If you are considering renting office space in Tel Aviv or Ramat Gan, it is important to be familiar with the different commercial office buildings available for rent. There is a clear distinction between the properties, which can be labeled as Class A, Class B and Class C buildings.
Class A buildings tend to be the nicest buildings with a very high level of internal construction, fancy lobbies and over 10,000 square meters of built space above the lobby level (usually 20 floors and more). These buildings usually boast an intricate air conditioning system, with several elevators and a maintenance company caring for the building. Class A buildings are usually close to public transportation and have parking for private vehicles. Examples include the Azrieli Towers and Electra Tower in Tel Aviv.
Class B buildings are usually older buildings with a less-finished level of construction than is found in Class A buildings. However the level of the internal finish is good and there is a maintenance company taking care of the building. Class B buildings are usually smaller than Class A buildings, but their locations very often make them good prospects for investors. Additionally, they can be upgraded to Class A buildings by renovations. Examples of Class B building include Migdal Shalom and Yachin House in Tel Aviv.
Class C buildings are the lowest level of office buildings. Generally located in less attractive areas, they are usually older buildings that have seen better days and were not constructed for the type of equipment necessary to run a Class A building.
This class distinction was set out in a Globes article published on April 8, 2012 which reported a study undertaken by Natam, a group of real estate consultants. The study shows that rental cost of Class A office space in Tel Aviv and Ramat Gan is 41% higher than in Class B buildings in the same area. The occupancy rate in Class B buildings tends to be higher than in Class A.
The long term fear of commercial real estate investors is that the construction of more office buildings will result in a glutton of office space for rent on the market. There is also the concern that the economic woes of Europe and the U.S. will affect the Israeli economy in the near future. In the short term, there is high nation-wide demand for large office space for high tech companies and if space is not available immediately, it is believed that these companies will move to areas adjacent to Tel Aviv.
Outside of Tel Aviv and Ramat Gan, in cities like Modi’in and Beit Shemesh the picture is very different. The shortage of office space in these areas makes the rent higher, even in Class B buildings, than it would be in Tel Aviv. As a result small businesses in these cities, including professionals such as lawyers and accountants, choose to work from offices set up in their houses, garages and storage units.