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Tel Aviv office rents widen gap

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The Tel Aviv office market has not only recovered from the Covid-19 epidemic; reached the peak. A CBRE Israel market survey shows that between the second and third quarters of this year, the average rent for offices in Tel Aviv jumped by 7%, to NIS 108 per square meter. This represents an increase of 13% year-on-year, something that has not been known in recent years. The decline in rents for commercial space has stopped, but the question of whether this sector is on the road to recovery has not yet been fully answered.

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

At this point it should be mentioned that there are a number of methods for calculating rents that take into account the level of finish of the offices, parking and adjacent areas. CBRE conducts the surveys on the basis of a shell structure, i.e. exposed offices, with no partitions, fittings or installations.

Widening gap

Tel Aviv has opened a wide gap, not only with cities like Haifa and Jerusalem, where office rents are around NIS 65 per square meter, but also with its neighboring cities. Ramat Gan and Herzliya are the two cities closest to Tel Aviv, not only geographically, but Also in terms of rent, but Tel Aviv widened the gap between them considerably. Last year rents in Tel Aviv were about 23% higher than in Ramat Gan and Herzliya. The gap now stands at about 30%, rents in the last two cities have risen less. Steeper than in Tel Aviv. In Herzliya, office rents reached NIS 83 per square meter in the third quarter of the year, 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, so while their city ratings look similar, they present different data regarding average rents.

The outstanding Petah Tikva

The story in Petah Tikva is completely different. Although rents there remained stable in the third quarter compared to the second quarter, they fell by 4% to NIS 53 per square meter compared to a year ago. In both places and make it very difficult to maintain rental levels as they were.

Yaron Shachar, who heads the investment and research department at CBRE, says that only in Petah Tikva has there been such a significant decrease from year to year in rents for office space, while in the rest of Israel the rents have been stable. Shahar also notes that the rate of construction starts has returned to the level it was in the past and even exceeds this level, and amounted to about 533,000 square meters in the first half of the year. The trend strengthened in the second quarter, when construction began at 291,000 square meters. This is compared to 116,000 square meters in the corresponding quarter of 2020.

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

No recovery in commercial space

In the commercial sector the situation is different. Rents were stable in the third quarter, but in most places they did not return to levels seen before the Covid-19 epidemic.

This is especially noticeable in Tel Aviv, where rents for commercial areas were NIS 164 per square meter in the third quarter, a decrease of 4% compared to the third quarter of 2020. In Herzliya, rents for commercial areas fell by 7% to NIS 132 per square meter. At that time, while in Ramat Gan they fell by 2% to NIS 122 per square meter. There were also falls in Netanya and Rehovot from year to year.

A partial explanation for the declines, according to Shahar, is that consumer product prices fell by 2.9% between January and the end of the third quarter. Prices of food, toiletries and household goods 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 by Globes Publisher Itonut (1983) Ltd., 2021.

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