20/03/2024
Tens of thousands of square meters of space in office towers are empty, with 500,000 square meters more under construction, as rents plunge.
Until recently, companies waited in line to rent space in Tel Aviv and Ramat Gan's office towers. Today, entire floors in towers such as the Azrieli Center and along Yigal Alon Street are abandoned, and a "Globes" investigation found that there is almost no prestigious office tower in Tel Aviv where thousands of vacant square meters cannot be found. This contrasts with the situation two years ago, when occupancy rates reached 100%.
Research led by Geocartography's Dr. Rina Degani among office tenants found that 80,000 square meters of office space in Tel Aviv and Ramat Gan's towers remains empty. Former CEO of CBRE Israel Jacky Mukmel estimates that the real figure is at least five times higher. He said, "Between Netanya and Holon, I estimate that there is excess space being offered of 1.7 million square meters of which a quarter is in Tel Aviv's towers."
Office towers are an especially challenging real estate sector, which reflects the national economic situation, the global economic situation, and the tech situation. The office towers that are currently occupied were built by developers a decade ago, when demand was very high and supply was low.
At the end of the 1990s, Tel Aviv was hit by a wave of new towers, built following the economic boom of the first half of that decade. But by the time they were occupied, the world has entered the dot.com bubble crisis, which sharply reduced demand and forced developers to lower rents until the end of the first decade of the 2000s. Today the challenge facing the owners of these towers is the competition against much newer buildings.
A different type of challenge in this market in Israel is its lack of transparency, manipulations by developers and property owners including in the financial reports of public companies, including a culture of secrecy and a real difficulty in obtaining clear data. Unlike the housing sector, there is no objective body like the Central Bureau of Statistics that monitors its performance, with the exception of the IVS appraisers' forum, which manages returns calculations. But this is not enough to characterize, map and analyze the market.
A semi-competitive market
The study conducted by Geocartography focused on offices in Tel Aviv and Ramat Gan. It is clear from the study that the transition to working from home that began during the Covid pandemic has accelerated during the war. A survey conducted by "Globes" revealed that in the new and prestigious office towers in Tel Aviv and Ramat Gan, there is over 15% excess space, occupied offices are half empty give the feeling that they are in the process of being abandoned. They are closed some days of the week due to working from home, and the number of employees there is very small.
Read more here:
https://en.globes.co.il/en/article-tel-aviv-office-space-market-in-deep-crisis-1001469194
