Outsourcing mecca

According to data provided by the Association of Business Service Leaders in Poland (ABSL), between 20 and 30 new outsourcing centres are soon to be established in the country. Around 220 companies from 22 countries have outsourced their operations to Poland, out of which 80 foreign corporations employ more than 100 people and are considering further expansion.
Poland ahead of the field
Poland is currently one of the most appealing European countries for outsourcing companies. For example, Kraków is among the 30 hottest locations in the world and the leader in the EMEA region. The country has replaced former leaders - the Czech Republic and Hungary. "Poland is still the most interesting location for the BPO sector. Other CEE countries do not constitute any threat to the development of this industry on the Polish market. However, Far East countries, such as India, China and the Philippines, have been emerging as competitors. In the long-term, Ukraine, which now lacks political and economic stability, could count itself as a competitor as it differs little from Poland in terms of costs," believes Krystian Bestry, the vice-president of ABSL in Poland and the managing director of Infosys BPO Europe.
This opinion is echoed by other players in the sector. Companies recruiting workers for new outsourcing centres consider Poland to be a strong leader in the field. "The next positions in terms of the amount of such investment are taken respectively by the Czech Republic, Hungary, Romania, Slovakia and Bulgaria. It is a similar story when the number of employees in the sector is taken into account. Around 220,000 people work in outsourced firms in the region, with almost 40 pct of them in Poland. The Czech Republic has 40,000 of such employees, 32,000 work in both Hungary and Romania, 22,000 in Slovakia and 13,000 in Bulgaria. Poland accounts for 85,000 workers according to ABSL, and the number is set to exceed 100,000 by the end of 2012. This massive increase in personnel is not only due to the creation of new hubs, but also existing companies' plans to open branches in other Polish cities," explains Małgorzata Jasińska, CEE corporate accounts director of recruitment company Hays.
The most dramatic increase in the number of BPO projects in the last few years has occurred in Bulgaria and Romania. But according to analysts, both countries started from a lower base and the upsurge has only been due to two or three new investments. Yet this should not be dismissed. "The process of relocating investment from Poland to other countries in the region is still underway, but the scale of the process is insignificant, which is partly due to the specific expectations of investors. For example, services in French can be provided in Romania at a lower cost than in Poland," comments Krzysztof Jedziniak, a manager at consulting firm AT Kearney.
Why is Poland so attractive for outsourcing? Compared to countries such as Hungary, Poland has a reputation for political and economic stability. The high level of flexibility of Polish workers, their knowledge and experience, the availability of well-educated graduates with strong language skills, and the low labour costs in comparison to other European markets, as well as the availability of modern office space and the geopolitical location, all play a major role.
Outsourcing map of Poland
Changes, however, have been occurring on the map of outsourcing locations in the country. Warsaw remains the strongest hub. This year, developers have app. 1 mln sqm of offices under construction, with almost half of this in the capital. "The level of vacancy reflects very well the activity of developers in a particular city. So Warsaw is still the most popular location, where vacancy reaches 7 pct. In Kraków it is 8-9 pct, and in Łódź 16 pct. But Wrocław wins the contest, with a vacancy-to-existing-space ratio of 3 pct," reveals Julita Spychalska, associate director of Jones Lang LaSalle's tenant representation department. Regional cities seem to be rousing themselves from their lethargy, such as Bydgoszcz and Toruń. "As for smaller hubs, such as Opole, Radom, Rzeszów, Białystok and Olsztyn, they are being eyed by potential tenants from the new business services sector. Now it is for developers' facilitate this," says Jakub Sylwestrowicz, also an associate director of Jones Lang LaSalle's tenant representation department. This is particularly important, because when a location for a new office is selected, the choice falls on those cities that offer a wide range of modern office space. "The strongest demand (more than 50 pct) is generated by those companies that already exist on the Polish market. They have long-term plans, they are looking to other, less salubrious cities to expand their activities into, and are already eyeing up such locations. These experienced tenants take into consideration not only the attractiveness of a particular location, but also the rents. Their main aim is to optimise costs, often by opting for less popular locations. They can always wait longer for the most optimal buildings," explains Krystian Bestry. According to him, it is Poznań, Łódź, the TriCity, Szczecin and Lublin that are new players in the game, and tenants are already recognising the market in even smaller centres, with average populations of 100,000. Recently a number of companies from the sector have entered such local markets. Bayer has entered the TriCity with the intention to open a financial and accounting centre by the end of the year. It is worth mentioning that the TriCity won out against competition from Vilnius and Tallinn. Currently the company is looking for a suitable office building and eventually plans to employ around 200 people. Thomson Reuters is also expanding its analytical centre in the city. Now the company has 1,000 employees, but it will soon be looking for offices for a larger workforce. The same development scenario in the TriCity is true of other companies, such as Sony Entertainment, Geoban, Arla Foods, First Data and Metsa Group. "In Poznań, due to the bigger availability of German-speaking employees, brands like IKEA or Bridgestone are thriving, while Łódź is a prime location for less renowned brands," adds Krystian Bestry.
