Covid-19 wreaks havoc with Tel Aviv's commercial real estate

Tel Aviv's Dizengoff Street / Photo: Shutterstock, Shutterstock.com

Stores are closing down throughout the city, real estate consultant CBRE Israel has found, and rents are falling accordingly.

The degree of harm done by Covid-19 to the commercial real estate sector is beginning to become apparent. A report issued by commercial real estate services and consultancy group CBRE for the second quarter of 2020, which has been seen by "Globes," shows that tenants have departed from tens of thousands of square meters of commercial real estate premises in Tel Aviv and that rents have gone down on average by 10%. The average rent of commercial space in Tel Aviv has returned to what it was in 2013, the report says. Worst hit are shopping malls, enclosed shopping centers and street stores. In strip malls and power centers like those of Big Shopping Centers (2004) Ltd. (TASE:BIG), the situation is less severe.

The report states, "In the (second) quarter, there was a substantial fall in commerce. The quarter began with the closure of stores and commercial centers due to the spread of the Covid-19 virus. As the quarter progressed, stores and shopping malls began to open under restrictions, mainly in the number of customers, which could enter the commercial area. These restrictions supported the continued trend in recent years of a rise in online commerce. New customers joined those who already buy online. Their exposure to these purchases is expected to strengthen the trend dramatically."

CBRE Israel CEO Jacky Mukmel said, "In retail trading there is a difference between food consumption, which rose and the other retail sectors such as clothing, electronic goods, mobile phones and others, which fell. The public are not currently in the mood to buy new clothes or new perfume. Most areas of retail are in a war of survival. You can walk around the shopping malls and see people moving about with few bags in their hands, and the tills aren't ringing."

In Herzliya and Haifa, it's business as usual

The main closing down of businesses is in Tel Aviv where the level of occupancy of commercial space in recent years had reached 97%, and this has now slipped to 94%. This fall represents tens of thousands of square meters of commercial space and hundreds of stores that have gone out of business.

The fall in demand is expressed in rents. In recent years these have been gradually creeping up to an average of NIS 200 per square meter in Tel Aviv. But in the second quarter of 2020, this fell by more than 10% to an average of NIS 176 per square meter - the level of prices on 2013.

Compared with Tel Aviv, the fall in rents elsewhere is less marked, CBRE found. In nearby Ramat Gan rents have fallen 7% to NIS 128 per square meter. Further afield in Rehovot, rents are down 6% to NIS 88 per square meters and in Petah Tikva rents are down 4% to NIS 98 per square meter. In Netanya rents are down 3% to NIS 90 per square meter and in Herzliya there is no change at all with rents costing NIS 148 per square meter.

The further away you move from Tel Aviv, the more moderate the fall. In Jerusalem, rents fell by only 1% to NIS 94 per square meter and in Haifa rents in the second quarter of 2020 were unchanged at an average of NIS 94 per square meter, CBRE found.

However, CBRE believes that commercial rents in the rest of the country will eventually show similar falls to Tel Aviv. The commercial real estate consultancy company also believes that retail in Israel is in a period of heavy transition, not only to more online sales, but also to more factory outlets outside of the city centers and shopping malls.

Published by Globes, Israel business news - en.globes.co.il - on July 20, 2020

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

Tel Aviv's Dizengoff Street / Photo: Shutterstock, Shutterstock.com
Tel Aviv's Dizengoff Street / Photo: Shutterstock, Shutterstock.com
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