Central Tel Aviv towers rule the tech office market

High-rises in Tel Aviv
High-rises in Tel Aviv

Tech executives say candidates won't even come for interviews, if they hear the office is in Netanya, Herzliya or Ramat Hahayal.

Renting office space in central Tel Aviv is no easy matter. Azrieli Sarona tower has 100% occupancy and most of the office towers within the vicinity of Hashalom Station are full, especially on the western side of the Ayalon, like Azrieli Sarona and the Azrieli Center.

Only this month fintech company Rapyd leased eight floors in the Azrieli triangle tower and another seven floors in the 91-floor Azrieli spiral tower, which is under construction. Demand is also high on the eastern side of the Ayalon, with prices of NIS 130 per square meter in the Alon Towers and ToHa tower.

However, the situation is not so good in Tel Aviv's Ramat Hahayal tech industrial area. For fast growing Israeli startups, Ramat Hahayal is not an option. According to a report by Natam on income producing property, in the second half of 2020, office rents in Ramat Hahayal fell 9.66%. While rents alongside the Ayalon Highway on Menachem Begin Road and Yigal Alon Street averaged NIS 111 per square meter, Ramat Hahayal rents were only NIS 72.50 per square meter.

The major factor is accessibility. It is not very convenient to reach Ramat Hahayal, except by car. The nearest railway station is Bnei Brak and it is not a short walk to Ramat Hahayal. If until last year people thought it reasonable to spend two hours every day, sitting in traffic jams commuting to and from work, in the post-Covid era, people are no longer prepared to do that.

A survey by Geocartagraphia on Israel's high-tech sector found that tech workers today have a clear preference for working at home and found that employees who do have to travel sometimes to work, now want jobs in offices close to their home.

Geocartagraphia found that 66.7% of high-tech employees live in the Tel Aviv - Ramat Gan - Givatayim metropolitan area.

Natam VP real estate Or Ben Zvi Klein said, "I know companies that are currently hiring. While they only had up to 20 employees, they could be based in all sorts of places like Netanya but now when they look for manpower, it's a problem. HR managers there say that when people from Tel Aviv hear that the office is in Netanya they won't travel. Add to that Tel Aviv's vibe. Ramat Hahayal is a place for lawyers and communications companies. I don't know of any high-tech anchor companies based there today."

Cybersecurity company Cynet has its offices in Azrieli Rishonim in Rishon Lezion. The company's founder and CEO Eyal Gruner, who lives in Tel Aviv, said, "It takes me 25 minutes to get there." He previously worked in Ramat Hahayal and it took him 45 minutes to get there. Cynet is now opening a Tel Aviv office in the Azrieli Sarona tower and Gruner says there were three options in central Tel Aviv - Rothschild Boulevard, Azrieli Sarona, or east of the Ayalon (Alon Towers etc.).

It is unnecessary to say that high-tech companies are only interested in leasing in Class A buildings.

Gruner said, "Offices in central Tel Aviv, in the city, are good for those who come from Tel Aviv and less good for those from Givatayim. But Tel Aviv people don't like crossing beyond the Ayalon and it's not convenient taking the car. Azrieli Sarona is good for everyone - those who come from Tel Aviv and those who come from outside Tel Aviv."

Lightrun cofounder and CEO Ilan Peleg said that his company was formerly based in the Midtown tower on Menachem Begin Road but has since moved to Daniel Frisch Street in Tel Aviv. "It was clear to us that Ramat Hahayal wasn't relevant. There is no social experience there and getting there is much more complicated and some employees wouldn't come with us if we were in Ramat Hahayal. Most of our employees live in Tel Aviv."

He continues, "Today startups raise money at a relatively early stage. The market is flourishing and there is very high demand. Today developers are more accommodating to tenants. If once, a developer was not prepared to lease an entire floor to a startup, out of concern that it would collapse, today it is possible because they believe that the company will continue growing. Employees have also discovered that they don't have to sit in traffic jams."

"There is an unrelenting war for every talented employee," said Testim founder and CEO Oren Rubin. The company was founded six years ago and has 53 employees, based in 600 square meters of offices in Azrieli Sarona. "You want to make sure that those that come to work can walk here and that there are culinary options. On the other hand, those who come from outside of Tel Aviv need convenient access. The Rothschild area is great for those who live in Tel Aviv but it's a nightmare for people from outside of Tel Aviv. Therefore, Sarona is great for everyone."

"The talented employees that we seek," admits Reut Rubenstein, VP Human Resources of Lusha, which has 140 employees in its offices in the triangle tower of the Azrieli Center, "choose their job according to convenience. Something about Covid-19 reshuffled the deck. Employees discovered that they don't have to sit in traffic jams and if you work from home part of the time you can do it from Kfar Tabor, Ashdod or Ashkelon. But when they come to the office, they want it to be in a location that's easy to get to. They are prepared to travel a long way. When I hire people, I often hear a sigh of relief that we are in Tel Aviv. They say why do I have to get to Herzliya. In the past we were based in Rothschild but the access to there isn't as good."

