As traffic jams in and on the way to central Tel Aviv get worse, in spite of, or because of, the carpool lanes leading to the city, accessible locations in business centers in the greater Tel Aviv area are becoming important to many people, including owners of properties rented out for business purposes. The new reduced parking standards are aggravating the problem, while the state is providing no major improvements in public transportation to ease the situation.
"This situation, in which people are spending two to two and a half hours traveling to work, will not continue indefinitely. We are already seeing signs of changes in this market," says Tamir Ben Shahar, co-owner of the Czamanski & Ben Shahar consultancy. Boris Danilevich, a consultant at the firm, recently conducted a survey to examine the future of the office market in the Tel Aviv region, and concluded that changes are slowly taking place in the kinds of offices that are being built.
At first glance, no change is occurring. Metropolitan Tel Aviv leads in the supply of office space; 60% of all offices under construction in Israel are in the central region. Many companies, however, have already announced that they are moving their offices out of Tel Aviv, and some of them have already begun doing so. Bank Leumi has begun the process of moving to Lod, Israel Discount Bank will move to Rishon Lezion, and the Bezeq group will move to Holon. The state also wants to cut costs. The Israeli Public Broadcasting Corporation (IPBC - Kan) broadcasts from Modi'in, and the District Labor Tribunal is moving from Tel Aviv to Bat Yam.
Seven of the 10 leading cities in amount of office space are in the central region. Cities added to the list in recent years have included Holon, where Azrieli Group is building a large offices park; Ra'anana with the Kiryat Etgarim technology park, and Bnei Brak with the BBC complex.
Office space for technology companies, which is the fastest growing part of the market, is focused in several locations in metropolitan Tel Aviv: Herzliya Pituah; Kiryat Etgarim; the Azrieli Towers in central Tel Aviv; and the Tamar Science Park in Rehovot and the Kiryat Weizmann Science Park in Ness Ziona in the southern part of the central conurbation.
There are have been recent signs that technology activity is also beginning in the Azrieli Park in Holon. Up until recently, most of the companies that moved there were those in need of large spaces and that wanted to cut costs, such as Amidar, Cross Israel Highways, and computer services company Taldor.
Further north is Netanya, but the new industrial zone there has not become a real center. Ben Shahar explains that it is a little too distant, with boring street facades, and is unable to compete with Herzliya Pituah and Ramat Hahayal, for example.
Backbone along the Ayalon Highway
Do these changes signal a new trend? Czamanski & Ben Shahar believes that they do, and that the main motive for the change is transportation problems on the way to Tel Aviv and housing prices. "People choose where to live according to proximity to workplaces and the quality of education. We have recently been seeing family breadwinners living outside of Tel Aviv who have to spend three to four hours a day on the roads to and from work. In this situation, they will no longer look for employment in Tel Aviv. The time wasted does not come at the expense of work, but at the expense of time with family and children," Ben Shahar points out.
The result is that people living south of Tel Aviv are looking for jobs in the southern part of the central region: Holon, Rishon Lezion, and Rehovot. People living north of Tel Aviv are looking for employment in Herzliya Pituah, Ra'anana, and Kfar Saba.
At the same time, the factors affecting companies' decisions about where to locate their offices are also changing. Here, too, prices and traffic jams play an important role. A report by Natam Asset Management shows that rent per square meter in a class A office tower in Tel Aviv averages NIS 110 (NIS 130 in the vicinity of Rothschild Boulevard), compared with NIS 94 in Herzliya Pituah and NIS 60-75 in other cities in the central region (Holon, Ness Ziona, Modi'in, Rehovot, Ra'anana, Petah Tikva, Kfar Saba, Hod Hasharon, and Bnei Brak). When the cost of parking in buildings' parking lots and management fees are added, the difference in prices becomes even wider.
Companies will not pay so much for offices when reaching them is so difficult and customers complain that the location is inaccessible, unless they have special reasons for doing so. The result is that companies that do not have to be in Tel Aviv do not remain there.
Tel Aviv does not suffer from a lack of demand. On the contrary; occupancy rates in offices towers in the city are very close to 100%. The type of businesses located there, however, is changing. Ben Shahar says that many companies in Tel Aviv are technology companies employing young people who want to live in Tel Aviv and firms whose branding requires them to be present in the city - large law and accounting firms, for example.
"The banks have made the calculations, and they are leaving. I predict that more businesses will leave," Ben Shahar concludes.
Where will they go? What places will prosper in the coming years? The answer is simple: places near interchanges and railway stations and along the Ayalon Highway; despite the traffic jams, the railway stations located all along the highway will become a backbone stretching from Rishon Lezion in the south to the Glilot Interchange in the north.
"The central point in Israel is, and will continue to be, Azrieli. The companies there can afford to, and must, pay high prices in order to be at the focal point," Ben Shahar says. "Given the transportation problem and the locations preferred by firms, we are also seeing demand being diverted from the middle to the margins of the central region: Glilot Interchange and Kesem Interchange connecting Road 6 and Road 5, because it will also be connected to the railway system. The greater the distance from the intersection and the railway station, the lower the demand," Ben Shahar says.
Published by Globes, Israel business news - en.globes.co.il - on November 11, 2019
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