Israel's office market is starting to recovery from the blow that the coronavirus pandemic dealt it. A market survey by CBRE Israel reveals that in the second quarter of this year office rents in Tel Aviv rose 4%, to an average of NIS 101 per square meter monthly, after office rents fell 11% in 2020. Rents for commercial space, however, are still falling, although at a slower rate than before.
"The office segment in the Tel Aviv area is distinguishing itself from areas in the second circle, because of the amounts being raised by technology companies and the return of employees from working from home to working in the office. At the same time, there has been a 56% decline in office building starts and a 59% decline in building completions," says CBRE Israel CEO Jacky Mukmel. "The fears in the office market mainly arose from workforce downsizing and remote working. Our estimate is that these threats are not great in the Israeli market, and that most office workers will return to the workplace.
"We believe that the labor market is becoming hybrid, as remote working finds its place as complementary to physical presence in the workplace."
Nevertheless, says Mukmel, there are disadvantages to remote working from the point of view of the employer. The greatest disadvantage, he says, is that it weakens loyalty. "To a certain degree, the employee loses his or her sense of identification with the place of work. The same work could be done for another employer, which encourages people to switch jobs in the technology market, where demand is high. Besides that, a trend is developing in which workers get used to working from home, and find it hard to return to office routine," he says. He estimates that demand for office space will continue to rise in the short term despite the rise of the hybrid work style.
Office rents have risen in Tel Aviv's neighboring cities as well. In Ramat Gan, office rents rose by 3% in the second quarter, in comparison with the first, to NIS 80 per square meter. The rise in Petah Tikva was 2% to NIS 53 per square meter. In Rehovot, Haifa, Netanya and Ra'anana, rents were unchanged in the second quarter from the first.
The big declines are taking place in commercial real estate. This segment was in decline even before the coronavirus pandemic struck, as online sales grew at the expense of shopping malls, and the downward trend continued in the second quarter of 2021, although the rate of decline moderated in comparison with the falls seen in 2020. In Tel Aviv, commercial rents fell 1% in the second quarter, and the expectation is that rents will fall 7% by the end of the year. Average rents were NIS 164 monthly per square meter for commercial space in Tel Aviv in the second quarter.
Herzliya, which is in second place for commercial rents, saw the steepest decline in the second quarter, by 6%, to NIS 132 per square meter. In Ramat Gan, commercial rents fell 6% to NIS 122 per square meter, and in Rehovot the decline was 3%, to NIS 85 per square meter.
Published by Globes, Israel business news - en.globes.co.il - on July 27, 2021
© Copyright of Globes Publisher Itonut (1983) Ltd. 2021