Academic journal article The Journal of Real Estate Research

Urban Focal Points and Design Quality Influence Rents: The Case of the Tel Aviv Office Market

Academic journal article The Journal of Real Estate Research

Urban Focal Points and Design Quality Influence Rents: The Case of the Tel Aviv Office Market

Article excerpt

Daniel Gat*

Abstract. Israel is steadily shifting towards a services-heavy economy. The city of Tel Aviv, which specializes in commercial, business and financial services, is the country's officespace capital. This study aims to reveal the factors influencing rent levels within Tel Aviv's expanding office market. The research confirms that important contributors are access to any of three major urban foci and the quality of building design. Lesser contributors are building height and floor area. Age of building and area-wide density of manufacturing are detractors of value. Density of services was originally intended to stand in for face-to-face facilitation. However, its estimation power is disappointing when compared to foci access.


Tel Aviv is the Center City of the Gush Dan conurbation-Israel's most heavily populated and densest metropolis. It is also the business and financial center of the country as well as the core of its entertainment and cultural action. This study focuses on Tel Aviv's office market. Its recent accelerated growth and its announced pipeline projects have given this market high visibility and attracted attention to its importance.

The purpose of this article is to reveal, using a hedonic framework, the factors underlying and explaining the market rent levels of Tel Aviv's major office buildings. While so doing, the reader should also acquire a glimpse of the spatial and functional structure of the city's office market, as well as a bit of that market's history.

The balance of this paper proceeds as follows. The second section provides a background for the study through a brief tour of recent national economic developments, and accentuates the service role of Tel Aviv. The third section is an overview of the spatial structure of the Tel Aviv office market and its temporal evolution. The fourth section constructs a theory of Tel Aviv's office hedonics. The fifth section describes the sample, the data and its sources. The sixth section formulates several alternative models and reports regression results. The final section concludes with interpretation and suggestions for further research.

Growth of Services and the Role of Tel Aviv

Recent Economic Development and Restructuring

Following periods of stagflation (1982-83), hyperinflation (1984-85) and a successful inflation recovery (1986 onwards), the country experienced continuous economic growth from 1990 through 1996. Anticipating and overlapping this period of expansion, the Israeli economy underwent major restructuring reflected in a gradual but steady shift towards services (see Exhibit 1).

The non-residential real estate sector responded in three distinct phases. During the late 1980s there began a major spurt of shopping center construction. In less than ten years, the whole country has been covered by a system of modern malls, where none had existed before. Next came a major office building construction period, centering on Tel Aviv and its regional central business district (CBD). Finally and presently, a new type of real estate is being created. It is a hybrid between space for "clean industry" and suburban offices, and is known in Israeli real estate jargon as space for "high-tech." Israeli building statistics do not separate office from commercial or hightech from manufacturing. Hence, the recently accelerated construction of business space is reflected under the categories of manufacturing and commerce (see Exhibit 2).

The office construction phase is not over. Several major Tel Aviv office projects are under construction and others, even more massive, are in the planning and design pipeline. However, developers are wavering under the threat of overbuilding and there are few new starts.

The Special Role Played by Tel Aviv

Exhibit 1 shows a steady rise during the 1980s of the countrywide employment share of private sector services: personal, commercial and business. …

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