Israel's Skyscraper Developers Struggle to Blend Offices and Apartments

Despite the global trend of mixed-use skyscrapers, Israel lags in integrating residential and office spaces within the same towers. While a 91-square-meter, three-room apartment on the 58th floor of the Moshe Aviv Tower in Ramat Gan sold for 3.1 million shekels, the building primarily features 57 office floors and only 12 residential ones. This imbalance persists despite a market need for such mixed developments. A significant surplus of approved office and commercial space, estimated at 180 million square meters, far exceeds projected demand for decades, with absorption expected to take at least five years. Simultaneously, Tel Aviv faces a surplus of approximately 10,000 unsold new apartments, mostly at high prices, indicating that converting offices to residences isn't a simple solution and depends heavily on location, unit size, and price.

While legislation in 2022 allows for office-to-residential conversions, major developers continue to build single-purpose towers. The Azrieli Spiral Tower, a 91-story project costing an estimated 3.3 billion shekels and due for completion in 2028, exemplifies this. Although initially planned with 292 residential units, the number was reduced to 171, with the tower focusing on approximately 85,000 square meters of office space, making residences a secondary component. This decision reflects the preference for rental income from offices, which provide stable, long-term cash flow from institutional tenants, compared to the more complex management and one-time sales or shorter-term rentals of apartments.

Beyond economic considerations, significant engineering challenges hinder mixed-use construction. Residential units require extensive wet piping for kitchens and bathrooms in each unit, a complex addition to office buildings where piping is centralized. Integrating safe rooms (mamad), accommodating different window requirements, and separating entrances and elevators for residents and office workers add substantial costs and complexity. Safety systems, fire suppression, and evacuation routes also differ significantly for buildings where people sleep versus those where they only work.

Legal complexities also arise, particularly concerning shared ownership in a condominium where office owners and apartment owners have differing interests in maintenance, renovations, and common area usage. Disputes over these issues have led to litigation, such as the Uptown Tower case in Bat Yam. Consequently, some developers opt for separate towers, like Elite Tower, or exclusively office buildings, such as ToHa 2 in Tel Aviv, as single-use buildings are easier to manage, finance, and value based on rental income.

Despite these obstacles, signs of change are emerging. The decline in office demand due to hybrid work models, coupled with rising apartment prices, is making upper residential floors more economically viable. The evolving office market necessitates a reevaluation of development strategies, but the question remains whether regulatory and engineering hurdles can be overcome before the office surplus becomes a structural problem.