While everyone is still talking about coworking spaces as the great promise of commercial real estate, knowledge-intensive high-tech companies are choosing to follow in the footsteps of high-tech powerhouses like Facebook Israel, Wix, and Amazon, and instead of spreading their businesses across several different campuses, they are concentrating their activities and offices in one building.
There is no doubt that today commercial real estate is a very profitable investment in Israel. In relation to residential real estate , investing in office towers earns a handsome return estimated at between 5%-10% per year. In recent years, we have witnessed more and more shared workspaces popping up like mushrooms after the rain and seemingly threatening to take over the office rental market. But in fact, there is another trend in the commercial real estate market in which knowledge-intensive high-tech companies prefer to purchase or rent entire residential floors and even buildings, and to prepare them as an office for their own use.
Recently, we saw how the giants of industry began these steps with the aim of concentrating their activities in one place. About two years ago, the Farmers' House on Kaplan Street became the 'Fiber House' when the company Fiverr rented the entire building. Since then, Facebook Israel has also moved to its new offices in the new Azrieli Tower in Sarona, which spans 17,000 square meters, and in the same tower, the technology giant Amazon rented 11 floors with an area of 25,000 square meters. Meanwhile, IBM has concentrated its subsidiaries into one complex spanning 7 floors in the Dawn Tower, and recently we were exposed to an announcement according to which the company Wix has signed a huge real estate deal to lease offices in a new project in north Tel Aviv spanning 50,000 square meters, thus concentrating all the company's employees, who are scattered in 15 different complexes, under one roof.
So what do the high-tech powers know that we don't?
Purchasing or renting large spaces spanning an entire building or several floors is a cost-effective option not only for giants like Facebook and IBM but also for other high-tech companies. These spaces serve growing high-tech companies better than co-working spaces, as these companies that are set to grow, expand, and hire more employees need a larger future location so they can maintain all work activities in one place, enable ongoing communication between all departments, and thus increase work productivity.
In offices concentrated in one building, companies can design the workspaces according to their organizational needs, choose whether to create one large workspace (One Space) or divide it into individual offices, and of course design the offices according to their branding language, thus training loyal employees who are dedicated to their workplace and feel part of something stable and with a unique character, which is even reflected in the visibility of the office.
Additional advantages of private offices
But besides better control over the organizational culture, purchasing or renting commercial real estate for your company also has the advantage of scale that does not exist when operating an office from a shared space, since the larger the space you buy or rent, the more you can enjoy a quantity discount for the space itself. It should also be remembered that in order to generate profit, companies that rent these shared workspaces add an additional premium to the rental fees, in addition to associated management expenses such as cleaning, office furniture or secretarial services. In a long-term investment, these are cumulative amounts that can be saved by investing in commercial real estate for your company.
The risk of shared workspaces
As for investors, it seems that all those shared workspaces could actually hurt the value of the building. In many cases, companies that rent an office in a shared space sign a monthly contract, which leads to very high turnover. A recent American study found that this turnover leads to a decrease in the value of the building and the viability of the investment is questionable.
And if that weren't enough, the flooding of the commercial real estate market with workspaces makes investing in them a higher-risk investment, and many investors who own these spaces have difficulty finding tenants and returning their investment, and each month incur significant expenses for property taxes and building management fees. But when the investment is made for personal use, these concerns obviously don't exist.
