Tel Aviv office rents fall sharply

Tel Aviv credit: Shutterstock
Tel Aviv credit: Shutterstock

The biggest fall in office rents over the past year was in the Yigal Alon Street district where rents fell 25%, Newmark Natam Real Estate Services reports.

Office rents in Tel Aviv have fallen 11% over the past year, according to Newmark Natam Real Estate Services report for the first half of 2023. The biggest fall in office rents was in the Yigal Alon Street district where rents fell 25%. The company estimates that until the end of 2023, the new price levels will be maintained, while in 2024 they will be challenged again, as a significant increase in supply of office space comes on to the market in new towers.

Newmark Natam is a partnership between international company Newmark and Israeli company Natam, which specializes in income producing real estate for offices, industry and logistics, and provides services such as brokerage, marketing and project management, asset management, investment consulting, and more. Among other things the company produces the most detailed report on Israel's income producing real estate market.

The latest report for the first half of 2023 reflects a market in crisis. The average rent per square meter in class A office towers in Tel Aviv was NIS 130 in the first half of 2023, down 11% from a peak of NIS 146 per square meter in the first half of 2022, and NIS 141 per square meter in the second half of 2022.

The most prominent fall in rents was in the area of Tel Aviv that had previously recorded the biggest rent increases - the Yigal Alon Street district. In this area, leases had already climbed to NIS 190 per square meter in the first half of 2022, but have fallen nearly 25% over the past year to NIS 145 per square meter.

Other notable areas where rents are falling in Tel Aviv include Menachem Begin Road, which saw rents fall 13% between the first half of 2022 and the first half of 2023 to NIS 149 per square meter, the Ramat Gan Diamond Exchange district where rents fell 14% to NIS 112 per square meter, and the City area, where rents fell 9% to NIS 159 per square meter. In the Ramat Hahayal and Tel Aviv courts districts, rents remained at similar levels to those of last year - NIS 82 per square meter in Ramat Hahayal and NIS 128 per square meter in the courts district.

"The subletting segment dictates the downward trend"

Newmark Natam VP real estate services Or Ben Zvi Klein explained why income producing real estate companies barely refer to the fall in rents in their annual reports. He said, "The leases signed by many companies, especially in the high-tech sector, in the post-Covid period, were signed for periods of five years or more. Therefore, the property owners still continue to receive higher rents than the average shown in the report. However, this segment of the sublease, which has grown a lot in the last year, is actually the one that dictates the downward trend, even though the owners of the properties themselves receive higher rents."

The leases signed between tenants and landlords have shortened from an average of five years to only three years, which indicates a desire to focus on the present and not commit too far into the future. When it comes to subleases, this means that the leasing company signs shorter contracts until the expiration of its contract with the property owner, so it can re-examine its future, the areas in which it wants to rent and the rent it wants to pay.

However, when it comes to leases with the property owners, it seems tenants prefer to sign short-term leases, for smaller areas than before, in order to be flexible in the current atmosphere of uncertainty that prevails in Israel.

Estimates that the air has come out of the previously inflated Tel Aviv market is reinforced by contrary trends in income producing real estate markets outside of Tel Aviv. These have maintained relative stability over the past year, with moderate increases. Also in 2021-2022, when rents in Tel Aviv soared, rents in surrounding areas like Herzliya Pituach, Modi'in, Petah Tikva, Ra'anana, Netanya, Rehovot, Ness Ziona, the Kfar Saba-Ra'anana-Hod Hasharon area, Rosh Ha'ayin and Bnei Brak only rose moderately. In the Haifa area, a significant price increase is noticeable in the Matam high-tech park, which is probably due to the construction of new buildings, including by Apple. Rents have also risen in Jerusalem's Har Hotzvim.

Published by Globes, Israel business news - - on September 6, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Tel Aviv credit: Shutterstock
Tel Aviv credit: Shutterstock
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