Rent prices have started falling in Tel Aviv in the wake of the tech crisis. Data revealed by Bank Leumi chief appraiser Ron Mazor at the annual conference of Israel appraisers showed that rental prices for Class A office space in central Tel Aviv have fallen 8%.
Mazor said, "We see the decrease mainly in areas where there was a sharp increase in prices, areas characterized by many tech companies. Shaul Hamelech Boulevard, for example, there was no dramatic decrease in rent prices, but there, it is important to note, there was also not a sharp increase like in the buildings on Menachem Begin Road and in Hassan Arafa.
Mazor added, "The fall comes after a year of a jump in rent prices in the heart of Tel Aviv that reached about NIS 250 and even NIS 270 per square meter (per month)."
Mazor said that there are many reasons for the fall in rent prices but the most major factor is the tech sector. He said, "Many companies who leased space at high prices have stopped hiring. Some of them are laying off employees. Investment in high-tech is continuing to shrink and companies understand that they don't need so much space in their offices.
"On top of that, unlike residential real estate, supply in the offices market is expected to grow over the next four years to about 1-1.2 million square meters. True this is not just supply in Tel Aviv. This includes the first circle such as Bnei Brak, Rishon Lezion and Petah Tikva but this has an influence."
The start of a process of shrinking
These are preliminary findings that indicate a slowdown and even a decline in the rental market in Tel Aviv. Data from international property management and marketing company CBRE, shows that from the first half of 2020 to the first half of 2022, rental prices in Tel Aviv rose by 26%.
The price differences between Tel Aviv and its neighboring cities in offices (and also housing) have widened greatly over the past two years, and real estate experts have pointed out that the source of the abnormal increases are tech employees who bought expensive apartments in Tel Aviv near enough to get to work by scooter or bike.
As a result, office prices in the city center, including Sarona and the Azrieli Center, and Yigal Alon street in the east, have also increased greatly, even though the supply of offices outside of Tel Aviv has also increased greatly in recent years.
Since tech companies lease office space through contracts for 5 years or more, companies that own office space leased to these companies have so far not felt the problems that have befallen the sector this year. Most of the decrease in demand is felt in projects that are rented to startups and smaller and earlier stage companies, which are much more sensitive to the changes in the industry.
Due to the current situation and assuming that the tech crisis will continue in the near future, it seems that the 8% drop might be only the beginning of a shrinking process for the office real estate sector as a whole.
Published by Globes, Israel business news - en.globes.co.il - on November 28, 2022.
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