Empty Office Towers Reflect Economic Challenges in Tel Aviv

By Aryeh Stern

A significant oversupply of office space in Tel Aviv and Ramat Gan has emerged, with tens of thousands of square meters vacant, and an additional 500,000 square meters under construction as rental rates plummet. A Globes report revealed that even prestigious office towers, such as the Azrieli Center and those along Yigal Alon Street, now have entire floors abandoned. This contrasts sharply with the situation just two years ago when occupancy rates reached 100%.

Research led by Geocartography’s Dr. Rina Degani indicated that approximately 80,000 square meters of office space remains vacant in Tel Aviv and Ramat Gan’s towers. However, former CEO of CBRE Israel Jacky Mukmel estimated the actual figure to be at least five times higher, suggesting an excess space offering of around 1.7 million square meters between Netanya and Holon.

The oversupply in the office tower sector reflects various economic factors, including the national economic situation, global economic conditions, and the tech industry’s status. The towers currently occupied were built about a decade ago when demand was high, and supply was limited. The current challenge faced by tower owners is the competition from much newer buildings.

Transparency issues and manipulations by developers and property owners contribute to the difficulty of analyzing this market. Unlike the housing sector, there is no objective monitoring body for office towers’ performance, resulting in a lack of clear data.

A Geocartography study focusing on Tel Aviv and Ramat Gan offices revealed that the shift to remote work, accelerated by the COVID-19 pandemic, has intensified during the recent conflict. Prestigious office towers now experience over 15% excess space, with offices appearing half-empty as they accommodate employees working from home part-time.

Companies have not returned surplus areas to property owners, and many attempt to sublet, contributing to the semblance of normal business operations. Rental prices in Tel Aviv have fallen back approximately two years, averaging NIS 140-150 per square meter in new towers in central Tel Aviv.

Amid this oversupply, the study anticipates the completion of 500,000 more square meters of office space in the Tel Aviv region in the next two or three years, adding further complexity to the market.