Boston, MA -- (SBWIRE) -- 12/11/2013 -- We believe that the real estate sector in Israel will remain stable across all subsectors due to the consistent but slow growth of the Israeli economy. We have predicted some small changes, including a 5-10% rental increase in the Jerusalem office sector due to overcrowding in the main business area, as well as a 4-5% decrease in rental rates for the Haifa industrial market due to an excess of available space.

Commercial real estate expansion is dependent upon a healthy macroeconomic environment. We project real GDP growth in Israel to come in at 3.7% and 3.8% in 2013 and 2014. Although the beginning of natural gas production in the Tamar gas field will ensure that growth accelerates compared with 2012, the domestic economy will remain in a soft patch, with austerity measures hitting private consumption hard. Poor economic growth will adversely impact the sector as it serves to dampen both property fundamentals and capital markets placing downwards pressure upon tenant retentions, rental growth, yields, development activity, financing and asset values.

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Nevertheless, on the whole demand is on the up, resulting in very high occupancy rates. This demand is being paced relatively well by new supply, keeping rents generally the same as businesses move away from the centre of major cities for peripheral developments.

Elevated risks of instability in Israel's neighbours, including Jordan, Lebanon, Syria and the Palestinian Territories have raised political risks, and investors' risk appetite may be tempered by the potential for a spill over of instability into the country's borders. However, the democratic Israel's stability in the face of its neighbour's domestic turmoil during the Arab Spring does present a clear contrast for investors willing to do business in the country and accept the political consequences.

Key BMI Forecasts

- In the office sector, BMI predicts a 5-10% increase in rental rates in Jerusalem, with all other rates and net yields holding steady.
- In the retail sector, BMI predicts no change in rental rates or net yields in the three cities surveyed.
- In the industrial sector, BMI predicts a decrease of 4-5% in rental rates for Haifa's industrial sector. All other rates and net yields will hold at 2013 levels.

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