"A shortage of available office space and a dearth of new construction starts will lead to a 10% price hike at the Diamond Exchange compound in Ramat Gan," says Yoram Blumenthal, director of the Inter Israel Real Estate Consultants.
It did not take long for demand to outpace supply in the office space market, and the only way to meet demand is to increase the space available. Rents in the most sought-after office towers near the diamond exchange have practically doubled in the past two years.
The entire office market in the Tel Aviv area is contending with this problem, but the shortage is worst in the vicinity of the diamond exchange.
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"Annual demand for office space in the bourse compound is about 100,000 square meters," says Blumenthal. "We expect prices to rise in both 2009 and 2010 as the shortage increases."
Real estate appraiser Yaron Spector notes that there are three types of buildings near the bourse. The most expensive are the protected buildings, owned by the diamond dealer community.
"Those buildings have tight security and the diamond trade operates there with relative freedom," says Spector. "All the tenants are bourse members, and most of the office space there is purchased, rather than rented, with prices in the $6,500 per square meter range.
In the second category are old, low-rise buildings that are relatively cheap. Rents are about $14 per square meter. The third type of office space is in the popular office towers such as Gibor Sport House, Shap House and Rogovin Tidhar Tower.
These buildings owe their popularity in part to their proximity to the Arlosoroff Street train station. Rents range from $25-$34 per square meter and office space sells for $14,000 per square meter.
"In the past two years rents in the good buildings have risen by over 80%," says Spector. "Back in 2006 offices were rented at about NIS 50 per square meter. In the next two years prices will continue to creep upward, but will not double again. Rents have essentially returned to what they were in 1998, before the high-tech crisis. I do not see the current situation as a bubble, but rather as a market correction following the large supply resulting from that crisis. During the crisis years there was no new construction and we are feeling the effects of that now, as a shortage develops."
How are developers responding to demand near the bourse? They are not building fast enough. This year an additional 17 floors will be completed on top of the existing 16 floors of the Rogovin Tidhar Tower, and most of the new space has already been rented out or sold. Another building currently offering rental contracts, with occupancy scheduled for next year, is the Sasson Hugi Tower, near the Moshe Aviv Tower. Blumenthal, who is marketing the building jointly with Amos Glazer of Anglo-Saxon realty, says Hugi will retain full ownership of the building, which has 21 stories and some 20,000 square meters of office space.
Real estate sources offer cautious forecasts for the next decade, as no one knows how badly the current American economic crisis will affect the Israeli market, and whether there will be pullouts from office space as there were seven years ago. There are also various building initiatives in the offing, and expansions planned for more towers in the Tel Aviv area that will increase the office space inventory and could bring prices down.
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