From Shuk to Chic: Where's the Luxury in Tel Aviv, the World's Priciest City?

For a city recently designated the most expensive in the world, Tel Aviv can seem pretty shabby. But an influx of wealthy residents and rising prices are changing the face of many neighborhoods

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Kikar Hamedina, Tel Aviv’s largest square.
Kikar Hamedina, Tel Aviv’s largest square.
Hadar Kane
Hadar Kane

For years Tel Aviv has been one of the world’s most expensive cities, as reflected in various global rankings, leaving cities like New York and London trailing behind. But unlike those metropolises, many of Tel Aviv’s streets doesn’t convey much of a sense of luxury.

According to The Economist’s annual Worldwide Cost of Living rankings, published in December, Tel Aviv rose to first place in 2021, making it the world’s most expensive city to live in. Yet many of its streets look neglected, dusty and lack shade; the shops aren’t luxurious, and even in upscale areas one doesn’t see the brand-name stores like Donna Karan, Prada or Chanel that grace every self-respecting major city.

You can find some of the collections by high-end brands like Yves Saint Laurent, Bottega Veneta and Dolce & Gabbana at local fashion chains, but none have their own outlets in Israel. Even the technology giant Apple doesn’t have an Israeli store – if you happen to see the Apple logo in the city, it belongs to Apple’s official Israeli importer, iDigital.

The contrast between the exorbitant cost of living and the palpable absence of luxury in Tel Aviv is very striking. “There are two main reasons why Donna Karan or even a popular brand like Apple aren’t here,” says Nir Shmoul, a real estate marketing specialist and the CEO of the Urban Development and Renewal Company. “Israel is a small country in terms of population, and it has two sectors that are barely involved in the luxury game: the ultra-Orthodox and the Arabs.”

A cobbler naps in Tel Aviv, 2021.

High-tech and high birthrate

“Therefore,” continues Shmoul, “it wasn’t economically feasible for these brands to open stores in Israel. The second reason is the Arab boycott. The large chains – mainly those catering to the very wealthy – had a real fear of an Arab boycott in countries where there’s money, such as Saudi Arabia, Qatar and the United Arab Emirates.”

Nowadays, however, this situation is changing due to the increasing wealth of part of the Israeli population, particularly those in Tel Aviv, and the crumbling of the Arab boycott.

Israel has the highest birthrate among OECD countries, and the local high-tech industry is making a significant group of people wealthy. Entrepreneurs, managers, investors and employees at high-tech companies have become rich almost overnight. This trend is expected to continue, with tens of thousands of employees and startup entrepreneurs becoming rich, accumulating cash, shares or options worth millions to tens of millions of dollars per person. Along with that, there has also been a process of urban renewal in various parts of the country, particularly in Tel Aviv.

“Currently there are 157,000 people in Israel defined as having ultra high-net-worth, with assets worth more than $1 million [net assets after deducting debt],” says Shmoul. “This, along with the fact that Israel, whose population is approaching 10 million, has the highest birthrate among the OECD countries, will lead to the entry of many international chains, including luxury chains.

Tel Aviv's Carmel Market, in 2021.

“At the same time, in the past five years the trend vis-à-vis the Arab world, mainly the wealthy countries, has begun to change, first below the radar and in the past year openly – with the signing of the Abraham Accords,” notes Shmoul, referring to the agreements to normalize relations between Israel and several Arab countries, including the UAE and Bahrain. “That led to a change in the attitude toward Israel and removed the Arab boycott from the agenda. I can cautiously say that in the next two to three years we will see large superbrands entering Israel.”

Not just ‘shmattes’

Urban renewal in Tel Aviv is nothing new, it’s a long process that takes years, and its results are already in evidence,” says Shmoul. “A good example is the change in the Tel Aviv markets, such as the Jaffa flea market (Shuk Hapishpeshim), the Levinsky market and the Carmel market. In the past, they were popular places to buy fresh food, and neighborhood residents would come on foot and buy cheap produce. In recent years, they have become the site of boutiques, designer shops and entertainment venues, after the veteran merchants left.”

