Karolina Kowalska: Poland is currently the destination of choice for companies operating in the BPO sector in Central and Eastern Europe, according to a recent report CBRE prepared together with Hays. What makes Poland so attractive?
Colin Waddell: The business process outsourcing (BPO) sector is still growing in Poland. European-based corporations are carrying out their own cost-benefit analysis and concluding that sub-continent locations, such as India, are not always the optimal choice. However, much is coming down to what level of value-add service is required and the labor pool that is generally best suited to carry out these services.
Poland is becoming a major beneficiary of this trend as business process outsourcing can be effectively done closer to home – and within the European Union. Poland has all the attributes that the BPO sector is seeking: cost effectiveness, labor-pool size, labor-pool quality and a large number of European languages spoken by citizens.
Courtesy of CBRE
The industry is continuing to develop and companies such as CBRE are also outsourcing much of our European corporate client activity into Poland. CBRE’s Corporate Outsourcing center in Mokotów has grown from 70 to over 250 people in a little under three years, and will exceed 300 this time next year – due to further secured accounts. We are now looking for locations elsewhere, other than Warsaw, to develop the model.
What does CBRE’s outsourcing center provide?
Our Corporate Outsourcing center does all the “stuff” that corporate real estate occupiers are looking to divest from: lease administration, client accounting, portfolio management and facility management. We manage corporate real estate for clients who want to centralize and outsource all their real estate responsibilities to one or more providers. Automatically the service is often more efficient and certainly more cost-effective.
Here in Poland we have teams of people dedicated to corporate client accounts, in particular the European functions of global financial companies. These clients wish to focus on their core business and outsource corporate responsibilities (and liabilities), such as real estate, to specialists.
Our banking clients want to focus on banking and not real estate. This trend is developing quickly. We would be delighted to secure our first Polish financial company, however the local industry is not quite ready to take the real estate outsourcing leap – yet.
Multinational companies in banking, insurance and other investment groups have caught on to the efficiencies that can be achieved [by outsourcing]. Fuel companies like Shell and Exxon or manufacturers like IBM, GlaxoSmithKline, Procter & Gamble, have been outsourcing their real estate management for many years. Shell is a good example of an immense multinational company that looks for efficiencies. In principle, they simply have to achieve efficiency to meet shareholder demand.
Our everyday lives rely on outsourcing services to people or groups who invariably have more experience and can do the job better, faster and cheaper. Most of us would not try to fix our own car these days, of course, we outsource this service to an auto-repair center.
Despite Poland’s increasing attractiveness, India is still the top BPO destination in the world, isn’t it?
India has benefited from having a huge pool of young, university-educated people that also happen to speak English as a second or first language. The Indian education system is one of the best and most rigorous in the world.
However, several of our new and existing clients are beginning to strip out several value-added services and are relocating to Central Europe, in particular Poland.
There are several practical reasons for this such as the time zone, commercial skills that are easier to infuse closer to European headquarters and the quality of languages spoken. They value the benefits of outsourcing services closer to their headquarters these days.
Additionally, the pool of German, French, Italian, Spanish, Dutch and Scandinavian speakers is far greater in Central Europe than in India. Nonetheless, our research suggests that India will still continue to attract BPO, despite India’s macroeconomic uncertainty.
How can Poland compete with India then?
The fact that Poland is a European country, an important EU member and has a business friendly approach is attractive to corporations that want to invest in BPO. However, access to a large skilled labor pool is the paramount advantage.
Companies need to know that there is a pipeline of young educated people to recruit – either graduates or people who have outsourcing center experience. BPO communities such as Krakow, Poznań, Tri-City and increasingly Wrocław have these credentials.
Your report also underlined the importance of cooperation between companies and universities in creating new courses of study...
For decades, industry has sponsored certain universities to mold courses that would educate students in a certain way. They are also helped through grants or scholarships. For the BPO sector it’s in their own interest to be able to fund or promote courses that would support that industry.
Microsoft has gone one step further, via its Partnership for the Future initiative, by providing secondary schools with software and training programs to groom students into the workplace.
The report also states that the BPO sector is shaping the demand for office space. In Warsaw there has been 12 percent growth this year in this sector. How is it going to change next year or in 2015 when Ghelamco delivers its 100,000-sqm Warsaw Spire tower?
Demand is set to surpass 600,000 sqm in 2013 and possibly beyond 650,000 sqm. It seems an enormous amount but, crucially, net-absorption rates are stable and tracking the long-term average.
It is true that there is an oversupply scenario developing in Warsaw. However, it will be peripheral and secondary buildings that will be most affected. Not all the proposed development projects will or can be realized; almost all require strong business cases to commence and that means significant pre-letting.
The Spire development is an ambitious development that has been able to successfully secure a significant percentage of pre-letting and should continue to do so. The existing generation of active developers in Warsaw are proven experts and know how to time their run to commencing a development.
More broadly, if you look at office stock levels compared to other European business centers, Warsaw still has a long-term growth story and is still tracking demand.
Unlike almost any other European city, central Warsaw has multiple locations where a high tower development such as Rondo 1 or WFC is technically feasible under the current city plan. As a result, Warsaw will, for the foreseeable future, have a more volatile vacancy and rental rate.
What do you think will rent rates will be in the next couple of years?
Usually, greater vacancy levels result in rent rates softening and this is already happening in Warsaw. We can see a big difference from one year to another.
Real estate costs always play a significant part of any office occupier’s operating expenditure. In principle, this would be a good time for a BPO service provider to take advantage of the competitive rent rates that can now be achieved in the current market.
In your report, Warsaw ranked 61st most-expensive office market in Europe. Are we growing more expensive due to the increased BPO activity?
Comparatively, Warsaw is attracting more office-based business than any other Central European city. Political stability, fast improving infrastructure, competitive employment costs and a quickly developing skilled workforce is helping job-creation levels.
We anticipate a further 100,000 new jobs will be created in Warsaw over the next six to eight years which equates to another million sqm of new space. It is natural that this increase in demand will increase occupational costs.
However we expect the convergence to Western European levels (excluding exceptions like West-End London and Paris) to be gradual – assuming cost levels in general rise along with inflation and consumer spending rates.
Compared to other business capitals in Europe, Warsaw is very likely to remain competitive.
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