Tel Aviv's commercial performance well below par

Tel Aviv seafront promenade Photo: Rudy Balasko Shutterstock
Tel Aviv seafront promenade Photo: Rudy Balasko Shutterstock

Tel Aviv may be the world’s most expensive city but commercial rents are a fraction of those paid in Paris, London, Vienna, Milan and Munich.

Tel Aviv is the world’s most expensive city and many of its streets perform at an economically high level compared with commercial centers and streets elsewhere in Israel. Even so, most of Tel Aviv’s streets are far from looking like, performing and providing what can be found in the main streets of leading cities in Europe. In Milan, Vienna, Rome and Munich, monthly rents of €500 per square meter and even more are paid and in Paris and London more than €1,000 per month, ten times the rents in Tel Aviv.

All the streets along Tel Aviv’s seafront are neglected and are not managed properly and are in a dilapidated state with very low economic performance. So what is the real picture when it comes to the commercial space being offered on the streets of Tel Aviv today and what is needed to change the picture for the future?

Dizengoff and Rothschild the most expensive

According to the data from economic consultants Czamanski & Ben Shahar, Israel has an average of 1.11 square meters of commercial space per resident. Of this amount 0.66 square meters per resident is on streets and just 0.45 square meters per resident in commercial centers. In Tel Aviv, there are 820,000 square meters of retail commercial space, of which only 295,000 square meters are in commercial centers, with the most significant of them serving the entire country and not based solely on the purchasing power of only the city’s residents.

Tel Aviv functions as the country’s economic capital and leads in the rankings of the total commercial space within in it including commercial centers. The proportion of commercial space per household in Tel Aviv is 4 square meters, in other words relatively low compared with other large cities and this demonstrates a relative shortage. Beersheva, Haifa and Kfar Saba lead in terms of commercial space per household with about 6 square meters and more. That is to say these are cities with a denser amount of commercial space in them.

In the wake of the Covid crisis, there was a fall in the rents being asked in Tel Aviv. But today monthly rents on main streets in Tel Aviv like Dizengoff and Ibn Gbriol have returned to pre-Covid levels, although on streets where the light rail is being built there has been a ‘collapse’ in prices. The highest monthly rents are paid on Dizengoff Street and Rothschild Boulevard - NIS 250-300 per square meter.

For the sake of comparison, monthly rents in the main commercial streets of London, the highest in Europe (according to Statista) are €2,000 per square meter, while in Paris and Milan, which are ranked second and third, monthly rents are €1,833 per square meter and €667 per square meter, respectively.

What you don’t see on Tel Aviv seafront

In contrast to the relatively successful streets in Tel Aviv - Dizengoff, Rothschild, Schenkin, Ibn Gbriol and the streets in Neve Tzedek - other streets in the city are not managed and maintained and function poorly. The "rectangle" region immediately inland from Tel Aviv’s seafront demonstrates how commercial space is not realizing the potential for its location. The "rectangle" seafront region extends from Tel Aviv Port in the north to the Manshia in the south and is bordered by Hayarkon Street in the east and the sea in the west. In this rectangular area, there is not major demand in the commercial market except for the highly successful Tel Aviv Port on its northern border.

A location next to the seafront could have generated demand from people coming to the beach and sea or stroll and sport on the promenade. In practice, most businesses are far from the seafront and are "on the way" for those walking to the beach.

The seafront promenade is the major route for foot-traffic but it is separated from businesses by Herbert Samuel Street, and the cycle path. Consequently, visitors don’t have access to businesses in the best possible way and tend not to cross the road to them. The numbers of visitors to the beach and the seafront promenade in particular do not fully impact the commercial businesses and offices along the street.

The amount of commercial space in this rectangular region is just 24,000 square meters, of which commercial chains have 3,500 square meters of space and capture a market sharee of just 14%. Retail commercial space (not including offices and leisure and events venues) are spread over 16,700 square meters of space (about 70%).

Restaurants and cafes occupy about 37% of the space, far higher than the national average of 12%, and in most instances are located in the part of the rectangle that is closest to the sea. The quality of positioning of most of the commercial space in most of the rectangle is poor except in a new area on the beach and a few stores.

The number of stores in the rectangle is significantly lower than in each of the large malls in the city, which each have 100-150 stores or more. This makes it a small magnet for people to come and stroll around. The section with the largest number of stores is in Hayarkon Street between Allenby Street and Ben Gurion Boulevard, where there are 78 stores.

The average price of commercial space purchased in recent years in the area is NIS 40,000 per square meter. In Ibn Gbriol Street, the average price in recent year has been NIS 54,000 per square meter and in Dizengoff Street NIS 40,000 per square meter, and in Ben Yehuda Street and Bograshov Street NIS 34,000 and NIS 35,000 respectively. But prices on these streets have now risen to NIS 50,000 per square meter.

The highest monthly rentals of NIS 292 per square meter are now paid on Dizengoff Street. This street acts as a kind of watershed with lower prices to both the east and the west. The average monthly rental paid in the seafront rectangle is NIS 128 per square meter and even lower for commercial property.

The bottom line is that the seafront area would have been expected to produce a higher performance. But higher performance is reduced and prevented by the absence of planning and appropriate links and management of the marketing space combined with the promenade being cut off from commercial areas on the far side of the street.

Moving to the street

On the demand side, city centers have the purchasing power of residents, workers, visitors and vacationers on a large scale. Everyone wants five things in one place - to live, to work, to study, to shop and to spend leisure time. The significance of this is that we spend more time on the streets.

In the near future it won’t be possible to bring a car into the city center and the distance between work and home, to stores and cafes and mass transit system will mean walking along the streets. In addition, it will be possible to create a shopping experience that cannot be produced within the enclosed ‘box’ of a mall.

In terms of supply, the Covid pandemic has created a radical change in city centers worldwide. Cars have been banished from the streets and instead cycle paths have been made, sidewalks and pedestrian precincts, tress have been planted and lawns laid and dining and café areas set up outside as well as play facilities and parking places. Food trucks and other new cultural and leisure activities have been brought in and all added together these have created new streets.

This way of enhancing and upgrading city centers, streets, markets and old cities can be applied in Israel in general and Tel Aviv in particular. For this the economic, planning and marketing side of things must be dealt with. In other words, city centers must be managed and marketed as a commercial center by a professional management company. In practice if Big Shopping Centers, Melisron or Azrieli were to manage the streets, there performance would be as high as the malls and shopping centers, which they manage.

Furthermore, it is worth putting more cultural, leisure and entertainment products on the streets and less fashion and ‘regular’ products - as an alternative to the commercial centers. Of course, the public space must also be nurtured. With proper urban and marketing planning, the street of the future might be ‘the next thing.’

The author is the CEO of economic consultants Czamanski & Ben Shahar Ltd.

Published by Globes, Israel business news - - on December 23, 2021.

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

Tel Aviv seafront promenade Photo: Rudy Balasko Shutterstock
Tel Aviv seafront promenade Photo: Rudy Balasko Shutterstock
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