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Tri-City Office Market ReportNovember 2013

2 On Point • Tri-City Office Market Report • October 2013

Olivia Business Centre, Gdańsk

Dariusz Bazeli General Director Geoban Polska

“In 2008, Geoban established its branch offices in Poland. In its two office centres in Gdynia and Wroclaw, Geoban employs a team of more than 650 highly qualified professionals. As a result, the company can provide comprehensive banking services related to operational back-office services for businesses from the Santander Group in various countries.

Geoban SA is a part of the Santander banking group, in which it plays an important role in implementing the group’s strategy for the management of operational risks, and for the implementation of effective policy actions through its centres located in eight countries.”

Magdalena Reńska

Head of Office, Gdańsk Jones Lang LaSalle

“We are seeing increased interest in the Tri-City from developers and tenants. This trend is confirmed by the growing number of enquiries received both by Jones Lang LaSalle and institutions responsible for investor assistance. The market is dynamic and not only when newcomers from the modern business services sector are considered. Companies already established in the region, also appreciate the Tri-City and, as a consequence, improve local employment rates. In addition, potential tenants’ interest is having a positive impact on the office market, which can fulfill the tenants’ expectations in the area of location, availability and standard. This is in no small part due to the large amount of projects both existing and under construction”.

On Point • Tri-City Office Market Report • October 2013 3

Why Tri-City?

Improving transportation network and good connectivity • Access to the A1 motorway, the expanding ring road, new tunnel linking Wrzeszcz with Port Island

• Regular and frequent flight connections with Polish and major and secondary European cities.

• Improving railway connections with major Polish cities, urban fast railway, planned metropolitan railway, and modernisation of the E65 railway line from Gdynia to Warsaw (by 2015).

• New under construction airport terminal in Gdynia.

• Developing seaports in Gdańsk and Gdynia

High quality labour force • One of the major academic centres in Poland (28 higher education institutions, plus numerous research

and development centres).

• Developing research, science and innovation centres.

• 100,000 students in the Tri-City.

• 26,000 graduates per annum, including 7,000 finance and nearly 1,000 IT graduates.

• In addition to fluent English, which is a market norm, 30% of employees in the Pomorskie region speak German, 20% Russian and approximately 6% speak French or Spanish. Nordic languages are popular as well.

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Strong Economy

• The Tri-City’s population is 748,000 people, while the metropolitan area is home to more than 1.2 million people.

• 21,700 registered unemployed, which equates to a 6.6% unemployment rate.

• Economy geared towards high technologies: outsourcing of business services, finance and IT.

High Quality of Living

• Seaside location.

• A city of vast cultural heritage which has considerable leisure facilities.

• Developed residential market, a variety of shopping and leisure centres, as well as a wide hotel base.

Planned road, seaport and airport infrastructure improvements.

Real Estate

• Largest office market in northern Poland.

• Wide choice of options for potential tenants.

• Competitive rents. • High construction activity.

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EconomyTowards modern business services

The Tri-City metropolitan area, home to more than 1.2 million people, is the leading economic hub in northern Poland. It acts as a vital transport hub, linking the north and west of Europe with the central and southern parts of the continent. Recently, the Tri-City was awarded the prestigious ‘Best City of the Year' title in the BPO/SSC Sector at the Polish Outsourcing & Shared Services Awards Gala. The Tri-City competed for that title with the other nominees: Cracow, Wroclaw and Poznan. It was the first contest in the Polish BPO/SSC sector aimed at identifying and distinguishing domestic leaders. The winners were selected by international jury consisting of experts from the BPO/SSC sector representing service centres, consulting agencies and the most influential trade associations in Poland and in Europe. Its advantageous geographic location is a tremendous asset of the Tri-City metropolitan area, which results in good accessibility through different modes of transportation. Gdańsk Lech Wałęsa international airport can be reached by a direct flight from more than 50 destinations, including major European airline hubs such as Amsterdam, Copenhagen, Frankfurt, London and Munich. The large number of connections with German cities (Berlin, Dortmund, Hamburg) and Nordic cities (Bergen, Oslo, Stockholm and Turku) makes Tri-City a good near-shoring location to serve those markets. The dynamic growth of passenger traffic illustrates the increasing role of Gdańsk airport. The passenger flow in 2012 exceeded 3 million. The region witnessed a construction boom in road transport infrastructure resulting from the preparations for Gdańsk to co-host the Euro 2012 European football championships. Thanks to those preparations, the Tri-City gained a motorway connection with central Poland and the ring-road system was expanded, which reduced traffic in the downtown. In addition, links between the airport and the city centre were improved.

From a social and cultural point of view, the metropolitan area of the Tri-City offers many advantages: high quality education, good medical care, efficient public transport and a good quality of life.

This has been reflected in Gdynia and Gdańsk occupying leading places in ‘the most friendly cities to live in’ survey published by

Przekrój magazine. Among the 26 cities surveyed, Gdynia was named the best and Gdańsk was ranked third.

