Sharp rise in offices converted to hotels in Tel Aviv

Tel Aviv seafront Photo: Tamar Matsafi

The number of buildings converted into hotels has grown 6.5-fold in three years.

Together with the rise in incoming tourism in Israel, Ministry of Tourism figures obtained by "Globes" show a surge in the number of office and industrial properties converted to hotel units; 163 such properties were converted to hotel units in 2015. The figures will be presented tomorrow at a Ministry of Tourism conference on the matter.

The number of converted properties rose modestly to 198 in the following year. In 2017, however, the trend accelerated with 524 hotel rooms being added through rezoning of offices or industrial properties. This number soared to 1,088 in 2018 - 6.5-fold growth in just three years, with 1,973 hotel units being added through rezoning. Most of these units are in Tel Aviv or the surrounding area.

"The trend is reaching mad proportions"

Minister of Tourism Yariv Levin says, "The trend is reaching mad proportions. Large-scale demand requires reconsideration and original thinking in order to increase the supply of rooms in Tel Aviv. The goal is to enable developers to enter the tourism sector rapidly and smoothly. Through conversion, we will increase the supply of rooms in Tel Aviv. This is one of the most effective ways of solving the shortage of hotels in Israel." Ministry of Tourism director general Amir Halevi adds, "Conversion simplifies the process for the developer. In addition to conversion of existing buildings, most of which will become small hotels with relatively few rooms, it also provides a solution for tourists looking for the municipal connection their vacations. It can be a boutique hotel in Nahalat Binyamin or a series of hostels on Hayarkon Street in Tel Aviv. Capsule rooms in Akko are also providing a solution for the tourist's needs. The guest gets a different experience, and the large chains also realize that they have to enter this. The market is growing in all directions. There is a need for different types of hotels and overnight solutions: all the way from beds in hostels to beds in boutique hotels and luxury suites."

The Ministry of Tourism notes with approval the entry of the large chains into this field, which it says explains a change in the entire approach. The list of examples in recent years is getting longer, for example the Dan Hotel chain's Link Hotel and Hub, located on the former site of Beit Amidar on Shaul Hamelech Boulevard in Tel Aviv. The Dan chain launched the hotel in May 2018. Its conversion took two years and cost NIS 40 million. The eight-storey hotel contains 94 17-40-square meter rooms and a shared workspace. "Globes" also recently reported that the Israel Philatelic Service building at 12 Jerusalem Boulevard, owned by the Israel Postal Company, would become a boutique hotel. Agreement on a 23-year lease at NIS 1.4 million annual rent was reached between Africa-Israel Hotels, owned by the Dayan family, and Israel Postal Company. The company will spend an estimated NIS 20 million on converting the building into a hotel. The deal was estimated at NIS 31 million. Other examples include Fattal Holdings' (1998) Ltd. (TASE:FTAL) NYX hotels in Tel Aviv and Herzliya and Isrotel Ltd.'s (TASE: ISRO) Publica in Herzliya, which were converted from office buildings into hotels.

"An existing building need only a renovation permit, which is usually much faster than a building permit and comes together with a permit for exceptional use in the process," explains Atlas Hotels Israel chain managing director Danny Lipman. "In the process itself, the existing shell is preserved and the building's lines are not altered, which would require a building permit taking years to obtain. Atlas converted several buildings into hotels, such as a hotel with 74 rooms at 65 Rothschild Boulevard in Tel Aviv, a former office building. Atlas's 44-room Fabric Hotel was built on the ruins of a sewing factory in the city, and the 82-room Cinema Hotel was a former movie house. In 2020, a 47-room hotel will open on the ruins of the Ohel Theater adjacent to Dizengoff Square."

"Globes": A large proportion of these buildings are designated for preservation, and this is a difficult process.

Lipman: "The municipality requires rigorous preservation, which increases costs and makes the process difficult, but the result is good. The preservation procedure itself can take longer than constructing a new building, so converting buildings doesn't always mean a shorter process. This also depends on the state of the building and the required procedure. Turning a space used as a cinema into a multi-storey building with rooms is an engineering challenge that is a burden on the timetable."

Go to a shopping mall and stay the night

Amir Halevi says that shopping mall owners are also expressing interest in hotels. "We recently convened a meeting in the Ministry of Tourism with Rami Levy Chain Stores Hashikma Marketing 2006 Ltd. (TASE:RMLI), the owners of the Azrieli shopping mall, BIG Shopping Centers, and Ofer Malls, who expressed interest in converting offices into hotels. They have not yet submitted an official request, but I have no doubt that it will happen. Office buildings in shopping malls can potentially be converted into hotels in 18-24 months, in time for the momentum of tourism, and the hotels can be integrated with activity in the mall," he says. Halevi mentions one existing example - the La Cappella Hotel in Haifa, built on the site of a shopping mall with a grant from the Ministry of Tourism. Encouragement is also in store for developers in Tel Aviv - a 10% grant for developers converting buildings into hotels.

"Although there is no problem of supply in Tel Aviv, we insisted on giving grants to developers," Halevi says. "We insisted that there was potential for a change in strategy and stepping up the presence on the global vacation map. The Ministry of Tourism believes that the supply must be increased."

Published by Globes, Israel business news - en.globes.co.il - on January 30, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Tel Aviv seafront Photo: Tamar Matsafi
Tel Aviv seafront Photo: Tamar Matsafi
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