Powering up prices in Silicon Wadi
SO ME P R O P E R T Y investors follow the cement mixers, looking to put their money i nt o upand-coming neighbourhoods, while others stay close to universities, as students will always need digs. But in Israel many investors follow the silicon. The success of Israeli technology ventures has had a large impact on the county’s property market, with neighbourhoods and sometimes whole villages or towns becoming popular because of their proximity to high-tech jobs.
Tech is one of Israel’s best-paid sectors and when an area becomes desirable for tech employees, house prices can take a sharp turn upwards. Many workers in the sector are young and not yet ready to buy homes but have large rental budgets. This draws buy-to-let purchasers to high-tech hubs.
Silicon Wadi, as Israel’s technology region is often known, spans a large part of the country. Tel Aviv and Herzliya are taken as given and many people know of Haifa’s technology prowess. Less renowned but important are Yokneam in the north and Beersheba in the south.
In Silicon Wadi’s undisputed capital, Tel Aviv, the impact of high-tech has long since contributed to the rise in the value of homes and the cost of rentals, which has been very steep over the past decade. It has also changed the Tel Aviv housing map, giving places like Ramat Hachayal, formerly full of warehouses, a new desirability.
The most recent impact appears to have been on commercial property. Inter Israel, an arm of global real-estate giant Cushman & Wakefield, released a report late last year, which found that, while high-tech companies once tried to save rent by looking to Tel Aviv’s suburbs or other cities entirely, there is now a trend of high-tech companies moving to Tel Aviv’s central business district. They prefer the young, cultured vibe of the centre and are prepared to pay for it. Facebook’s research and development centre is on Tel Aviv’s central, trendy Rothschild Boulevard.
“Although the GDP over the past few years in Israel is very low, vacancy rates are very low and occupancy rates are high,” says Yoram Blumenthal, partner at Inter Israel, who thinks foreign investors can profit from the high-tech commercial market in Tel Aviv. However, he cautions that investors should keep their eyes on forecasts of supply, be selective in the projects they invest in and ensure their investment is structured to enable rentals to big tech firms. This means avoiding a situation where a group buys a building and each investor owns a part. Big tech companies like to have a single entity dealing with the whole building; they do not want to chase multiple owners. Many investors think it wiser to be a partner in owning a large building than sole owner of a piece of it.
But despite the constraints, with around 7.5 million sq ft of new office space under construction in Tel Aviv, investors are likely to find the right project for them.