Research by CBRE Israel on the office sector in the first quarter of 2020 found that there was significant activity in the office market at the beginning of the quarter due to the low interest rates, but at the end of the quarter, the coronavirus epidemic began, which significantly slowed business activity. This will be reflected in the rate of return in the second quarter.
Jacky Mukmel, CBRE Israel’s chairman, said: “The Israeli office market is 85% to 95% full, but there are quite a few projects in development that were based on continued growth, but the new situation is expected to reduce the amount of office building activity and increase the volume of vacant space in office towers after three years of an increase in office rents.”
In Q1 of 2020 in all major cities in Israel the difference in rents compared to Q4 of 2019 is 0% to -2%. In Q1 of 2020 the rent for office space in Tel Aviv was NIS 103 per square meter, in Ramat Gan NIS 83, Herzliya NIS 85, Lod NIS 45, Ra’anana NIS 60, Netanya NIS 46, Haifa NIS 65, Jerusalem NIS 67 and Petah Tikva NIS 51.
The positive sentiment that has accompanied real estate investors for a long time is changing in light of world events.
The decline in this area has not yet been seen in the domestic market in the current quarter data due to the halt of economic activity, which only occurred in this quarter.
Initial indications in the European real estate market are currently showing a 5% to 10% reduction compared to precrisis prices.
Employees working from home, especially in hi-tech companies, may also affect the office market, and a decline in the recruitment of new employees will hurt the growth of the office industry.
According to Mukmel, “At the end of Q1, many tenants in the office sector began discussions with property owners about easing rents in the commercial real estate market, commercial centers shut down, with an emphasis on malls, according to decisions the government took. Before the closures, the buyer movement was significantly reduced in light of the initial signs of the coronavirus, which were made public through the media. Operations were significantly reduced with the closure of restaurants, some of which moved to delivery-only.”
Supermarkets and pharmacies continued to operate as essential businesses during this period, but with restrictions. This area is the only one that has not suffered any losses. Some of these businesses saw an increase in turnover due to reduced competition during this period.
Many tenants contacted property owners to stop rent payments due to the restrictions on running their businesses. The online sector continued to evolve due to the lack of competition.
In some industries, delivery times have increased due to demand. This increase may move more buyers to use the service in the future after having experienced these purchases due to the circumstances. Firms that have not sold online before have begun to enter the field to provide their wares.
The logistics sector was not seriously affected this quarter and is the last area expected to be hit, as the crisis is helping to increase direct sales to customers.
The online market is expected to continue to thrive in the future, and the increase in the volume of consumers who experience these purchases may support the logistics industry significantly, reducing many factories that do not provide essential services and counteracting essential operations to meet the high demand.