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.

31/03/2017

Tom Walker

Tom Walker

Co-Head of Global Real Estate Securities

Schroders Global City Index: 31st

Strengths:

- Flourishing technology hub
- Key financial centre
- Thriving tourist trade

Weaknesses:

- 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.

Property opportunities

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.

Our verdict

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.

*Tel Aviv University

**The Global Financial Centres Index

Further reading

How Israel’s start-up culture is coming of age

Israel’s robust tourism sector 

Google’s “Campus Tel Aviv” 

Important Information: The views and opinions contained herein are those of Schroders' Global Cities Team, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. The data provider and issuer of the document shall have no liability in connection with the third party data. The Prospectus and/or schroders.com contains additional disclaimers which apply to third party data. Regions/sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this document include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.

 

 

 

Important Information: The views and opinions contained herein are those of Schroders' Global Cities Team, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. The data provider and issuer of the document shall have no liability in connection with the third party data. The Prospectus and/or schroders.com contains additional disclaimers which apply to third party data. Regions/sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this document include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.