In addition, prices and occupancy rates continue to drop in areas housing large projects and in nearby places.
The main supply surplus has been recorded in the central cities of Petah Tikva and Bnei Brak and the Ramat Hachayal neighborhood in northern Tel Aviv, where new office buildings are still under construction.
These figures were revealed in a review conducted by MAN Properties' research division in the fourth quarter of 2012 compared to the income-producing real estate market of 2012. MAN Properties has an exclusive agreement with the world's largest commercial real estate services firm, CBRE.
CBRE published its annual report for 2012 on the global office market in 50 countries. The report ranks Tel Aviv is in the 11th place in terms of price reductions with a 6% drop.
According to the report, Israel is not included among the most expensive places in the world. Hong Kong came in first, London second and Tokyo third.
According to MAN Properties CEO Jacky Mukmel, "We believe the supply surplus also affects nearby areas in Tel Aviv and Ramat Gan, as office buildings in the area are seen as a cheap alternative for the Diamond Exchange District in Ramat Gan and central Tel Aviv.
"Tel Aviv is the city leading the income-producing real estate market, and as such it leads the price hikes in periods of growth and price reductions in slowdown periods."
Average office rent in Tel Aviv fell in the fourth quarter of 2012 from NIS 95 (about $25.5) per square meter to NIS 90 ($24) per square meter (-5.5%), while the occupancy rate remained high at 95%.
The neighboring city of Ramat Gan recorded a drop in price levels and occupancy: The average rent fell from NIS 75 ($20) per square meter to NIS 72 ($19.3) per square meter (-4%).
The highest reduction in office rent in 2012 compared to 2011 was recorded in the Petah Tikva area, with a 5.2% decline. The highest price hike was recorded in the Jerusalem area with an 11% rise in 2012 compared to 2011.