The author is the CEO of the economic-marketing consulting firm Chamansky Ben Shahar & Co.
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This month, the Melisron mall company returned to its ownership the Harel mall, which was taken from it about a decade ago by the competition commissioner. This is a mall located in Mebasheret Zion, where there is another mall similar in size and mix – Mebasheret Mall.
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With optimal planning, one mall 1.5 times the size of any of the existing malls would serve the purchasing power more optimally. In practice, the malls manage to import monthly purchasing power from the surrounding Jewish and Arab countryside, and on a wider scale than the leakage of purchasing power from Mobarshet to Jerusalem and online. In fact, the two malls occupy more than 50% of the monthly purchasing power in their demand area – about NIS 80 million.
Multiple commercial spaces
The population of the local council of Mevsaret Zion is estimated at about 25 thousand residents in about 8,000 housing units. According to the master plan, by 2040 the council is expected to house 40 thousand residents. The commercial and office areas approved in the plans in 2019 were estimated at 145,000 square meters, and an additional construction of 60,000 square meters is planned until 2040. The socio-economic ranking of the council is in the 8th decile. The yielding real estate ratio per resident is estimated at 3 million only 1 m2, compared to the national average of 18 m2 per inhabitant.
On average, in the last five years, about 230 housing units began to be built, with the year 2021 being a record for starts with 743 housing units, compared to 2020 when only 41 housing units began to be built. The annual residential construction completion was estimated on average in the last five years at about 65 housing units.
As for the beginnings of the construction of Maniv Real Estate, in the last decade a few industrial, warehouse and office spaces were built in Mevaseret Zion. The year 2022 was the most significant, with the reported completion of construction of about 45 thousand square meters of Maniv Real Estate (data from the National Statistics Service), which were built Started in 2019 and 2020.
From the calculations made by Chemansky Ben Shahar Co. in the field, the total commercial space in Misbaret Zion is about 40 thousand square meters gross, of which, about 30 thousand square meters of net retail trade. Most of the commercial space (about 60%) exists in the two malls, Harel and Mashret. The ratio of commercial space to household in Mebasheret Zion stands at 4.9 square meters, which is relatively high. It is the center of commercial gravity in the demand area, and serves all the localities in it.
About 44,000 square meters of additional commercial space are planned in Mevasheret in the future, almost 2 times what exists today. Of this, on the western slopes of Sderot Hatzavim, about 16,000 square meters are planned for commerce (approved since 2018), and 9,300 square meters in the interchange Harel and adjacent to it, in the planned transportation center. Meaning, an excess supply of commercial space is expected in the area. Therefore, it is estimated that not everything that was planned will be built, and/or that redemptions will decrease.
find the differences
Where does the Melisron deal fit into all this? Let us remind you that the Harel Mall includes 11.6 thousand square meters of commercial space and generates NOI (net operating income) of approximately NIS 15 million per year. According to the IBA, there are additional building rights that are currently unused, for 7,400 square meters of commercial and office space , 1,300 square meters for residences and 800 square meters for buildings and public institutions.
In mid-February, a mediation agreement was signed in which it was decided that Melisron would buy back the Harel Mall for NIS 189 million, after it was required to sell it in 2013 to the Axiom Fund, due to a demand from the competition authority in the British-Melisron deal.
The competitor, Mebashert Mall, is owned by Horzion Gold and Rami Levy in equal shares, and it is estimated that its NOI is similar to that of the Harel Mall. Based on the calculations we made in the mall, its area is 11.4 thousand square meters. Of this, 93% is net retail trade (not including restrooms and empty spaces). In the past, an outline plan was submitted to expand the shopping areas in the mall (in the parking lots), by an additional 3,000 square meters , but the matter has not yet been decided.
The distribution of retail space according to submarkets is 54% “non-food” space, 33% food and supermarket space (a figure that is considered high, among other things includes the Rami Levy chain with a price store that you come to for a dedicated purchase), 6% catering space, 5% Services and 2% empty spaces. It is estimated that the mall occupies about 25% of the monthly purchasing power in its demand area.
Comparing the range of stores in the two malls, the Harel Mall has more than 80 stores and businesses, and Mevasherat only about 60. In both malls there are catering areas, mainly fast food and cafes, with a non-overlapping offer, with the exception of Roldin. However, in Harel the mix is more diverse.
Building on the neighbors
The monthly purchasing power in Misbaret Zion alone is estimated at about NIS 40 million, and it cannot allow the two malls to function economically as required. Therefore, the two malls are obliged to import purchasing power from outside, which will exceed the monthly purchasing power leaking mainly to Jerusalem.
About 60,000 residents live in the demand area of the two malls, which also includes the surrounding settlements (from the Jewish and Arab communities), who have over NIS 80 million a month for retail products. It is expected that every month another NIS 12-15 million will be added to this purchasing power.
According to Melisron’s report, the monthly revenue per square meter in the Harel Mall is NIS 1,850, which means a total monthly revenue of approximately NIS 21 million. It is estimated that the monthly revenue of Mebashert Mall is slightly lower (except for the Rami Levy store). However, together the two malls occupy About 50% of the monthly purchasing power is in the demand area, which means that monthly purchasing power also flows to both of them from the surrounding settlements.
In optimal urban and commercial planning, in a settlement the size of Mevasheret Zion, only one mall was required to operate, and in an area 1.5 times the supply in each of the two existing malls. In practice, the two malls are similar in their small area, with a difference in the number of stores. In a variety of national and international fashion chains Mebashert has an advantage, and in catering Harel has an advantage.
To reduce the cost of living in Mebasheret, an open commercial center and/or a center of commercial space in an industrial area, which contains more discount stores – which cannot pay relatively high monthly rent and management fees as required in a closed shopping mall, would be more beneficial.
The re-entry of Melisron into the picture sharpens the need to create differentiation between the two malls for the same monthly purchasing power, and in the face of the competition that is intensifying in commercial areas in Mebasheret, Jerusalem and Delifa online.
Deborah Rokin, an analyst at Chemansky Ben Shahar & Co., participated in the writing of the column