stores - only a small reduction over the past decade.
But the type of stores has changed from fashion stores to delicatessen and convenience stores and service-oriented businesses. In 2012 there were only 15 service-oriented businesses while today there are 35. In 2012, there were 100 fashion stores while today there are 78. Eleven stores are empty. Some of them are undergoing renovation while there is no demand for others. In 2012 there was only one empty store.
Purchasing power of residents within the vicinity of Kikar Hamedina is NIS 37 million and this will rise to NIS 45 million in 2028.
An overseas experience
In Israel there are no prestigious high-end avenues with luxury stores like there are in European capitals. Before the Ramat Aviv Mall was enhanced and positioned as a luxury mall, Kikar Hamedina fulfilled this function and was a focus of luxury in Israel. The decision not to develop commercial space in additional construction in the square will make it difficult for the roadside commercial space to successfully complete an enhancement process.
Only if a comprehensive planning and marketing move is carried out by the owners of the properties and stores together with the municipality, will it be possible to restore Kikar Hamedina's high-end prestige. This would be achieved by creating a mix of luxury and regular stores that convey quality, design, prestige that comes from abroad, as well as creating a shopping experience like on the streets abroad. One of the options is to lease half of the commercial space in the square to the Irani Group, whose Factory 54 company represents many of the overseas luxury fashion brands.
In any other scenario, over time the square will include fewer and fewer luxury brands, and will lose its status.
The author is the CEO of economic consultants Czamanski & Ben Shahar Ltd. Analyst Devora Ruckin participated in writing this article.
Published by Globes, Israel business news - en.globes.co.il - on January 26, 2023.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.