Tech slowdown spooks Israel’s office market

The wave of layoffs in Israel’s tech industry and the slowdown in closing financing rounds is influencing the companies themselves and the market in general, in terms of office real estate.

“Demand for offices and the number of enquiries we are receiving has fallen significantly,” says Osher Ossi, the owner of Synergia Real Estate Marketing and Consultancy, a realtor specializing in offices in the Ramat Gan Diamond Exchange district. “Medium-sized companies are in no hurry to move offices and are in no hurry to sign new agreements, and small companies, which need between 100 and 200 square meters, are scared to take such a step at the moment.”

Another real estate figure who preferred to remain anonymous testified to a certain “sense of panic,” which stems, according to him, mainly from psychological matters. “A lot of money has been thrown at dream companies, on presentations, on the concept, and there are many companies that have evaporated,” he says. “There are companies that have a product, value, service, and that need to grow and to survive, and there will continue to be those, but the panic that exists in the market is causing everyone to stop and sit on the fence regarding new real estate deals.”

99% occupancy in office towers in Gush Dan

On the other hand, it seems that things really aren’t deteriorating just yet. For example, sublets – one of the clear signs of a slowdown in demand for offices – still isn’t happening in large numbers. According to Ossi there are zero sublets both in the offices that he leases and in those that his colleagues leases. “We still don’t yet see empty offices and there is no real slowdown among the large companies. In the new towers in Gush Dan there isn’t really any free space and somebody seeking office space of more than 300 square meters won’t find anywhere available there. We are talking about peak demand and 99% occupancy.”

Natalie Marshall, the owner of Marshall Strategic Real Estate Marketing, which specializes in income producing real estate adds, “No deal has collapsed so far and that’s the best indication of the situation in the market. The slowdown is also related to the fact that we are entering months when people work less in Israel and after the holidays (in late October) we will see a return to regular activities. The big companies have no problems.”

Hundreds of thousands of square meters will be built in and near Tel Aviv

Concern about the slowdown in demand for office space from the tech sector is not only about the current situation but also future prospects with hundreds of thousands of square meters of office space under construction in Tel Aviv alone – most of the space designed for tech companies.

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For example: the Landmark project in Tel Aviv will offer 140,000 square meters of office space; Azrieli’s spiral tower will offer 62,200 square meters of office space, equal to the entire three existing adjacent Azrieli Towers; the Exchange Tower in Ramat Gan will offer 60,000 square meters of office space; ToHa Tower 2 will offer 170,000 square meters of space, of which 143,000 square meters will be for offices.

In addition to these projects there is the Wix Campus in Pi Glilot (North Tel Aviv), which will offer 50,000 square meters of office space, the Eleph Complex in Rishon Lezion with 1.75 million square meters of office and commercial space, BSR City Towers in Petah Tikva, which will offer 160,000 square meters of office space, and in Jerusalem the Gav Yam Park by the Hebrew University’s Givat Ram campus, which will offer another 270,000 square meters of office space.

But Marshall is not concerned, “All these towers – Landmark, the Spiral, ToHa 2 and more are planned to be occupied only in the coming years between 2024 and 2027. The market has up to five years to fill them and I believe that that will happen. It’s important to remember that there is natural growth in the market and that the light rail will also begin to run in Tel Aviv. So I don’t think that there is any room for concern from this point of view. In 2016, we received another 500-600 square meters in one go in Tel Aviv when ToHa 1, Midtown, the Alon Towers, Azrieli Sarona and others all received their occupancy permits at almost the same time – and still everything was occupied within just 18 months.”

Published by Globes, Israel business news – en.globes.co.il – on July 7, 2022.

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