Too Many Office Buildings

high rise office buildingThe market has been flooded with new office buildings in the Tel Aviv and outlying areas. Many new buildings are under construction and many new ones have just  come on the market.  Many companies and businesses have discovered the tax advantage of buying their own offices.  They can get a large mortgage for this instead of pouring money into rent.  At the end of the day the property is theirs. The willingness of the public to buy has brought up the prices of these properties.  The gluttony of office space available for rent has brought down the rent that can be received for these properties.  This makes investing in commercial real estate in  Tel Aviv and cities close to it like Herzilya, Ramat Gan, Bnei Brak, Petach Tikvah, and Rechovot,  less attractive than it once was.

However this is not the case in what they call in Israel “the periphery”.  This means going a little further to places like Modiin and Beit Shemesh.  These cities, which boast populations of between 80,000 to 90,000 people, are considered bedroom communities where most people commute to work in one of the larger cites like Tel Aviv or Jerusalem.  However, this is a misconception that is detrimental to the development of those cities. True, many do commute to work from these cities but many small businesses exist in those cities as well.  These small businesses have little or no place to run their businesses, forcing many to work from their homes, in storage units or small stores. In Ramat Beit Shemesh it is not uncommon to see businesses conducted from their parking spaces that have been closed up and fitted out as offices and stores.  In Modiin, for example, options for office space in the center of the city are almost nonexistent.  There is one center with proper office buildings and that is in the shopping mall built by Azrielli in the center of the city and  adjacent to the train station. Besides this option, there are small strip malls around the city where a business may rent a store and turn it into an office. There is an industrial center at the outskirts of Modiin with office buildings, where many high tech companies rent, but this area cannot be reached by public transportation.  As a result, the rent that small businesses are forced to pay Azrielli for the offices in his complex are very high.  Should more office buildings be constructed in the center of the city the cost of purchasing an office will probably be very high and the rent will also be high. In Beit Shemesh there is a similar situation. There is one proper office building that is owned by BIG located near the train station and another in Ramat Beit Shemesh.  The rent in these buildings is high since they are the only office buildings in the city. As a result small businesses are forced to improvise in the manner described above. BIG’s office building in Beit Shemesh never managed to rent out all its office space and since 2006 hundreds of square meters of office space in this building sits empty.  Despite this fact, rent in this building has not come down.

Both the municipalities of Modiin and Beit Shemesh do nothing to solve this problem. This forces small business owners to resort to illegal methods of  office space or move their business out of  their city. However, this makes investment in office buildings that may eventually get built in those cities and cities similar to them a possible worthwhile investment.