Sharon Band Hevroni, an urban planner and economist, and a partner at BeMida Urban Planning, Business Development and Community Strategy, served as the Jaffa marketing director in the Tel Aviv municipality from 2007 to 2012 – a period when the Jaffa flea market underwent a massive change. She shares the strategy behind it. “In the mid-2000s the flea market was a ‘shmattes’ market [Yiddish for rags or old clothing], divided between secondhand stores and antique furniture stores. At the time 30 to 40 percent of the stores in the market were closed and nobody wanted to lease them. There was only one café at the edge of the market and there wasn’t a shopping experience.

“In 2001 the first IKEA store opened in Netanya and masses of people bought furniture from there. The customers started to consider the market old-fashioned,” says Band Hevroni. Indeed the first IKEA store in Israel was very successful, with annual sales totaling 323 million shekels in the first two years.

“Meanwhile the merchants in the market suffered from another problem,” says Band Hevroni. “For two or three years the municipality renovated the area. Many of the customers kept away from the market because it wasn’t pleasant to walk around in a construction site.”

Jaffa's flea market (Shuk Hapishpeshim), in 2021.

A market that isn’t visited by masses of people, she explains, loses its appeal, and there’s a danger that it won’t be able to recover from the blow. “The charm of the market is the large number of people who frequent it,” she says. “We thought that we had to introduce retail principles into the market, as in a supermarket: To bring as many people as possible, who would stay in the area as long as possible, and would walk the longest possible distance inside it – thereby increasing the amount of shopping. It’s a principle that applies to any commercial space: The more people walk among the stores, the more they remember other things they need, and that leads to spontaneous purchases.

“We decided to make every effort to bring in restaurants and places of entertainment. At first it was a struggle. I met with the most well-known people in the field and they all wrinkled their noses – they said the place is passé. Then we started with municipal events, events that brought people. After that the first two restaurants that understood the market’s charm opened, and the rest is history.

“After three years there were suddenly too many restaurants about to open, and we realized that that would destroy the real essence of the market and push out the secondhand stores. We decided to limit the number of restaurants that could open in the complex. We decided not to fight the businesses that had already opened, but to limit the quantity and to set a mix,” says Band Hevroni.

The flea market did in fact undergo a significant change and became an entertainment and shopping attraction for young people.

Levinsky market, south Tel Aviv.

That wasn’t the only market that had been in decline, notes Ayelet Wasserman, the head of the Tel Aviv municipality’s business licensing department. “The municipality realized that commerce was declining in the city – there’s a tendency to tie that to the coronavirus crisis, but it didn’t necessarily begin there. It’s something that had been going on for several years due to the transition to online shopping. The city administration devoted some thought to the matter, and realized the solution was to create pedestrian-only streets.

“The best example is the Levinsky market and Kerem Hateimanim, where the Carmel market is located, which have become pedestrian-only areas,” says Wasserman. “That created foot traffic and enhances the shopping experience for residents or visitors. They find it pleasant to walk there and there’s no need to navigate with a car.”

Wasserman says that the strategy is also to preserve the character of the market. “We don’t want to see a market disappear. There’s a policy in the municipality that has existed for more than 10 years, which determines the mix between eateries and retail. We do want to see a real and active market with the traditional format. In Levinsky market, for example, they blocked off streets with posts – the city architect where to put street furniture and shaded areas. The renovation was cosmetic and not massive, so the street wouldn’t lose its character.”

Carmel market’s new face

In recent years, the Levinsky market has in fact become one of the hubs of Tel Aviv, buzzing with people of all ages and all population segments. The market, which is composed mainly of street-front stores – rather than stalls, as in other markets – remained open and busy almost throughout the COVID-19 crisis, even when there were restrictions imposed on markets. When the crisis ebbed, thousands of people would fill the pedestrian mall every day, standing in long lines at the boureka and falafel stands, or at the array of shops selling spices, grains, nuts, juice, coffee or flowers.

The Carmel market and the Kerem Hateimanim complex are also undergoing renovation and changing their mix of shops. They are full of trendy bars and restaurants, and serve as a magnet for revelers.

