Tel Aviv - a vibrant city in the ascension
Schroders Global Cities report: Israel’s second largest is thriving – and the property market should reap the benefits.
Schroders Global City Index: 31st
- Flourishing technology hub
- Key financial centre
- Thriving tourist trade
- Security status
- Too few real estate investment trust opportunities
What makes Tel Aviv a global city?
Tel Aviv may have fewer than 500,000 residents but it attracts more than one million tourists a year, underlining the appeal of the region’s most vibrant city. Its economy is developing rapidly, particularly its tech sector, and young Israelis are flocking to work and play in the city.
As global real estate investors we’re attracted to cities where demand for real estate is far greater than its supply. For us, Tel Aviv, nestled on the Mediterranean coast, is one of these.
Tel Aviv has a bustling start up culture, centred on Silicon Wadi – the “Silicon Valley of the Middle East”. Israel has the highest number of start-ups per capita of any country in the world, according to research by Tel Aviv University*.
Google recognised this in 2012, setting up “Campus Tel Aviv”, a space for entrepreneurs to meet and develop ideas.
It’s the city’s liberal culture that is encouraging innovation and creativity, providing a hotbed for new businesses. With this, there has been an influx of 18 to 35 year olds who see Tel Aviv as an attractive city to work and study.
Unsurprisingly then, the tech sector is growing fast. But the city is also seen as a growing financial hub. Last year it was ranked the 25th largest financial centre in world**, according to the QFC Global Financial Centres Index. It scored higher than cities such as Amsterdam and Rome. Industry leaders Barclays and Citigroup have even set up research centres following state initiatives to promote investment.
Regulatory change over the last decade has also helped. Many secondary businesses are benefiting: accountants, banks and corporate financiers are all moving in. This means the demand for office space and residential properties for employees is growing.
A bustling entertainment scene
But Tel Aviv isn’t simply all work and no play. The city has the largest concentration of night clubs and restaurants in Israel. Tourists visit in their droves creating healthy demand for hotels, attractions and shopping malls. Visitors are spoilt for choice, with excellent weather, 14km of Mediterranean beaches on its West side, world famous Bauhaus architecture in “White City” and a popular food scene.
In comparison to its peers, the Israeli REIT market (real estate investment trusts) is still young, having only been born in 2006 when the government allowed their creation. There are currently only a small amount of REITs trading on the Israeli Stock Exchange, with less providing direct exposure to the Tel Aviv market.
We are keeping in close contact with the REITs we believe can provide attractive returns. The REITs that meet our strict criteria have been identified and it is now a question of waiting for the right pricing point before investing.
Diversity of demand is important as it means the city isn’t reliant on one sector, insulating its real estate market from the booms and busts that other cities may face.
Tel Aviv’s potential is growing. As the REIT market matures and catches up, we will be well placed to make the most of the city’s ascension.
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