Developers in action
The development of the sector is creating conditions that are favourable to investing in and carrying out office projects that satisfy the needs of BPO tenants. Developers in Warsaw remain active. In Q1, 47,800 sqm was brought into use and another 265,000 is to be created by the end of the year, according to Jones Lang LaSalle's ?Warsaw's Office Market Summary Q1 2012'). Some movement is also visible in the TriCity, where currently 95,300 sqm is under construction, while in Wrocław developers are preparing 107,000 sqm (according to Jones Lang LaSalle's ?The Biggest Office Markets Outside Warsaw Q1 2012' report). As the parties concerned claim, the demand exists. "The BPO/SSC sector has been undergoing dynamic development for years. And the trend is growing. Currently, in the TriCity more than 113,000 people are employed in the sector, resulting in the lease of more than a third of the modern office space available. According to our estimates, companies from the BPO sector will soon occupy more than 50 pct of the total space in class ?A' buildings," predicts Maciej Brożek, the leasing manager of Torus. Edward Laufer, president of the management board at Vantage Development, whose main market is Wrocław, notes that a movement among BPO/SSC tenants in Wrocław is happening, and that the city is the top location on the domestic market. "We have observed that companies from the sector are particularly interested in open-plan projects. Thus we are receiving a lot of enquiries about the latest phase of the Promenady Epsilon project," claims Edward Laufer.
It is a highly specific task to develop premises that correspond to the requirements of the BPO sector. Such tenants need to have a large amount of remaining space to expand into. "The average number of employees in a BPO centre is about 300. So if for one employee the requirement is 10 sqm to 12 sqm, it means that companies must lease at least 3,000 sqm. And that's not all. When a company is growing - taking on new commissions and expanding its workforce - its demand for new space also grows. So the best positioned developers are those whose buildings meet the required standards and which can be adapted to the changing needs of investors," says Krystian Bestry. What standards are we talking about? "The conclusion drawn from our discussions with tenants is that they require class 'A' facilities with at least 1,100-1,200 sqm of space, and not on the ground-floor. The space should be effective, simple and with as few structural components as possible. A high technical standard is also of a great importance, including efficient air-conditioning, access control, electrical and energy security and an advanced building management system," explains Maciej Brożek. Krystian Bestry adds that technical solutions such as lighting control, raised flooring and the flexibility of the space are also essential. "Due to the specific aspects of working in a BPO corporation and the necessity to ensure the security of sensitive data, tenants are likely to choose square-shaped or triangular buildings, rather than a rectangular one," claims Krystian Bestry.
But the most decisive factor for new tenants is that they need from three to six months to start up their operations. Thus the buildings should be completed, enabling the tenants to move in within a short period. Without a suitable offer, neither the city nor the developer can expect any interest from the sector. The demand created by joint service centres or business service centres locating in Poland constitutes an excellent spur to increase the supply of office space in the country. Now it is the developers' turn. Their activities should satisfy the need for tenants to generate profits. The question of the availability of offices is also linked to that of speculative building. Developers often do not like this term, as in their opinion it does not reflect the character of such activity and is disliked by the banks. "Forward' construction is an attempt to maximise benefit from the economic situation. It does not have anything to do with speculative development, because in such instances the demand has to be precisely determined in order to erect buildings that would best live up to future tenants' expectations," argues Maciej Brożek. "It makes sense to us, we need to have a broad choice," adds Krystian Bestry.
Any impulse for the development of office spaces electrifies developers. Not only are new projects, adapted to the needs of tenants from the modern business services sector, raising the standard of Polish projects, but they are also increasing the attractiveness of the country for interested parties.