Tel Aviv's Carmel Market, in 2021.

Meanwhile, commerce in the city is becoming more expensive. According to The Economist list, Tel Aviv jumped from the fifth most expensive city in the world in 2020 to the most expensive in 2021. That has made it difficult for locals who have shopped at the Carmel market for decades to find cheap merchandise. The same goes for impoverished people who would come to the market on Fridays to buy nuts, grains, fruit and meat for their families; nowadays they shop elsewhere.

Like markets in other big cities in the West, the Carmel market in central Tel Aviv has changed its complexion. The high prices have driven away the traditional low- and middle-income clientele, who would come on foot or by bus in order to purchase inexpensive, high-quality produce. The number of fruit and vegetable stands has shrunk; some have closed and been replaced by trendy restaurants. One Carmel market stand owner, Abed Shakra, is now a spokesman for various TV marketing campaigns; stands have switched to offering online deliveries. On weekends it seems that most of the shoppers at the market are tourists seeking “authenticity,” which has long since disappeared from there.

“It’s true, the market in Tel Aviv is more expensive,” says Band Hevroni. “There are several reasons for that. The merchandise at the market is higher quality than at the supermarket chains, and the merchants pay more too, because they don’t have bargaining power with the suppliers like the large chains. Fewer people do their shopping there.”

Tel Aviv's Carmel Market, in 2021.

Chicken and egg

“In addition, the number of merchants is steadily dwindling every year in favor of restaurants,” notes Band Hevroni. “In the markets they lower the price at the end of the day for the poor – which doesn’t happen in marketing chains that have consignment agreements and can return unsold merchandise to the manufacturers. That’s why the merchants say that they have to raise the price.”

But the market merchants’ problem tells only part of the story – the city’s renewed and attractive mix makes everything more expensive. “I’ve seen surveys showing that Tel Aviv is expensive even compared to other major cities,” explains Band Hevroni. “It’s the chicken and egg: There’s great pressure on Tel Aviv and there’s an effect in economics called spatial inequality,” she says, referring to the unequal distribution of resources and services among different areas or locations. “Tel Aviv is delivering a knockout to the entire area and everyone wants to be there.

“The moment that spatial inequality is created and Tel Aviv draws in so many people – 450,000 people live in the city and a similar number arrive every day for work, with everyone looking for entertainment, culture and commerce, and with the most highly regarded designers and the best restaurants – the price of real estate increases and the stores allow themselves to demand higher prices as part of the overall experience. The moment there’s a mass audience, that causes an imbalance in the system.”

“In general, Tel Aviv is our main city,” says Itay Kaizerman, a real estate developer in Tel Aviv. “It’s a high-tech center that attracts international corporations and as a result we have a strong population that’s interested in living in the city and benefiting from its services. There’s no other city in Israel that can provide what Tel Aviv offers: culture, entertainment, a city where simply strolling the streets is an attraction. All those things attract a population that can afford it.

A street in Florentin, south Tel Aviv.

“In respect to urban renewal – there’s no new land that can be rezoned in the city center and the old neighborhoods. The only way is through urban renewal. Ramat Aviv – a neighborhood that was built at a time when people weren’t interested in moving north of the Yarkon River – was built as a spacious neighborhood with greenery and parks, and now it has become like a center, so the neighborhood has to grow upward. Commerce adapts itself to the population – it changes quickly: If a simple neighborhood clothing store fit the bill in the past, because people were looking for simple merchandise, suddenly the merchants realize that there’s a demand – from ordinary tomatoes to gourmet tomatoes, for example.

“In retail the goal is to turn a profit. You can see new, expensive projects, and the stronger the population, the higher the prices. There’s no question that as the urban renewal projects are finished, we’ll see commerce changing accordingly, because the merchants respond to the population,” says Kaizerman.

Avner Sher, an architect specializing in commercial and mixed­-use centers, believes that the high prices are part of what it means to be a successful city. “That’s the dynamic of a city – there’s no reason for prices to drop, certainly not in city centers. It won’t change unless there’s a revolution in transportation that enables people to enter the city by subway in five minutes rather than the nightmare of entering with a car and finding parking.”

