Ramat Gan's Office Tower Boom Faces Uncertain Demand
Translated & summarized from Bizportal by baba
The story in 5 lines · by baba
- Ramat Gan plans extensive office tower construction, potentially adding 3 million sqm.
- New towers face moderate occupancy, with demand declining for 3.5 years.
- Hybrid work and AI reduce the need for office space per employee.
- Older office buildings are particularly vulnerable to the shift.
- Developers are diversifying projects beyond pure office towers.
Ramat Gan's skyline is set for a dramatic transformation with the development of numerous office towers, some reaching up to 100 floors, in the area known as the Stock Exchange. The city's master plan allows for nearly 3 million square meters of commercial space, mirroring Tel Aviv's own expansion along the Ayalon highway. While this growth appears to be a natural extension of the Tel Aviv metropolitan area, a critical question arises: who will occupy all this new office space?
Evidence suggests demand is already softening. The BEYOND tower in nearby Givatayim, despite its prime location and major tenants, has only achieved about 60% occupancy with an additional 10% under contract. Similarly, the prestigious ToHa2 tower, with Google as a anchor tenant, has contracts or advanced negotiations for approximately 75% of its space, but these are not yet finalized leases. This comes at a time when office space demand has been declining for three and a half years.
The changing nature of work is a significant factor. Hybrid work models mean companies with 1,000 employees may require fewer than 1,000 permanent workstations, as staff split their time between home and office. Furthermore, the rise of Artificial Intelligence is enabling companies to achieve greater productivity with less personnel, weakening the traditional link between revenue growth and the need for expanded office space.
This shift is impacting older buildings, with companies downsizing from older, larger spaces to newer, more efficient towers. For instance, one company moved from 8,000 square meters in an older building to 6,000 square meters in a new one, leaving 8,000 square meters vacant in the older property. While high-tech sectors like defense tech, cyber, and AI are creating new demand, it is concentrated in modern buildings with excellent transport links and amenities, leaving older properties vulnerable.
Developers are responding by diversifying projects to include residential, hotel, retail, and assisted living components, rather than solely office towers. This reflects a market where securing tenants at high prices for purely commercial buildings is becoming more challenging. Ramat Gan's proximity to Tel Aviv and major transportation hubs remains an advantage, but the vast amount of planned commercial space represents a significant gamble on future demand.
Read the original at Bizportal
