Commercial Real Estate – Central Issues

Commercial real estate has gone from a field known mainly to the big players in the market to the central field of interest for the wider general public as well. The steep price rises of residential properties have gradually eaten away at the return achieved, and has contributed to the creation of interest among private investors who recognize the potential for high returns with respect to commercial properties. Impressive demographic growth, stiff demand from local and international businesses and an impressive construction boom of varying kinds commercial areas, including in the periphery, are creating a developing market that represents diverse investment.

We have created a short guide to assist you in understanding the complexity of the field, which will give you the important groundings for future activity in the field. It’s well known that the correct research is the basis for success, and our analysts are happy to present you with the central points that will form a solid foundation for further learning.

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A little background

For many years, the Dan region has been considered an area that attracts the eyes of entrepreneurs, institutional investors and large companies active in the field of commercial real estate. Tel Aviv and the nearby satellite cities still constitute the largest employment center in Israel, but it is clear that in recent years, and in light of the reasons mentioned in the introduction, there has been significant momentum towards building developed commercial and employment centers in cities such as Beer Sheva, Ramla, Rosh HaAyin, to name but a few. The various municipalities are investing enormous resources in the development of additional employment and commercial areas, and their master plans indicate the development of considerable areas for the purpose, knowing that this will contribute to the arrival of young and strong families in their area and at the same time, plump property tax payments will flow their way, to be used for further development. Many cities in Israel are currently awaiting government development budgets, which are an essential basis for growth on this front.

Commercial real estate is any property that is used for commercial and business activity. In addition, under the same umbrella are lands used for profit, as well as various larger-scale buildings intended for rented out as residences. The designation of a property for commercial purposes has a material effect on financing and taxation issues, and the system of laws and regulations applied to it is fundamentally different from that which relates to properties such as apartments and private houses intended for residence. Commercial real estate includes office towers, malls, logistics areas, factories, hotels and more. The prices of commercial properties, their rate of construction and their occupancy rates are considered key data in examining business and economic activity in a particular area.

Offices – a world of possibilities

High purchase costs and rent have led companies and employers to look for offices in areas outside the Tel Aviv region in recent years. Petah Tikva and Bnei Brak were the first benefit from the new trend in the previous decade, and were gradually joined by many other commercial and employment areas, including in Lod, Rosh HaAyin and Holon. Huge government budgets have been invested and are still being invested in creating a system of roads and interchanges aimed at reducing traffic congestion and developing an improved public transport system, which we crave like breathable air, which is supposed to significantly improve commuting to and from work.

In the last decade, Israel has enjoyed a large growth momentum that is produces a huge demand for additional offices and the additional required services that accompany them. International companies in the high-tech and technology fields are establishing their centers here, and at the same time, a flood of local companies and new startups are generating strong demand for offices, after a period in which the field suffered from excess supply. A word about shared workspace. This is a global phenomenon on a massive scale that fundamentally changes the work culture we have known up until now. Teams of various sizes, from small to medium-sized and large companies, share common workspaces that contribute greatly to thoughtful creativity, promoting interesting and fruitful collaborations. The model is characterized by great flexibility,allowing tenants to receive well-equipped work complexes in varying sizes and a wide range of services from the world of lifestyle. The old office is a thing of the past, and entrepreneurs in the industry realized long ago that they must keep up move with the times and respond to the demand for flexibility in the rigid rental model of yesteryear. Today, various management companies allow to apply changes and adjustments to the package offered to their clients in office buildings and provide them with more advanced models of design and services.

Logistics Centers – this is just the beginning

The dizzying development of e-commerce requires that retail giants continue to set up logistics centers that will deal with the mountains of goods that flood us, and create efficient and modern absorption, distribution and sorting bases. The phenomenon has become widespread globally, including in Israel, which is considered an online shopping powerhouse relative to its comparatively low population.

In the world of instant gratification, companies know that fast delivery of packages to the customer is a parameter with unparalleled important tothe success of their businesses. In the US, Amazon promises to deliver the order that the customer placed online within three hours from the moment he placed it! The company, which has started operating in Israel with high intensity in the past year, also demands high standards of service from the local distributors it uses, and has set a new standard of excellence in the field. One of the phenomena that indicates how much interest logistics centersare gaining among small and medium-sized investors, is the establishment of purchasing groups that invest in this channel.

Shops

Buying a store for the purpose of investment is considered a more adventurous step compared with buying a residential apartment. Alongside the benefits, a significantly lower entry threshold can be noted in relation to the apartment and a significantly high potential return. Demand for shops is considered extremely rigid in the light of the high interest expressed by investors in this channel, due to the constant price rise for residential properties. At the same time, it is important to pay attention to the following points, issues that that make investment in the store a more “risky” move: first, the value of shops does not increase as much as that of residential apartments.The property tax on them is significantly higher than for apartments, and when the store is empty, the owner will bear the cost. In general, and depending on the location, of course, finding a suitable tenant for the store is not as easy as finding tenants for a residential apartment. Additionally, the resulting rent is subject to taxation from the very first shekel. Commercial real estate is, however, considered much more accessible for private investors than in the past,and provides an excellent opportunity to achieve a much higher return relative to that obtained on residential apartments. With that, the complexity of the transactions and the completely different range of expenses must be taken into account relative to that of residential apartments: higher property taxes starting from the first shekel, the greater investment involved in preparing it for tenants at the infrastructure level, the prime location, the identity of the tenants and their business financial strength are all of critical importance. Bottom line: do your homework properly and do not be afraid to get help from professionals who have the expertise to give it best.