Reading the newspaper and website headlines merely half a year ago, you could be sure that the office market was history. The headlines screamed about entire towers standing empty and prices falling by dozens of percentage points, including in the most in-demand compounds in Tel Aviv and its satellites.
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The reason was double: on the one hand, the coronavirus pandemic, which caused droves of workers to flee from the offices and work from home; yet at the same time, a surplus of millions of square meters in office space was created – spaces that were at different stages of planning or construction.
Not even one expert predicted that the office market would bounce back. On the contrary, most recommended immediately ceasing the massive construction of new office buildings. Much discussion was held on converting a large part of existing office space to apartments.
Let me begin by saying that the idea of converting office space to apartments is still viable, and in my opinion it is a good and even called-for idea, for many reasons, not least the general lack of housing supply. This is particularly true for compact apartments and especially micro-apartments meant for typical urban populations such as single parents, singles, LGBTs, divorced people, etc.
Full capacity
With Israel's emergence from the third lockdown, at the end of last March, a phenomenon that none of the experts foresaw began to steadily gain ground. Despite the coronavirus effect and the surplus in office space, offices slowly began to fill up. Prices in most compounds returned to their pre-pandemic levels.
The revival included full-blown luxury compounds, such as those along Begin Road and Rothschild Boulevard in Tel Aviv, where rent prices soared again to NIS100-120 per sq.m.; the Diamond Exchange compound in Ramat Gan, where they again crossed the NIS90 per sq.m. threshold; Herzliya Pituach, Ra'anana, and in-demand compounds in the Tel Aviv metropolitan area, from the center of Bat Yam to the Kannot Industrial Park – and the list goes on.
The only compounds that have not yet returned to their original price levels are the BBC compound in Bnei Brak and Ramat HaHayal in Tel Aviv. However, they're also working at full capacity and prices there are expected to return to their pre-pandemic levels soon.
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How the sector bounced back?
The reasons for this miraculous recovery are as follows: First, despite the supposedly large surplus in office space, it should be kept in mind that most of the planned offices have not yet been built. Over the past year, delays occurred in the planning and construction of some compounds, creating new demand.
Second, the hybrid model of working from home part-time continues to operate; however, various firms have realized they must continue holding significant office space
Third, over the year-and-a-half since the pandemic broke out, many hi-tech and technology companies significantly expanded their scope of activity, causing some to expand their office space as well.
Fourth, the bottom line is that life has its own dynamics, and it is always the case that following major crises, recovery is much faster than expected.
However, the issue of surplus planned office space is still relevant. Planning should be cut back where possible, and in-depth planning is needed to convert some office space, particularly in relatively veteran compounds, to housing.
Eyal Bahari is CEO of Zim Bahari Real Estate
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