To support companies that open service centres in the Tri-City BPO Education Center was established, thanks to collaboration between local service centres, public institutions and Sopot High School. The Center is the first institution in Poland that aims exclusively at recruiting and training future employees of service centres. The school has attracted recognized experts in accounting and information systems, members of the staff, as well as specialists from local service centres. The training program covers the most important qualifications for service centre employees, including training in SAP, corporate accounting and a range of soft skills. The course ends with a compulsory internship at a service centre, which is the final verification of the acquired knowledge.

Also, the Economics Faculty of the University of Gdańsk has launched a new course “Finance in companies”, which is accredited by Association of Chartered Certified Accountants (ACCA). Thanks to this accreditation students will obtain not only an MA degree in financing but also an ACCA diploma that is recognized all around the world. The Economics Faculty is also working to launch the ACCA Examination Centre, which will be designed not only for the students of the new faculty, but also for all those that want to acquire new competences in that particular field. The Gdańsk Scholarship Scheme is a unique mechanism, available only for investors who wish to locate foreign operations in Gdańsk. It provides financial assistance for training personnel of newly established businesses, either in Poland or abroad. The grants it gives cover the costs of training, accommodation, travel and living expenses for a period of six months and amount to up to PLN 30,000 per person.

Invest in Pomerania is a regional initiative that provides free-of-charge services to foreign investors interested in carrying out projects in Pomerania. It was created by the Marshal’s Office of Pomorskie Voivodeship, the cities of Gdańsk, Gdynia, Słupsk and Sopot, Pomeranian and Słupsk Special Economic Zones, InvestGDA and Pomerania Development Agency, which coordinates the actions of the initiative.


Labour market Poland is one of the leaders in the world BPO/SSC market. According to Everest Group, an international consulting company, Poland is one of five mature locations for outsourcing worldwide. The sector is maintaining constant rapid growth, making it one of Poland’s fastest growing industries.

Due to the intellectual potential of the region, most notably a talent pool that possesses knowledge of foreign languages, it is expected to develop even further in the near future.

The growth of the knowledge-based economy is very much dependent upon a constant inflow of graduates to the labour market, especially finance, language and IT graduates, as those are the most popular processes in BPO/SSC centres. Currently, there are nearly 100,000 students in the Tri-City, and 26,000 graduates per annum, of which approximately 7,000 graduate from a finance faculty and almost 1,000 from IT-related divisions (source: CSO). This large available pool of staff with higher education and specialist knowledge attracts centres with more advanced functions and processes, which are referred to as KPO (Knowledge Process Outsourcing) centres.

Moreover, the Tri-City has substantial science and research potential, as well as technical facilities and a good number of engineering specialists, which are all critical for the growth of R&D centres. The Intel Technology R&D centre in Gdańsk, specialising in application development, is a good example of successful co-operation between science and business. The facility currently employs 1,000 staff and plans to expand in the future.

The Tri-City provides opportunities to source a pool of talent with a very good command of foreign languages. More importantly, in addition to fluency in the popular European languages, such as English and German, staff in Gdańsk, Gdynia and Sopot can also speak niche Scandinavian languages. This is a clear competitive advantage of the Tri-City and is possible due to a combination of factors, such as the good educational system which encourages the study of foreign languages, the Tri-City’s location in proximity to Scandinavia, and historically and traditionally strong economic and tourist connections with both the German and Scandinavian markets. The University of Gdańsk offers a wide range of language faculties, including Danish, Finnish, Swedish and Norwegian, which is still rare in Poland.

In the academic year 2011/2012 there were a large number of language students at the University of Gdańsk, including 996 people studying English, 473 German and 489 Russian. The Scandinavian faculty mentioned above was chosen by 214 students.

Other languages include French (with 225 students) and Slavic languages (with 176 students).

According to data from Hays Poland, 90% of employees in the Pomorskie region say they have knowledge of English, more than 30% German, and more than 20% Russian. Additionally, 6% of the residents speak French, and 5.6% Spanish. Those results confirm the high level of language knowledge in the Pomorskie region.

The competitive advantages of the region, including the availability of highly qualified employees with knowledge of foreign languages, have attracted many world-class employers, such as Bayer, OIE Support, WNS, Sony Pictures and Metsä Group. The large pool of experienced candidates with a working knowledge of more than 20 foreign languages makes it possible for new investors to develop their business in the Tri-City, the most recent example being Kemira, which has centralized in the Tri-City its procurement, accounting and customer service processes.

It is also worth mentioning that the Tri-City offers a very high standard of living: Gdańsk, Gdynia and Sopot consistently achieve high scores in various quality of life rankings. The attractiveness of the region makes it possible to relocate staff from other cities in Poland, thus considerably increasing the available talent pool. Moreover, the number of foreign nationals living and working in the Tri-City has been increasing rapidly over the last few years: currently they are a significant group among employees of the local BPO/SSC centres.

The costs aspect, including the financial expectations of candidates, is particularly important when establishing and developing an organization, as well as when taking investment decisions regarding location. The Tri-City, despite the high living standards, has lower salary levels than those found in other developed markets.

Remuneration of a particular specialist is obviously strictly dependent on factors such as experience, qualifications, foreign languages required and the availability of talent in the local market.

