Tel Aviv office rents widen gap

Tel Aviv offices  credit: Shutterstock

As rents in Tel Aviv rise at an almost unprecedented rate, neighboring Ramat Gan and Herzliya are behind the pace.

The Tel Aviv office market has not just recovered from the Covid-19 pandemic; it has reached a peak. A market survey by CBRE Israel shows that, between the second and third quarters of this year, the average office rent in Tel Aviv jumped by 7%, to NIS 108 per square meter. This represents a year-on-year rise of 13%, something unknown in recent years. Meanwhile, the decline in rents for commercial space has halted, but the question whether this sector is on the way to rehabilitation is not yet completely answered.

The situation in the office market is unique. Between the second and fourth quarters of 2020, office rents fell by 8%, but since the first quarter of this year, rents have risen steeply.

At this point it should be mentioned that there are several methods of calculating rents that take into account the standard of finish of the offices, parking, and adjacent areas. CBRE carries out its surveys on the basis of a shell building, that is, bare offices, with no partitions, fittings or installations.

Widening gap

Tel Aviv has opened up a wide gap, not just versus cities like Haifa and Jerusalem, where office rents are around NIS 65 per square meter, but also versus its neighboring cities. Ramat Gan and Herzliya are the two cities closest to Tel Aviv, not just geographically, but also in terms of rents, but Tel Aviv has widened the gap between it and them considerably. Last year, rents in Tel Aviv were about 23% higher than in Ramat Gan and Herzliya. The gap is now about 30%, rents in the latter two cities having risen less steeply than in Tel Aviv. In Herzliya, office rents in the third quarter of this year reached NIS 83 per square meter, while in Ramat Gan they reached NIS 82 per square meter.

Other companies, such as Natam Property Management, produce such surveys, but differ in their calculation methods, and so while their city rankings look similar, they present different figures for average rents.

Petah Tikva the exception

The story in Petah Tikva is entirely different. Rents there did remain stable in the third quarter in comparison with the second quarter, but year-on-year they fell 4% to NIS 53 per square meter. Real estate market sources say that in Petah Tikva and Bnei Brak a large amount of office space has been constructed in the past few years, flooding the market in both places and making it very hard to maintain rent levels as they were.

Yaron Shachar, who heads the investment and research department at CBRE, says that only in Petah Tikva was there such a substantial year-on-year fall in rents for office space, while in other areas of Israel rents were stable. Shachar also points out that the rate of building starts has returned to what it was previously and is even exceeding that level, amounting to some 533,000 square meters in the first half of this year. The trend strengthened in the second quarter, when construction of 291,000 square meters was started. This compares with 116,000 square meters in the corresponding quarter of 2020.

About 50% of the building starts are in Rishon LeZion, Petah Tikva, and Jerusalem (18%, 17%, and 15% respectively).

No recovery in commercial space

In the commercial segment the situation is different. Rents were stable in the third quarter, but in most places they have not returned to the levels seen before the Covid-19 pandemic.

This is particularly noticeable in Tel Aviv, where rents for commercial space were NIS 164 per square meter in the third quarter, down 4% in comparison with the third quarter of 2020. In Herzliya, commercial rents fell 7% to NIS 132 per square meter in the same period, while in Ramat Gan they fell 2% to NIS 122 per square meter. There were year-on-year falls in Netanya and Rehovot as well.

A partial explanation of the declines, according to Shachar, is that prices of consumer goods fell by 2.9% between January and the end of the third quarter. Prices of food, toiletries, and home products fell by 10.9%, 8.9%, and 7.1% respectively.

Published by Globes, Israel business news - en.globes.co.il - on October 24, 2021.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2021.

Tel Aviv offices  credit: Shutterstock
Tel Aviv offices credit: Shutterstock
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