Neighborhood Watch: Out of the doldrums

Downtown Jerusalem is largely a business area comprising stores, restaurants and offices, but the city center has a significant number of apartments occupied by those who enjoy the convenience.

By JOHN BENZAQUEN
Jerusalem skyline 521 (photo credit: Adi Benzaquen)
Jerusalem skyline 521
(photo credit: Adi Benzaquen)
The city center of Jerusalem comprises the area from the Old City via Jaffa Road and King George Avenue and includes the Ben- Yehuda pedestrian mall and Mahaneh Yehuda market. This was one of the first areas of Jerusalem to be developed outside the Old City. It was started in the 1870s by Ashkenazi Jews who wanted out of the unhealthy walled Old City.
They called the area the Beit David neighborhood. At the beginning, it was a small walled community of 10 apartments just off Jaffa Road and what is today Kikar Zion. In the 1920s the neighborhood was expanded toward what is now King George Avenue. It included the building that housed the apartment of Rabbi Avraham Yitzhak Kook, Israel’s first Ashkenazi chief rabbi. This apartment still exists today as a museum at Rehov Harav Kook 9.
Although today the area is largely a business area comprising stores, restaurants and offices, the city center has a significant number of apartments occupied by those who enjoy the convenience of living in the hub of Jerusalem. According to Raphi Bloch and Elia Gabai, realtors with RE/MAX Vision, about 70 percent of properties are occupied by tenants, mainly students who receive a subsidy from the municipality for renting in the area. This high demand has resulted in an increase in rental prices and a corresponding increase in selling prices. The average apartment can be rented for NIS 1,400 to NIS 1,600 per student-occupied room, so an apartment with three roommates can generate a monthly income of around NIS 4,500.
Investors can generate between 4%-5% returns on properties in these areas. For the past four years, there has been a marked increase in the number of investors, both Israeli and foreign, buying in the city center. The light rail and the rejuvenation of the downtown area continues to draw investors, who anticipate increases in property prices and a corresponding increase in rent.
The city center has emerged from a real estate slump that lasted until 2004 to become one of the most attractive investment areas of Jerusalem. Its proximity to the Old City, along with the large number of government and private investment projects, has breathed new life into the area. As a result, property values have risen by more than 75% since 2004.
Smaller apartments of the kind much in demand by students have more than doubled in price.
Despite the constant rise in prices during the past seven years, the downtown area has not yet realized its full potential. When the light rail is completed, it will make the center much more accessible to outlying areas and will undoubtedly revive commerce, which has tended to drift to shopping malls in outlying areas, and the value of commercial property will increase. The value of residential real estate is also set to rise for the same reason. Furthermore, the luxury apartments being built are also having a marked effect on prices in the area and are creating a new wave of demand by investors and families or singles looking for a new home.
Along with its historical features, the area boasts a number of modern, upscale projects. The oldest of these, Jerusalem Heights just off Rehov Hillel, was built in the early 1990s and still commands prestige among businessmen, diplomats and investors. A two-room, 40-square-meter apartment sells for NIS 1.3 million to NIS 1.4m. A number of newer projects, including Jerusalem of Gold and Africa Israel’s project at Harav Kook 7, promise to meet the demand for luxury apartments in the heart of town.
In the commercial sphere, stores in the golden triangle between Jaffa, King George and Ben-Yehuda command premium rents, although the demand for office space rentals in the area has dropped, due largely to an increased demand for properties suitable for professional offices. The average rent for office space is between NIS 50 and NIS 60 per square meter, compared to NIS 65 per sq.m. two years ago.
Stores on Rehov Ben-Yehuda average NIS 100 to NIS 120 per sq.m. for the larger properties but rise dramatically for the smaller ones. For example, a nine sq.m. shop on Rehov Ben-Yehuda is on the rental market for NIS 4,000, which means that the price is more than NIS 400 per sq.m. The prices for commercial space were affected by the disruptions caused by roadwork on the light rail.
Although prices have risen in recent years, Jerusalem’s city center is still in a strong upswing and provides many good opportunities for the discerning investor, as well as the chance for small developers to take advantage of the capital’s growing market.
Many owners are starting to make personal use of their properties, as they are realizing the convenience and excitement of living in the heart of Jerusalem. In many ways, the city center is undergoing the same trend as Tel Aviv. The flight from the suburbs is being reversed, and many well-to-do families and singles are returning to the city. The advantages of living in the suburbs are being canceled out by the disadvantages of having to navigate the traffic jams of Jerusalem at least twice a day.