Empty office/ShutterStock
Despite the war: the office market in the south is the only one that shows a slight increase in rental prices of 2.33% on average in 2023. In contrast, the office market in Tel Aviv shows a downward price correction, with an average price decrease of 3.6% in the second half of 2023. However, this is a moderate decrease More than in the first half of the year, when an average decrease of 7.94% was recorded.
This is according to a report published today (Wednesday) by the NEWMARK NATAM company, which provides diverse real estate services to the business sector, and presents the yielding real estate market data for the second half of 2023.
Furthermore, the report shows that the industry that shows the highest resistance to the effects of war, inflation And the interest is the logistics and industrial sector, the demand for which is only increasing, and the prices are rising accordingly.
The cooling in high-tech continues also in the second half of 2023
Also, the main assessment of the NTM company is that the prominent trend of the cooling in high-tech continues in the second half as well. If in the past what characterized the industry was demands for large office spaces beyond the real needs of the companies, today according to the report the demands of the technology companies for the spaces have greatly decreased Very large. Because of this, we continue to see the downward correction of prices in the second half of 2023, especially in Tel Aviv, where prices stand at an average of NIS 125.6 per square meter.
Bentham notes that "after the war froze the office and real estate market in general, it returned to activity starting at the end of December, but the deals are mainly deals on medium-sized areas and for shorter periods than before. You can usually find more expensive deals and longer contracts near the railway line, The light rail or in prime location areas in Tel Aviv, where the demand is still very high compared to the supply."
Another trend that affects the offices and will continue to have an effect in the next semester is the activity of the red line of the light rail.
The line starts in Petah Tikva, passes near prominent employment areas in the city, continues towards Bnei Brak near the BBC complex, reaches the main employment area of Ramat Gan (the Stock Exchange) and continues into some of the employment areas in Tel Aviv.
This proximity is essential for the arrival of manpower to the offices in the area, and in recent months the effect of this transportation anchor on the offices near the axis is evident."
The cooling in high-tech continues in the second half of 2023/ShutterStock
Or Ben Zvi Klein, VP of real estate services at the NEWMARK NATAM group: "It can be seen that the fighting in Gaza, which began in October, joins the trends that have already characterized the first half and the beginning of the second half of 2023, of high inflation and the high-tech crisis, and this has weighed even more heavily on the market at the current median. Because of this, we are seeing downward price corrections in many employment areas. The decrease in investments in Israeli technology companies causes them to be more focused and calculated both in hiring manpower and in renting work space."
"In addition, due to the changes, on the other hand, the sublease market for office space continued to develop and strengthen, mainly in central Tel Aviv. Another positive effect that stands out in the second half of 2023 is the effect of the activity of the Red Line, which has been working for an extended period in order to have an impact on the office market. The Red Line of the light rail began operating in August 2023. Offices along the route are expected to enjoy preference from tenants, and already demand from tenants for offices close to the light rail route is felt, especially along the Jabotinsky axis in Petah Tikva, Bnei Brak and the stock exchange in Ramat Gan."
Office prices in Tel Aviv are returning to the pre-corona period
The price situation for renting offices in Tel Aviv continues the trend of returning to the average price range that existed before the outbreak of the Corona epidemic, when at the end of 2021 the average rental prices in Tel Aviv stood at about NIS 120 per square meter. In the second half of 2022, prices in the city soared due to the growth of high-tech and the significant shortage of vacant spaces to more than NIS 140 per square meter on average, while now at the end of the second half of 2023 the price is approaching the level of the end of 2021 and today stands at almost NIS 126 per square meter of rent on average.
For example, Yigal Alon Road which recorded record prices at the end of the second half of 2022 and stood at Average rents of NIS 178.3 per square meter are now registering a downward correction to a price level of NIS 138.3 per square meter - a decrease of NIS 40 per square meter per year.
In Menachem Begin, where prices stood at NIS 159.69 per square meter in the second half of 2022, they have now dropped to NIS 145 per square meter in the second half of 2023. The
City complex also suffered a blow in the current half following the departure of significant areas by Discount Bank and Bank Leumi We vacated over 10,000 square meters. This caused a 15% drop in occupancy in the complex today and a price drop of NIS 8 per square meter.
