Demand pushing up Tel Aviv office rents

Tel Aviv office towers

Even though office rents are cheaper elsewhere, young people want to work only in Tel Aviv, thus fueling rent rises.

The prices of offices in Tel Aviv rose by 6% in 2019, according to a survey by the Israeli branch of the CBRE Commercial Real Estate Services international chain, managed by chairman Jacky Mukmel. The survey should be of special interest to mayors and developers constructing many office buildings in the vicinity of Tel Aviv. For example, prices remained unchanged at an average of NIS 57 per square meter in Petah Tikva, which is strengthening the Kiryat Arie industrial zone and the Jabotinsky Road area. The price is identical in Bnei Brak, which is developing the BBC business zone. At an average of NIS 83 per square meter, the price is higher Ramat Gan, but the survey found that prices there had risen only 1% in the past year.

In Herzliya, second on the list with an average price of NIS 86 per square meter, prices were also unchanged last year. The fact that this average price was 20% less than the prevailing price in Tel Aviv demonstrates the power of demand in the larger city.

"They ask me where the offices market is, and I answer, 'Ask people in their 20s where they want to be, and then you'll know where the market is.' Those workers don't want to go to Petah Tikva, Ra'anana, or Netanya. They want a place where they can hang out and have a good time. There aren't any places like that other than in Tel Aviv, so demand continues to focus there, even though it's the most expensive city," Mukmel says.

The survey backs up what he says - 95% of the office space in Tel Aviv is fully occupied, despite the high prices. "A workplace has become something that has to give the employee comfort," Mukmel explains.

"Companies have realized that they have to pay, and many are opening satellite branches. Intel built in Petah Tikva, but it will also open a branch in Tel Aviv, so that an employee who wants to work in Tel Aviv won't go elsewhere. The same is true of Microsoft. The employee determines where the workplace will be, more than the rent," Mukmel says.

Disadvantages of Bnei Brak

The offices market and business zones have been radically changing in recent years. One the one hand, awareness of the matter increased all at once, following the roof agreements signed in many cities. The significance of these agreements is a rapid and substantial increase in the number of residents in need of employment. On the other hand, the municipal property taxes that these residents are generating for cities is insufficient, and a lot of business space that generates revenues is therefore needed. This has led to accelerated development in Bnei Brak, Holon, Petah Tikva, and an area that is emerging as the next big thing - the Elef site in Rishon Lezion.

It is no secret that nearby Petah Tikva and Bnei Brak hoped to attract offices away from Tel Aviv, with the main attraction being lower rents. According to Mukmel, however, as of now, the response to this attraction will not completely fill the expectations. "The rents in these places have remained unchanged for a long time. You see a substantial decrease in the current quarter in Bnei Brak, because there are 400,000 square meters of offices being built. International companies won't go to Bnei Brak, because work on the Sabbath is not allowed there, and that's a very tough restriction for them. Only those who want to pay low rent go to Bnei Brak, but how many of those are there? Not many," Mukmel declares.

Mukmel says that attention should be paid to the young age and way of life of the employees. "What attraction is there for employees in Bnei Brak? There are humus stands and all sorts of cafeterias like in the Central Bus Station, where you stand and eat, but you can't take a guest there. The authorities there, and in other places, don't give much thought to a high-quality work environment for the employee; they only care about construction percentages. They don't realize that the employees are getting younger all the time. 26 year-olds are starting to be mature, and they want lively things. They stay two or three years at a workplace, and then move on," Mukmel notes.

Published by Globes, Israel business news - en.globes.co.il - on February 13, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Tel Aviv office towers
Tel Aviv office towers
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