The future of the real-estate market

There are many companies that want to be here and learn from Israeli innovation

JACKY MUKMEL, chairman of CBRE Israel. (photo credit: ALONI MOR)
JACKY MUKMEL, chairman of CBRE Israel.
(photo credit: ALONI MOR)
 When Jacky Mukmel, chairman of CBRE Israel, the largest commercial real estate services company, describes the state of the industry today, he says that the market “serves the employee.” According to Mukmel, “All of the campuses that are being built are designed to meet employees’ needs, and they are building living space for them, including a dining room, gym, bicycle storage facility, game room and more. Companies must invest in the quality of life for their employees so that they will remain dedicated to their work.”

In recent years, Mukmel has led a market survey that has monitored the labor market in Israel. “The average age in hi-tech employment is 26,” he explains. “The older the employee, the less attractive he is to his employer. Younger workers want to work and live close to entertainment venues and near like-minded people. Consequently, the needs of a hi-tech worker in Tel Aviv are lower than an employee who works in Hadera or Yokneam.”
There is much talk about developing the periphery, but it will not happen if there are no jobs.

“In Israel, we want everything to flourish –  to develop hi-tech everywhere. The problem is how everything is done in Israel: first we do, and only later, we think. In all areas of employment in Israel, there is a large amount of surplus office space that will not necessarily be needed. In addition, there is a limit as to the amount of manpower available in Israel, and there will not be enough manpower for future development and to populate all of the campuses that are being built.”

Mukmel wonders if the Israeli authorities have considered the possibility that “just as with the construction industry, that we may need to import workers from abroad. If we have to bring in workers from abroad, why not build workspaces and campuses that include housing for those employees?”
Who is actually responsible for this?

“The local authorities are encouraging large real estate agencies, and are giving them permits and options. The developers are tempted because the money is easy to get and the profits can be high. Everyone is building because there is demand. However, the local authorities are not checking the market trends. The local authorities say, ‘Let’s build, and afterwards, we can profit from the business property tax that is higher than the residency property tax.’ They don’t realize that if companies cannot get employees, there is no reason to build working spaces. They also do not take into consideration the need to create employee services. There are many differences between the Azrieli Sarona area in Tel Aviv and the campuses being built in the periphery.

“If a worker is encouraged to come to the periphery through housing, economic, and educational subsidies, there is a great chance of attracting people to these areas, but we are not talking about huge numbers. If we want to develop the periphery, the local authorities must know that in order to do this it is not enough to have good and efficient public transportation. We must provide residential options.”

So you are saying that there is a very close relationship between commercial real estate and residential real estate.

“This connection is becoming even closer, because employees today want to be close to their workplace. They don’t want to travel long distances and get stuck every morning in traffic jams. The employees want to come by bike or scooter to work, and they also want to know that the work environment is worthwhile. I believe that in the future we will have no choice but to make mixed housing complexes and offices.”
CBRE ISRAEL, which is led by Mukmel, provides its clients with various services, including building management, transaction management and project management, asset management, investment management, appraisal and valuation, rental property, strategic consulting, asset selling, and mortgage and entrepreneurial services.

According to Mukmel, the commercial real estate market is currently booming, especially in Gush Dan, from Herzliya in the north to Rishon Lezion in the south, especially in Tel Aviv, in areas that are close to major transport hubs. “In those areas, there is an increasing amount of demand,” he says. These areas have been designated for the hi-tech industry.”
Why is the market is booming in Israel? 

“This is because the current demand is great and due to the fact that the authorities are giving relief and benefits and encouraging the construction of income-generating projects and parks because it helps their revenues from property taxes that they receive. Building volumes are huge.”
Is the market saturated yet?

“In the center of the country, the commercial real estate market area is not saturated, but in the periphery, we need to give thought before creating projects, and I see that major projects are already being developed. The question is, who will populate them? At the moment, the market is dynamic, and is galloping straight ahead. At low interest rates everyone wants to buy real estate because they think it is a secure investment. We don’t think so. You have to be careful about this process because any small deviation – such as an increase in interest rates or if the banks stop the investments – can cause a major problem. We don’t think it’s a bubble, but it is a process for professionals only. And even they should be cautious about doing projects without checking the market trends.”

What do you think will happen in the high-yield real estate market in the next five years?
 
“We will see a different Tel Aviv, evolving and growing at a huge pace. We will also see the peripheral area grow, but not at the same rate.” We are currently experiencing tremendous growth in the number of large international companies operating here. Every time we think that everyone has already arrived, more new companies come. The development centers of the largest companies in Israel yield more results than Saudi oil. There are many companies that want to be here and learn from Israeli innovation. Despite the security and economic situation, there is interest for large entities to come to Israel.”
This article was written in cooperation with CBRE-Israel.