In recent years, commercial real estate has evolved from a field known mainly to major players in the market into a sector that attracts significant interest from the wider public as well…
The steep rise in residential property prices has gradually eroded returns and has driven growing interest among private investors who recognize the high-yield potential of commercial properties.
Strong demographic growth, steady demand from both local and international businesses, and an impressive wave of construction of various types of commercial spaces – including in peripheral areas – are creating a developing market with diverse investment opportunities.
We have prepared a short guide to help you understand the complexity of this field and provide you with an important foundation for future activity in it.
As is well known, thorough research is the key to success, and our analysts are pleased to briefly present the key points that will serve as a solid basis for further learning.
Keep an eye out.
A Bit of Background
For many years, the Gush Dan region has been the focal point for developers, institutional investors, and major companies active in the commercial real estate sector.
Tel Aviv and its surrounding satellite cities still constitute the country’s largest employment hub, but in recent years – for the reasons mentioned earlier – there has been a significant surge in the construction of advanced commercial and employment centers in cities such as Be’er Sheva, Ramla, Rosh Ha’ayin, and others.
Municipalities are investing enormous resources in developing additional business and commercial areas, and their master plans designate extensive areas for this purpose, recognizing that such development attracts strong young families to their jurisdiction and, at the same time, generates substantial municipal tax revenues that can be reinvested into further development.
Many cities across Israel are currently waiting for government development budgets, which serve as an essential foundation for growth in this field.
Commercial real estate includes any property used for commercial and business activity.
Under this umbrella are also lands utilized for generating profit, as well as larger-scale buildings intended for residential leasing.
The designation of a property for commercial purposes has a significant impact on financing and taxation considerations, and the legal and regulatory framework applied to such properties differs substantially from that applied to residential assets such as apartments and private homes.
Commercial real estate includes office towers, shopping centers, logistics facilities, factories, hotels, and more.
The prices of commercial properties, their construction rate, and their occupancy levels are considered key indicators when analyzing business and economic activity in a specific area.
Offices – A World of Possibilities
High purchase costs and rising rental prices have led companies and employers in recent years to look for office space outside the boundaries of Tel Aviv.
Petah Tikva and Bnei Brak were among the first cities to set this trend more than a decade ago, and over time many other business and employment areas have joined them in Lod, Rosh Ha’ayin, Holon, and more.
Massive government budgets have been invested – and are still being invested – in developing road systems and interchanges aimed at easing traffic congestion, as well as in improving the long-awaited public transportation network. These measures are expected to significantly enhance commuting times to and from places of work.
Over the past decade, Israel has experienced tremendous growth, creating massive demand for additional office spaces and related services.
International high-tech and technology companies are establishing their headquarters here, while at the same time a flood of local companies and new startups is generating strong demand for office space, following a period during which the sector had suffered from oversupply.
A word about co-working spaces: this is a global phenomenon on a massive scale that is fundamentally changing the work culture as we have known it until now.
Teams of all sizes – from small and medium to large companies – share collaborative workspaces that greatly contribute to creative thinking and to interesting and productive collaborations.
The model is characterized by great flexibility, allowing tenants to access fully equipped workspaces in various sizes along with a wide range of lifestyle-related services.
The traditional office is becoming a thing of the past, and industry developers have long realized that they need to keep up with the pace and demand for flexibility, which stands in stark contrast to the rigid leasing model of the past.
Today, various management companies enable adjustments and customization of the services and amenities they offer within office buildings, giving their clients advanced models of workspace design and service.
Logistics Centers – This Is Just the Beginning
The rapid growth of e‑commerce is forcing retail giants to continue establishing logistics centers to handle the mountains of goods flooding the market and to serve as efficient, modern hubs for receiving, distributing, and sorting.
This phenomenon has become widespread worldwide and is strongly felt in Israel as well, which is considered an e‑commerce powerhouse relative to its relatively small population.
In a world of instant gratification, companies know that fast package delivery to the customer is an extremely important factor in their business success.
In the United States, Amazon promises to deliver an order to the customer’s hands within three hours from the moment it was placed!
The company, which has significantly increased its activity in Israel over the past year, is setting high service standards for the local distributors it works with and establishing a new benchmark for excellence in the field.
One of the phenomena that highlights the strong interest in logistics centers among small and medium-sized investors is the formation of investment groups dedicated to this sector.
Shops
Purchasing a retail store as an investment is considered a more adventurous step compared to buying a residential apartment.
On the plus side, it offers a significantly lower entry threshold compared to an apartment and a much higher potential return.
Demand for retail stores remains extremely strong due to the high level of interest from investors in this channel, driven by the constant rise in residential property prices.
At the same time, it is important to pay attention to the following factors, which make investing in a retail store somewhat more “risky.”
The value of retail stores does not appreciate in the same way as residential apartments.
Property tax (arnona) on commercial properties is significantly higher than that on residential apartments, and when a store remains vacant, the owner bears the full cost.
In general – and of course depending on the location – finding a suitable tenant for a store is not as easy as finding tenants for a residential apartment.
In addition, rental income from a retail property is taxed from the very first shekel.
Commercial real estate has therefore become much more accessible than in the past for private investors and represents an excellent opportunity to achieve significantly higher returns than those typically generated by residential apartments.
At the same time, one must take into account the complexity of such transactions and the range of expenses, which are completely different from those associated with residential properties: higher property taxes, taxation from the very first shekel, higher costs for preparing the property’s infrastructure for tenants, the critical importance of location, and the financial stability and reliability of tenants.
The bottom line: do your homework thoroughly and don’t hesitate to seek help from professionals who specialize in this field.