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Did we lose the office market too quickly

In the last week we have witnessed sharp rises in the shares of income-producing real estate companies, which a considerable part of the areas they own are office spaces

Avidor Bar Yosef, Adv

Pfizer and Modern’s announcements of success in the corona vaccine trial. Bringing us one step closer to the vaccineThe capital markets are booming and industries that have been hit by the crisis are beginning to experience recovery. 

With the outbreak of the Corona crisis the office real estate market was shaken, many companies moved their employees to remote work and much of the meetings were transferred to digital platforms such as  Zoom app. 

Investors were quick to respond to the change in circumstances and as a result income-producing real estate companies were experiencing sharp declines, which on the eve of the outbreak of the crisis were at their peak. 

The Corona crisis did not create processes out of nothing, but only accelerated their occurrence. Among other things, the Corona strengthened the technology industry and emphasized the strength of the Israeli high-tech industry, which was almost unaffected in relation to other industries. 

 

Vote of confidence

International technology companies continue to express confidence in the Israeli high-tech industry. They want to benefit from the Israeli human capital, for this purpose, they are establishing research and development centers that dominate office spaces in the amount of tens of thousands of meters. 

For example, already on 11/17/2020, an announcement was made that Apple had rented offices in Haifa in an area of 28,000 meters above sea level and about 620 parking spaces. Apple, whose share price rose by more than 50% during the crisis, crossed the imaginary $2 trillion mark and illustrated the strength of technology companies that continue to expand their offices. 

In addition, on 11/18/2020, RiskPayed (the provider of payment solutions and prevention of credit fraud in e-commerce) announced that it had signed an agreement to lease all the office space in Europe House building at a total area of 7,200 square meters, for a period of 10 years. 

And in the same context. Less than two months ago, Intel announced that it was promoting the construction of a new building in the Matam complex in the city of Haifa, which will serve as a development center with more than 3,000 employees. 

 

Hybrid working model

Along with the significant strengthening, we are witnessing that many companies have moved their employees to work from home and there are even reports that the model increases the outputs produced. 

However, despite what has been stated before. Humans are social creatures. And many employees began to feel the loneliness of not leaving the house for the office. In addition, companies engaged in research and development declare that they need the form of working together in groups, conducting brainstorming sessions and mutual fertilization. 

Since each method has its own advantages and disadvantages, the balance will probably be made using a hybrid work model – a combination of work from home and office. Naturally fewer employees will frequent the offices daily which may lead in the near future to a slight drop in demand. 

Conversion of areas

Even before the Corona crisis, Gush Dan faced an oversupply of office space. But it is important to note that new office buildings are still attractive and enjoy high occupancy, in contrast to older office buildings that usually suffer more from low tenant occupancy. 

Following the oversupply and the development of the trend of mixing uses, various authorities have begun to promote the conversion of office space into residential space. For evidence, the mayor of Ramat Gan has stated that he is considering converting some of the offices in the stock exchange complex to a residential use. The mayor of Raanana also welcomes this trend and has proposed converting office space into studio apartments. 

Last month, the National Planning and Construction Council headed by Mordechai Cohen approved the proposal to advance regulations for the conversion of existing buildings such as offices and commercial buildings built before 2009 into hotels or student dormitories. 

The conversion is expected to encounter planning difficulties, conversion costs and improvement levies. At the same time, the excess supply will be reduced, the attractiveness of employment areas will increase, the value of assets will increase and businesses that were used to working only during the day will be able to enjoy customer traffic even in the evening and at night. 

The power of reality

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