Something good is happening to the office market. Despite the gloomy forecasts about the future of income-producing real estate in light of the crisis in the high-tech industry, this could actually be a sign of positive growth in the field. One of the manifestations of this is that we are now seeing a correction to the dramatic price increases in the post-COVID period, which were largely due to the growing high-tech bubble.
A new study by the Chemansky Ben-Shahar Institute examines the changes in the office market, and gives a particularly optimistic forecast about the future of the industry.
From the Chemansky Ben-Shahar study,
Rising interest rates and rising prices of money, which directly affect the financing market, have created a slowdown in the office market. However, it seems that the main casualty of this move is not the yielding market.
"The residential market is the main casualty because the most significant demand generator is the cost of the apartment to the buyer, in addition to the natural growth, which is rigid," explains Shai Dolev, senior consultant at Chemansky Ben-Shahar & Co. "In contrast, income-producing real estate markets are directly affected by the demand for the service they provide to customers. The office market has changed due to the change that Israel's economy has undergone from a production-oriented economy to a service economy, and in particular the growth of the high-tech sub-market has created a market that operates differently."
ORIGIN Photo: ( Simulation ) Create architects and city dwellers,
From a burning crisis to a bright future?
"Israeli high-tech, known as the economy's 'growth engine,' has grown in recent years at a significantly higher rate than the rest of the economy and has pulled up the entire Israeli economy," Dolev explains. "Part of the growth, as in the rest of the world, was due to the influx of capital due to the lack of relevant alternative investment alternatives. Companies raised capital at high volumes due to high demand, and not as a result of performance or a real need for capital. As a result, capital that did not directly contribute to production was used.
"Beyond the direct salaries of high-tech workers, employers' capital flows mainly into the office market, whether directly to rent offices in very large areas, including leisure areas, in order to create incentives and 'luxuries' for employees, or indirectly because a large part of the tangential industries that benefited from the growth of high-tech in Israel – lawyers, accountants, economists and marketers – were themselves significant consumers of offices."
However, Dolev points to a very disturbing result of the bubble swelling and record demand for office real estate. "Capital has generated substantial but partly substantial growth, which has led to high demand for office space, albeit unrealistic. Such demand, also known as a 'bubble,' is a dangerous phenomenon, a loss of connection between real demand and the actual market, which has already triggered major economic crises in the past."
And how does the high-tech crisis affect the office market?
On this front, Dolev expresses optimism. "It is precisely the crisis that the market is experiencing today that can constitute a 'correction' and return the market to its real values, which will enable continued consistent and stable growth in the future, in Israel in general and in adapted locations in particular. In the long run, it seems, the crisis will benefit the market, income-producing real estate companies and renters, and create a stronger, more efficient balanced market."
Does the strong survive?
In recent years, many projects have been promoted for offices throughout the country. Almost every medium-sized or larger urban renewal project includes at least 1,000 to 2,000 square meters of office space. The scope of the areas being promoted, and in particular the existing planning supply, is necessarily higher than the existing real demand and is expected to be added in the coming years. In light of the abundance created in the market, those who enjoy distinct advantages over others will survive in the competition, first and foremost in location and accessibility, with proximity to mass transit systems being a significant factor. At the same time, the offices will be examined through additional binoculars of the uniqueness of the complex, which creates added value for the office residents, and mixes or concepts that can create a whole that exceeds the sum of its parts.
According to Chemansky Ben-Shahar's research, the most sought-after location in Israel is the "scooter space" along the Ayalon route in Tel Aviv, which also enjoys high accessibility to the "heavy" train, and in the future also to the light rail. The study notes how the protest against the legal reform substantially illustrates the relocation of the municipal business center from the Rothschild area, the historic city center and the scene of the 2011 tent protests, to Kaplan and Azrieli Junction. Continued development on the east bank of Ayalon along Yigal Alon Street, and improved connectivity above the road, are also expected to strengthen the trend toward a major national business center.
Today, 15 to 20 towers with a total area of 800,900-91,47 square meters are being promoted along Ayalon, in the central section between Peace Road and Arlozorov Street. If the density of high-rise construction on Azrieli's side is not enough, with the new 40-story spiral tower, only in recent weeks seven more towers have been added to be advanced for construction on Tel Aviv's Yigal Alon route. The Tel Aviv Local Committee gave final approval to a real estate building company's project, which includes three 65-story towers, and rejected an appeal filed against the Wertheim family's Tara Compound plan, which includes four towers of <> to <> floors, opposite Azrieli Towers.
Dolev notes in his research that in the past five years, construction has begun throughout the country at an average of about one million square meters per year, compared with an average completion of only about 600,<> square meters. In the past two years, there has been a very large jump in building starts compared to previous years. A similar phenomenon was previously observed in the early <>s.
The nearby complexes also benefit from their accessible location. The stock exchange complex, for example, is transforming from an office and small industrial area into a mixed-use complex in very large areas, which also includes residential apartments of various types, from micro units to large apartments. The old buildings will be upgraded or demolished, and modern and attractive buildings will be erected in their place.
Project CORE Photo : (Simulation) Architects Yaski Mor Sivan,
A significant example of the change in perception can be found in the future plans for the Ramat Gan Stock Exchange complex. According to the Reg 1800 master plan, which was approved about a year ago and in accordance with a declaration by the Ramat Gan Municipality, the TASE is intended to become an entire area that will maintain a mix of uses in practice, with the plans – expanding and increasing building rights, with the aim of becoming a quality complex that includes residential, leisure and cultural alongside employment, commerce, hotels, student dormitories and wide public areas.
Dan Real Estate, the real estate arm of the Dan Transportation Group, is currently promoting a huge mixed-use project that will include 75 floors of employment and commerce in the heart of the stock exchange and an investment of NIS 1.5 billion over an area of over 5 dunams with about 150,000 square meters of office and commercial space.
and Lore Byron Photography : (Simulation) Central Point Architect Yashar Architects,
The flagship project of Valor Byron Real Estate is the renewal of the Ramat Gan Stock Exchange complex.
The said renewal is expected to include 12 new and modern projects spread over 45 dunams. The planned towers are 100-60 stories high, including commercial space, offices and employment, employment-supporting residences, public areas, hotels, leisure, recreation and open spaces. The plans are currently in the process of approval by planning institutions, with the expectation that the projects will begin the construction process in about three years. The projected investment in the project is NIS 12 billion.
David Kaplan, CEO of Valor Byron: "Instead of 'wasting land' and building new complexes in other parts of the city, when the old complexes are abandoned and stand like 'white elephants' without efficient use for the city and property owners, we believe that the old industrial complexes in Israel should be renewed into modern complexes."
Another sought-after complex is the "City" complex in Givatayim, which currently includes a single residential and commercial building, the Tower of Dawn. Nearby, Tidhar and Union's Beyond project is being built, using a mixed-use model: two towers of 50 and 70 floors with an area of 300,120 square meters, of which <>,<> square meters are designated for offices for rent, alongside hundreds of rental housing units.
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