However, Sher says the drastic increase in the cost of living is not inevitable, and that there are people who are interested in seeing the situation remain as is. “The entire issue starts at the top of the pyramid, which pulls the strings and causes all this, and these are the businesses demanding high rents. As someone who works with private developers I know that their main interest is numbers on an Excel spreadsheet. In 90 percent of cases the developer doesn’t use his own money, he uses money borrowed from the bank, which wants to know how long it will take until the entire loan is repaid.

“This creates a vicious cycle that none of those involved are interesting in stopping – except for the young people who pay the price when they want to live in the city.”

Sher gives an example of his past projects. “I deal with commercial projects – shopping malls and commercial centers and offices. We renovated Dizengoff Center [in 2004] with the objective of making it as attractive and saturated as possible. It’s a known fact that a large business pays lower rents [per square meter] than a small one. In a 10,000-meter (108,000 square feet) store, for example, the rent is lower than if it were divided into small stores, and that was the essence of the renovation.

Tel Aviv high-rises. Techies are accumulating savings from high salaries, bonuses and stock options, and are expected to buy apartments soon.

“We renovated the Schuster Center in Ramat Aviv in order to make it more attractive, and so the rent increased. Of course these things are influenced from all directions – in an area that’s becoming older and poorer the demand declines, and rents and prices are lower.”

What about Kikar Hamedina?

Sher contends that there’s a reason for urban renewal beyond boosting asset and rental prices. “There’s no question, urban renewal is essential. It’s not only for maintaining apartments, but also for renewing the city center and the places where everyone used to meet. Many wonderful places in Tel Aviv were neglected because they were replaced by other attractions. Renewal can restore the city to its former glory and make places attractive again, both apartments and storefronts,” says Sher.

“The main disadvantage is that public bodies don’t often offer financing without a private developer in the picture. I proposed renewing an entire street that is almost two kilometers (1.2 miles) long. And everyone told me – there’s no money for this, but if you attract developers then we’ll also join.”

In light of the expectations of a future filled with luxury brands, it will be interesting to see what happens in Kikar Hamedina, Tel Aviv’s largest square – a place synonymous with luxury thanks to the superbrand shops surrounding it. During the 2011 social-justice protests it also became one of the centers of the protest against the high cost of living.

Kikar Hamedina is not a public space – it’s a private space that belongs to more than 200 different landlords. Because of the large number of owners and the many disagreements among them, the area suffered from neglect for many years. In late 2018 construction on high-rise apartments began in the center of the plaza. It is still undergoing.

Kikar Hamedina, Tel Aviv.

Wasserman elaborates on the municipality’s renewal plans for Kikar Hamedina. “The city engineer is promoting a new master plan, including more commercial areas and restaurants. The previous master plan limited restaurants, and that will now change. The result that we’re hoping for is a bustling and dynamic plaza, while maintaining a balance with residential areas, so it will be a pleasant place to live.”

Kaizerman notes, “Kikar Hamedina may be experiencing the opposite of what’s happening in Tel Aviv. Once, in the 1980s and 1990s, it was very trendy, with a well-to-do population. Now it has changed and it’s a neighborhood with more families, and the plaza itself doesn’t attract much attention. That will change after the high-rises are built. The square will serve the incoming population. I believe that we’ll actually see fewer brands like Versace and more neighborhood cafes.”

Shmoul also believes that the square will change in character: “The luxury will leave and it will become a nice square with cafés, bars and restaurants – less fashion and fewer superbrands.

“The metro and the light rail will change transportation and real estate, and will affect what’s considered upscale. The next trendy areas in Tel Aviv aren’t necessarily Ramat Aviv and Kikar Hamedina, but rather [areas] more concentrated in the southeastern part of the city,” says Shmoul.

“A similar process took place in the artists’ district in Miami and in Soho in New York, which were the neglected slum areas. They began to attract young people and to identify the next commercial trends – and that’s how the brand names entered. I don’t see why Apple or Donna Karan wouldn’t open a store in Florentin [in southern Tel Aviv] in a few years’ time.”

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