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Hi-tech is on the move northbound
Juan de la Roca
Once, science-based industries were centered in Tel Aviv, but now companies are shifting slightly north.
Hi-tech Tel Aviv, watch out. The hi-tech industry seems to be drifting northwards, away from its original concentration in the Tel Aviv metropolitan area. Back when Israel's civilian science-oriented industries began taking off in the mid-Eighties, they were concentrated in three main geographical areas: Jerusalem, around the Intel complex in the Har Hotzvim industrial area; Rehovot, around the Weizmann Institute of Science - one of the world's major centers of scientific learning; and in the Matam Technological Park in Haifa, in the vicinity of the Technion Israel Institute of Technology. The original hi-tech centers in Haifa, Jerusalem and to a lesser extent in Rehovot remained geographically static. But the newer Tel Aviv metropolitan area was different. When the industry started to expand rapidly, the Tel Aviv area began to attract science-oriented companies, and by the late Nineties the area had the largest concentration of such enterprises in the country. However, in the last couple of years the trend has been moving northward. At the beginning, the concentration was in Tel Aviv proper, in the northern Ramat Hahayal district. It moved to Herzliya and Petah Tikva's Kiryat Arieh, later spreading to Netanya. The trend was mainly motivated by economic considerations, as companies relocated to areas where rent was less expensive. Jacky Muchmel, president and CEO of MAN Properties, one of the leading real estate brokerage firms in the country, explained how the trend started after 2001. "Up until 2001, the hi-tech companies, especially the new start-ups, were living in a 'cuckoo' world, completely divorced from economic realities. Money was plentiful and easily accessible and everything seemed possible," says Muchmel. At those times, companies rented expensive space, larger than they actually needed, based on the assumption that they would continue to expand. They were paying over $25/sq.m. per month on rentals, and rates were constantly rising. But then came March 2000, and the hi-tech bubble exploded with devastating repercussions. There was no easy money available, and hi-tech companies had to adapt fast. Most of them started to look for less expensive and less pretentious premises, and this trend has continued," notes Muchmel. Lower rentals make an impact Hi-tech and affiliated companies are moving north in what can be described as a dual trend. The financial organizations which service hi-tech companies such as investment banks, venture capital funds, etc. are moving from the business areas of Tel Aviv to Herzliya, while hi-tech, science-oriented companies are moving from Herzliya to Netanya, Ra'anana and even Kfar Saba. Meanwhile, hi-tech companies in the Ramat Hahayal hi-tech industrial park are moving to Kiryat Arieh in Petah Tikva. Among those financial institutions that have relocated to Herzliya are the Pitango VC fund, the largest in Israel with managed financial assets of one billion dollars, BRM Capital Advisors, Benchmark VC Fund and others. Among companies who have moved from Herzliya to Netanya are Cellcom, the country's largest cellular phone company, Saifun Semi Conductors and Cisco. The ultimate reason for the trend is rental costs. The rental cost for offices on a shell and core basis in those areas of Tel Aviv deemed suitable for prestigious financial institutions can reach a monthly rate of $21/sq.m. or higher. In the Herzliya hi-tech industrial area, rentals run $18/sq.m. or less. In the Netanya hi-tech industrial area in the eastern part of the city, they fall to $11.50/sq.m. In the Kiryat Arieh neighborhood of Petah Tikva, rentals are higher than Netanya, standing at $13/sq.m. The same holds true for Ra'anana. The large differential in rentals between Herzliya and Netanya make the latter a favorite with hi-tech companies, since the difference between Netanya and Herzliya is a mere 15-minute car drive on relatively congestion-free roads. The trend to move to Netanya is set to continue, because real estate developers are not enthusiastic about the Herzliya Industrial Park, and in consequence supply will not rise in the future. The reasons are monetary. A 1,000 sq.m. plot in Netanya costs approximately $500,000, while in Herzliya it is over $1.6 million. What makes a hi-tech financial park Israel has many industrial parks, but most science-oriented companies concentrate on a few specific areas or industrial zones. Most "conventional" industrial parks have enterprises of all kinds, like textiles, carpentry, metallurgy, printing, etc. Every conceivable conventional industry can adapt itself to the environment of an industrial park. Science-oriented companies, however, require separate industrial parks, since they utilize highly specialized services. In consequence, hi-tech companies tend to congregate in a hub. A hub usually develops when a large company positions itself in a certain area; other companies then follow suit. When Intel set up a shop in Har Hotzvim in Jerusalem, it attracted other hi-tech and science oriented companies. In Matam in Haifa, it was Elbit, which was in part responsible for attracting other hi-tech and science-oriented companies; Cellcom will probably attract similar companies to Netanya.
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