Downtown Jerusalem can prosper again

Ben Yehuda Street Photo: Shutterstock

Better management of business and economic development by the Jerusalem Municipality can revive the fortunes of Jerusalem's city center.

Jerusalem has a very special city center, which includes about 50,000 square meters of commercial space with strong economic anchors like the Mahane Yehuda market and pedestrianized Jaffa Road. Nearby is the haredi shopping center in Geula Street with 20,000 square meters of commercial space.

Other anchors are set to come to the city center including Bezalel Academy of Arts and Design, the Sam Spiegel Film and Television School, the Museum of Tolerance and others. There is hope that the foreign tourists will soon be back. But there are measures that must be taken by the Jerusalem Municipality, if downtown Jerusalem and the surrounding areas are to prosper in the post-Covid era.

Fifteen years ago we at economic consultants Czamanski & Ben Shahar built a strategic marketing plan for Jerusalem's city center and the Mahanei Yehuda market as well as an operational plan for enhancing and empowering economic activity. This was before the Jerusalem light rail began operating and Jaffa Road was pedestrianized.

In addition, we put together a policy document for the Mahanei Yehuda market, which was not adopted by the Jerusalem Municipality and in practice market forces set the mix of businesses there. The result is that the classic businesses like greengrocers are leaving the market with restaurants, cafes and bars taking their place in an irreversible process. No greengrocer who has left will return to the market.

As of 2021, Jerusalem had 580,000 Jewish residents, living in 149,000 households. Together with the Arab population, most of whom live in a separate city 'the eastern city,' the city has a population of about 1 million.

Jerusalem belongs to Israel's lowest socioeconomic bracket with 46% of the working population earning the minimum wage - the highest such figure for any major city in Israel. The national average is 38%. The average monthly salary in Jerusalem is NIS 7,500, well below the national average of NIS 10,100, and the lowest of any major Israeli city. These figures have a major impact on the purchase power for retail products.

Total monthly purchasing power for Jewish households in Jerusalem amounts to NIS 650 million. In addition there is the purchasing power of the many tourists that visit the city, although in the past few years businesses have suffered from the presence of very few foreign tourists.

The consumer behavior of Jerusalem residents and the commodities they buy is special and different. Generally speaking the relationship between Jerusalem merchants and customers is more genuine, personal, authentic and honest.

On the supply side, there is 10.2 million square meters of commercial real estate space in Israel, of which 1.6 million square meters are in streets and city centers - in other words 16%. However, Downtown Jerusalem comprises just 12% of the supply of commercial space in the city, where there are about 1,850 businesses with an average size of only 64 square meters. There is demand and need for large stores in the city center like Zara, H&M, and other international retail chains.

In all of Jerusalem there is a gross 500,000 square meters of commercial space, creating a ratio of 3.2 square meters per household (the overall average in Israel is 3.5 square meters per household). This means that Jerusalem has a shortage of commercial space. This is demonstrated by the absence of any power centers in Jerusalem and the developing supply of commercial space in Ma'aleh Adumim, at the expense of the overall existing supply in Jerusalem, as well as in the Talpiot Industrial Zone, in particular.

Rents on the rise

When examining the segmentation of commercial space in Jerusalem, it can be seen that the city center acts as a commercial magnet for leisure and entertainment for the secular population and foreign and domestic tourists. Most activities are concentrated in the triangle between Jaffa Road, King George Street, and Ben Yehuda Street and the surrounding areas stretching from Mahanei Yehuda market to Mamilla. This area is a national, regional and municipal attraction.

In this triangle, there is major and a range of demand and commercial activities are diverse and strengthening. New institutes of higher education are about to be opened there and a museum and more and a range of households will be added including many young people. All this is in a situation in which the city and the state have created competition for the city center by moving all government offices out of it to the National Precinct, developed the technology park in Malkah without worrying about the economic management of the "regular" businesses operating in the city center. There is currently further competition for the city center from the new Jerusalem Gateway project at the western entrance to the city and the improvements being made to the Talpiot Industrial Zone.

In the entire city center there is 120,000 square meters gross of commercial space. Of this 30,000 square meters is in the central triangle, 22,000 square meters in Mamilla, and 20,000 square meters in the haredi commercial area (Geula). The biggest concentration of commercial space is along Jaffa Road, which has 16,400 square meters of commercial space. There is 14,000 square meters of space in the Mahanei Yehuda market. By 2025, 20,000-30,000 square meters of commercial space will be added in the city center.

In 2019, before the Covid crisis, rents in the city center were high, although with major variations between areas. In the haredi center rents reached NIS 500 per square meter per month. To the east and west of the central commercial triangle, rents were NIS 200-300 per square meter per month and in the triangle itself they were also NIS 200-300 per square meter per month for medium and large stores and NIS 400-600 per square meter per month for smaller, well positioned stores.

In Mahanei Yehuda market, prices have been rising due to the entry of so many restaurants and cafes, who replaced the greengrocers. To the west of the market, prices were similar to the west of the triangle and reached NIS 300-400 per square meter per month in the area in and around the Central Bus Station.

After falling during the Covid crisis, rents are again on the rise in the market and the areas around it and are almost back at pre-Covid levels. Prices have fallen during the pandemic because of the absence of foreign tourists and reduced domestic tourism.

To learn from London

With appropriate management of business and economic development by the Jerusalem Municipality, the streets of the city center could operate on a high economic level. However, the municipality will be required to return and invest in the center (as is being done in London for example) to create an updated marketing strategy and plan of action - also against the growing competition to the city center that it is creating in the business quarter (at the entrance to the city), in Givat Shaul and in the renewed Talpiot Industrial Zone.

On the optimistic assumption that foreign and domestic tourists will return, cultural and educational businesses will open and families, young people and students will rent the apartments that will be built in the city - and all this will contribute to a prosperous city center

The author is the CEO of economic consultants Czamanski & Ben Shahar Ltd.

Published by Globes, Israel business news - en.globes.co.il - on January 6, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Ben Yehuda Street Photo: Shutterstock
Ben Yehuda Street Photo: Shutterstock
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