Ofer Nahmani agrees. He is general manager Israel of Trax, which recently raised $640 million and has 250 employees in Israel. Trax leases a 2.800 square meters floor in Tel Aviv's ToHa tower.

Half of Trax's employees, he said, are from Tel Aviv and the rest from the central region. In the past the company had offices in central Tel Aviv on Menachem Begin Road. "But when we left, there were those who complained that we are leaving the city but since we have moved they have been satisfied. In the past two years, the Azrieli area has turned into an Israeli Silicon Valley. Those who call us most are real estate people that want to attract us to new buildings being put up in the region."

Elad Ash, VP R&D of Place.ai, which is based in Beit Avgad in the Ramat Gan Diamond Exchange district said, "In recent years a lot of startups have raised a lot of money and they need to enlarge their work force. The number of talented employees is limited and the fight for every person is significant. In the past when I worked for MyHeritage, we decided to set up a branch in Tel Aviv in London Minister (on Ibn Gbriol Street) as well as our offices in Or Yehuda. We thought it would help us to increase recruitment but it didn't help because it wasn't convenient for people outside of Tel Aviv to get there. People want a location with efficient public transport. Here we have that. It's true that if you leave the office at nine at night there is no pub nearby, like there is in Tel Aviv but it works for us here."

AppsFlyer has three offices in Israel - one in Haifa and two in Herzliya and it will soon open an office in Tel Aviv. Chief People Officer Lisa Zaythik said, "We have 700 employees in Israel, almost half of whom live in Gush Dan. We decided to go for Tel Aviv, so that we could offer employees a more accessible location. Developers, or the younger generation, did not jump at the opportunity of working in Herzliya and we understood that in order to reach a younger target audience, we need to be in Tel Aviv. The thinking on this was before Covid but Covid was the catalyst."

Another Israeli unicorn Gong has 550 employees in Israel and hopes to reach 1,000 by the end of the year. Just before the Covid pandemic it moved to the Ramat Gan Diamond Exchange district, having started out five years earlier in offices in Herzliya, which was a halfway house for the firm's two founders. But then the company grew and CEO Amit Ben-Dov said, "We began to feel that a lot of people were hearing that we sit in Herzliya and they didn't even want to come for an interview. So we decided to try a more accessible place. Now that we are by the diamond exchange, it is significantly easier for us to hire people."

Ben Dov estimates that 70% of Gong's employees are millennials and most of them live in Tel Aviv and don't own a car. The company's new location opens up possibilities for employees from other places. "The rate of growth in high-tech is bigger than the number of employees we can find, so companies are going to places that will be more convenient and easier for hiring personnel."

Income producing property company Bayside Land Corp. Ltd.(Gav Yam) (TASE: BYSD1) CEO Avi Jacobovitz says you have to understand that Israel is a tech superpower. Bayside owns ToHa tower together with Amot Investments Ltd. (TASE:AMOT) and operates high-tech parks in Herzliya and Haifa. "I have no doubt that the Tel Aviv office market will strengthen and grow in the coming years, mainly on the main roads of the light rail, Israel Railways and the Metro. The Tel Aviv office market is a strong market and its getting stronger every day. High-tech companies and large tech corporations want to be part of the Tel Aviv Metropolitan area and in the urban world and they are leading the demand."

When an international high-tech company comes here it brings with it satellite companies, which provide it with services. International organizations want to be in a central location because the central location, whether it is a city or high-tech park, lets it bring the necessary human capital."

Jacobovitz added that demand in Herzliya is also high. "There isn't a single square meter free. We have 250,000 square meters and most of it is high-tech companies."

BSR Projects owner Nachshon Kivity is rebelling against the notion that it is central Tel Aviv and the rest. Among other things, he has developed the BSR Towers in Bnei Brak and Alon Towers in Tel Aviv as a buyers group. BSR is just beginning to lease space in Suzuki Tower, which has 26,000 square meters and is 200 meters to the south on Yigal Alon Street.

Kivity said that BSR is currently building a huge project on Petah Tikva's Jabotinsky Street with 160,000 square meters of office space and 30,000 square meters of commercial space. "The project will be successful and in demand thanks to the Red Line light railway station in front of the project." The building will be ready for occupation by the end of the year.

"With all due respect," Kivity added, "There is also precious human capital and high-tech brains outside of Tel Aviv, who need offices. Not everyone who has a high IQ and served in the IDF 8200 unit was born in Tel Aviv. It's true that there is a clear trend of escaping offices in Ramat Hahayal and seeking buildings in the beating heart of the city so that you can get their by bicycle or electric scooter with options to bring your dog. We'll soon be building elevators in the towers for dogs. But there is also life outside Tel Aviv.

Published by Globes, Israel business news - en.globes.co.il - on May 20, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

High-rises in Tel Aviv
High-rises in Tel Aviv
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