Between the medians and in front of the second median of 2022, this is a decrease of NIS 18 per square meter from NIS 169 per square meter at the end of 2022 to NIS 151 per square meter at the end of the second median of 2023 - a decrease of almost 12%.
The Stock Exchange area in Ramat Gan with Madinah Square, Yarkon Park and the city of Tel Aviv in the background/ShutterStock
It can be seen that the stock market area in Ramat Gan was almost unaffected and the drop in prices there was minimal: less than half a shekel per square meter between the first half of 2023 and the second. which greatly strengthened the demand in the region.
BenTM notes that "the office market in Tel Aviv is experiencing a decrease in rental prices and occupancy rates due to the impact of the economic situation. The corrections in rents are affected by the political instability in Israel over the past year, due to the global macro crisis in the high-tech industry and in addition to the war that began in October 7".
What is happening outside of Tel Aviv?
Herzliya Pituach continues to be a stable employment area, population trends in Jerusalem are increasing and the price is stable, and price increases were recorded in the south.
According to the Natam report, the effect on prices is more minor in the employment areas outside of Tel Aviv.
The development and renewal of many employment areas such as Ra'anana, Hod Hasharon, Haifa, Petah Tikva and Bnei Brak contribute to the demand in the area and you can see a trend of high-tech companies and other companies that want to stay in the employment area where they bring the workforce, but move to newer buildings or employment complexes.
Even in areas outside of Tel Aviv, such as Petah Tikva and Bnei Brak, the effect of the continued activity of the red line of the light rail connecting them with Tel Aviv can be seen.
According to the report, in the second half of 2023, areas in the second circle of Tel Aviv maintained stability with a minor decrease of half a percent on average in rental prices per square meter.
Herzliya Pituach also continues the trend of stabilizing without change at a high price of NIS 103.5 per square meter.
North Ra'anana Junction Route 4/Reuven Castro
In Jerusalem, according to the NTM report, the employment market continues to strengthen with an increase of 0.53% in the average population trends in the city. Here too, on the other hand, there has been an average drop in prices, but it is also minimal and stands at 0.7% on average
according to the NTM forecast, in the Kfar Saba area, Ra'anana South - Hod Hasharon, new projects are currently being built with a total area of thousands of square meters, with relatively high occupancy rates. This can be seen, among other things, in Ra'anana, where one of the main projects built there in recent years - the Infinity Park project of Reit 1 and S.A. N. Zahav, which includes the tallest tower in the Sharon area with over 30 floors, the campus building and the plaza.
Bentham noted: "The entry of new projects into the market during the year 2024 is expected to affect the occupancy rates and the requested rents in these areas."
As mentioned, the surprising region in the report is precisely the southern region which recorded an increase in rent prices for offices of approximately 2.33%;
The industry is booming
The field of industry and logistics, as well as commerce, shows durability and stability even in this period.
According to the NTM report, the industrial market maintained stability in 2023, despite the financial and security shocks.
In recent years, the demand for storage space has been fueled by the trend of consistent growth in internet commerce, which has been accelerated by the corona virus.
Certain branches even experienced significant growth during this period, especially in the food fields - retail, distribution, medical products and pharmaceuticals.
The increase in demand in these industries requires storage and distribution areas in ever-increasing volumes.
Another factor that affects the demand for industrial and logistics areas stems from the demand for residential and office areas in the center of the country, as well as from the increase in construction percentages provided by the authorities in these areas.
As a result, there was a trend of factories and storage areas moving from the center of the country to the periphery, in favor of residential and office towers that take the place of the factories and storage areas in the center.
As a result of these reasons and because the logistics field consumes a high component of land compared to other fields, in recent years we have experienced increases of tens of percent in the prices of land and buildings for industry and logistics.
As we know, the increase in the value of the land requires maximum utilization of the building rights, in order for the investment in the construction of a logistics structure to be economical.
Therefore, most of the projects being built today promote the construction of a tall building (up to 42 meters), or the construction of a logistic building on floors with ramps for easy access for trucks.
At the same time, projects are being built that offer for sale small industrial areas (200-500 square meters) - and offer an excellent solution for small customers near the city centers.
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