Tel Aviv office space faces tough competition from suburbs

Vimeo office building Photo: Yossi Cohen

Tech companies tell "Globes" they prefer leasing offices outside of Tel Aviv, not only to save money but also for other advantages.

Despite the vast construction of office space in central Tel Aviv, demand and prices are so high, as Israeli companies raise unprecedented amounts of money that many tech companies prefer to rent in the suburbs of the Tel Aviv metropolitan region.

Mivne Real Estate (TASE: MVNE) CEO David Zvida said, "There are no available square meters at the moment in Tel Aviv and Herzliya Pituah but there is growing demand in the outer suburbs of Tel Aviv from well-established companies but les from early stage startups. These are companies with hundreds of thousands of employees and that's the big difference. They lease entire buildings and provide the whole experience inside the building. They rely less on the services that the city offers."

Zvida says that the considerations in choosing offices are the ease with which senior employees can get to work and how the building looks. "In central Tel Aviv you can reach prices of NIS 100 per square meter (without finish, fixtures and furnishings) compared with NIS 48-55 per square meter outside of Tel Aviv.

Sela Real Estate CEO Gadi Elikam also sees a difference between companies leasing outside of Tel Aviv. "I hear what's happening around things and I think that prices are exceptional at the moment. Even those who constructed the buildings never dreamed that they would receive numbers like NIS 170 per square meter (for an office with a basic design). It's new for our region and its happening of course in a bubble and doesn't go beyond that.

"The immediate periphery is behaving a little differently. It is characterized by longer established companies with Israeli management who are less sensitive about hiring programmers who will come to work on their electric scooters or bikes from their rented apartments in central Tel Aviv. They are building more on older employees with families who don't live in central Tel Aviv. In the suburbs they pay no more than NIS 70 per square meter for a quality work environment but price is not always the reason for being outside of Tel Aviv.

Percepto: Einav Park, entrance to Modi'in

"It's shorter to travel to Modi'in than to Ramat Hahayal and more convenient from Road 6 and by train from Tel Aviv"

Percepto develops autonomous drones for use by industry and founded in 2014 has 120 employees. Percepto CEO Dor Abuhasira said, "We started out in Tel Aviv on Rothschild Boulevard. It's hard to imagine what it's like to develop a drone system in Rothschild. Every time we needed to check the system we traveled to the Exhibition Grounds. It wasn't an ideal environment. When we examined how to work in a more efficient way we decided to leave Tel Aviv."

"I come from Moshav Lachish (in the south). When we were in Tel Aviv, I would come to Haganah Station and take a bus from there. When we looked for somewhere outside of Tel Aviv, we didn't want it to be too far from the center and so we found Park Einav at the entrance to Modi'in. It's shorter to travel to Modi'in than to Ramat Hahayal and more convenient from Road 6 and by train from Tel Aviv."

Percepto has leased offices in an area designed for garages and industry and enlarged its work space as it hired more employees. They started with 200 square meters and now have 800 square meters.

"Two months ago we moved to a work space in Fattal Group's Rooms, a product similar to WeWork. The building is in the Duna Building above the railway station."

Vimeo: Ness Ziona industrial Zone

"Most of the building is ours and we have room to grow

Vimeo Israel SVP Operations Tal Dagan said, "Magisto developed an application for automatic and simple editing of home videos that were filmed on a smartphone. The company was acquired two years ago by international company Vimeo, which is a platform serving hundreds of millions of people sharing and producing videos. We are Vimeo's biggest center outside of the US and we have 130 employees. We have doubled our work force over the past two years.

"Both of the company's founders live in the Rehovot region and I think that like many small startups in their early stages, the office location is somewhere easy to get to. Not in a high-tech district but near a mall and we have a small, old building that we have been in already for 10 years. Every year we expanded and upgraded the office to the most comfortable that there is. Most of the 2,000 square meter building is ours and we have room to grow. The building's owner is our friend. It's different from being in a 40-floor building with thousands of people. It's like the difference between a house and an apartment building. So from the outside it doesn't look like high-tech but when people come inside they usually say wow, I can't believe it.

He adds, "We aren't here in Ness Ziona to save money but out of choice. We love the place and it fits the character of the company. About 50% of our employees live outside of Tel Aviv and it’s a fantastic location for them. There are no traffic jams and no problem with parking.

Dagan declines to say how much rent Vimeo is paying but says that it is a lot less than in Tel Aviv. "There is no large maintenance for the building, no guard at the entrance, no payment for parking. When you put all that together you get to about one third of what you'd be paying in Tel Aviv."

GenCell, Kiryat Arie, Petah Tikva

Our approach is special because we are talking about chemistry and special approvals

Yossi Salomon is CFO of GenCell, which develops, manufactures and markets green energy solutions. He says the company is currently undergoing rapid growth. "In November we held our IPO and raised $60 million and in April there was a secondary offering and we raised $14.5 million and then we announced an expansion plan and hired R&D and production staff. We have already grown 40% and I believe we will double in size and reach 130 employees by the end of the year.

"We are located in the Kiryat Arie industrial zone in Petah Tikva. Until recently we had 3,000 square meters including 500 square meters of offices and 2,500 square meters for production and we have no added 750 square meters for offices and 750 square meters for production."

Salomon says that the choice of Petah Tikva was easy. "WE are a high-tech company but also an industrial company. Our approach is very special because we are a company involved in chemistry and no small amount of materials that require special approvals. The building we are in formerly housed Kodak and so all the approvals needed had been granted and our integration was easy."

Salomon says that over half the company's employees have been with GenCell since it was founded and many of them don't come from Petah Tikva. "The candidates for new jobs have no problem with Petah Tikva and we see a very major response for new employees. We thought about moving to Holon, Modi'in or Kfar Saba but decided to stay. Part of it was concern that we would lose employees. We might have paid less but because we are an industrial company, we wouldn't really have gained by it."

Published by Globes, Israel business news - en.globes.co.il - on August 23, 2021

Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Vimeo office building Photo: Yossi Cohen
Vimeo office building Photo: Yossi Cohen
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