Developers Abandon Mixed-Use Towers Amidst Israeli Market Challenges

Developers in Israel are increasingly opting out of integrating residential units into office towers, a trend exemplified by Amot and Azrieli Group's recent decisions. Amot, led by Chairman Nathan Hetz, initially planned a mixed-use tower but later decided on an office-only building, despite residential units typically fetching double the price per square meter. This move raised eyebrows, especially given the current oversupply in the office market, with even the Planning Administration warning of a surplus of approved office and commercial space.

Similarly, Azrieli Group, a dominant player in the income-generating property sector, has abandoned plans for 292 residential units in its Spiral Tower project, located near Amot's development. This decision is notable as Azrieli Group has recently entered the residential market by acquiring the construction company Tzemed Ha'Merman, and its founder, the late David Azrieli, had previously steered clear of residential projects.

The concept of mixed-use towers, combining offices, retail, and residences, was once hailed as a perfect urban planning solution. The vision was to create vibrant buildings where residents could easily access workplaces and amenities, preventing business districts from becoming desolate after hours. However, the Israeli reality has proven this model to be complex and challenging to implement successfully at the individual building level.

Historical examples like the Moshe Aviv Tower in Ramat Gan, one of the first prominent mixed-use skyscrapers in Israel, illustrate these difficulties. Despite its prime location and status as the tallest building in the Middle East at the time, it suffered from a "negative premium," with residential units selling for less than comparable apartments in homogenous residential buildings. Buyers sought homogeneous communities and distinct living environments, while developers faced significant engineering and cost challenges.

These challenges include complex plumbing, waterproofing issues between office and residential floors, and differing requirements for natural ventilation and safe rooms (Mamadim) in residential units compared to the sealed-off office spaces. Furthermore, Israeli property law is not well-adapted to the shared management of residential and commercial spaces, leading to legal disputes, as seen in the Aptown Tower case in Bat Yam. Developers are now shifting towards "horizontal" mixed-use models, separating residential and office towers entirely, to maintain urban dynamics without the complications of cramming all functions into one structure.