Average Gross Monthly Salaries in BPO/SSC Sector in Tri-City

Source: Hays Poland, September 2013

Position Salary (in PLN)

Min Max Junior GL Accountant 2,800 4,500 GL Accountant 3,500 6,000 Junior IT Specialist 2,500 3,500 IT Specialist 4,000 7,000 GL Team Leader 7,000 12,000 Centre Director 20,000 40,000


Business Services Sector in the Tri-City The Tri-City is strengthening its position as a business services leader in Poland The dynamic growth of the industry in the Tri-City is attracting leading global brands to locate their investments here. The significant potential of the region is also reflected in the growth of centres that are already operating in the local market.

More than 40 investors from 13 countries — mainly the USA (15 investors) and the Nordic countries (10) — have established service centres in the Tri-City. Currently (2013), BPO, ITO, SSC and R&D centres with foreign capital employ more than 10,000 people,1 which is the fourth highest number in Poland (after Krakow, Warsaw and Wroclaw). Employment in the sector has been generated mainly by capital from the United States (52%).

It should also be noted that one in five service centres with Nordic capital (i.e. from Norway, Sweden, Denmark or Finland) located in Poland are found in the Tri-City and those account for 15% of the workforce in foreign service centres in the metropolis.

The map showing the business services sector in Poland illustrates that the Tri-City is specializing in IT services (infrastructure management, application management) and R&D (mostly software development) — over 65% of centres operating in the Tri-City provide such services.

Centres for IT outsourcing (ITO) together with R&D centres account for more than one third of all employment in this industry in the metropolitan area, one of the best rates nationwide. Financial and accounting services play a significant role in the structure of business centres, being provided in one in three entities in the area described.

These activities are carried out most often in shared service centres (SSC). Of the twelve SSC centres with foreign capital that operate in the Tri-City, eight work for their parent corporations in the Industrial and Consumer Goods sector.

The structure of employment in SSCs (by industry types of SSC parent companies) clearly shows the highest share of BIFS (Banking, Insurance, Financial Services). It is worth mentioning that

1 As well as foreign capital business entities, one should note that several important

Polish companies operate in the business services sector in the Tri-City, with several thousand employees.

the services offered by the Tri-City’s centres are provided in more than 30 languages.

The business services sector in the metropolis is growing rapidly, which is evidenced by the fact that one in every four service centres here started its activity between 2012 and 2013 (including Bayer, OIE Support, WNS Holding, Metsä Group and Kemira to name a few).

New investments are to generate a total of nearly two thousand new jobs. Employment in the sector has increased by about 30% since the beginning of 2012. It can be assumed that, by the end of 2013, employment in service centres with foreign capital in the Tri-City, will have doubled in comparison to what it was at the beginning of 2010.

Association of Business Service Leaders in Poland (ABSL), Regional Chapter in the Tri-City

The ABSL Regional Chapter in the Tri-City is the local organization of investors operating within the area of business services. Through close co-operation with local authorities, universities and Pomeranian companies, ABSL aims to influence the improvement of the investment climate in the region.

One of the main tasks of ABSL is to support its local members in all areas identified by them. At the moment, the activities are focusing on knowledge sharing; training support for Tri-City university graduates; collaborating with regional and municipal offices; and on promoting a positive vision of the business services sector within the region.

The following companies, among others, participate in this ABSL Regional Chapter: Thomson Reuters, Sony Pictures, First Data, Arla Foods, Metsä, Transcom, Geoban, Bayer, WNS, HAYS Poland, Jones Lang LaSalle, PwC, the Pomerania Development Agency as well as guests from public administration and representatives of universities.

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Office MarketReady for growing business The Tri-City (Gdańsk, Gdynia, Sopot) is not only well prepared in terms of educated labour and stable economy meeting the needs of companies representing business services sector: the region also offers a wide choice of modern office space for potential investors. Until recently, the market was dominated by experienced local developers, such as Allcon, BCB, EURO Styl, Hossa, Torus and TPS, and provides high quality office space similar to the standards offered by international real estate developers in other Polish cities.

At the beginning of November 2013, total office supply in the Tri-City amounted to 430,000 m2, which makes the Tri-City the fourth largest office market (behind Warsaw, Kraków and Wrocław) in Poland in terms of total office supply.

The Tri-City began to develop in the mid 1990s, as a market of mainly owner-occupied buildings (e.g. Lotos, Prokom, SKOK, Hestia and PKO BP). From 2008, the market saw a sharp increase in the number of speculative office developments available for lease. Also, the presence of international/national developers has increased with such companies as Hines, Swede Center and Echo Investment already developing or planning projects in the Tri-City.

Currently, Gdańsk remains the largest office hub with a share of 62% in total Tri-City office supply, followed by Gdynia (30%) and Sopot (8%).

One can see that a couple of office locations have started to emerge and have become core office destinations within the Tri-City region.

One of those is the area of Oliwa and Wrzeszcz in Gdańsk, with key modern developments such as Arkońska Business Park (five buildings of nearly 27,000 m2); Olivia Business Centre (including Olivia Gate, Olivia Point and Olivia Tower, totaling approximately 40,000 m2 and offering large floor plates); OPERA Office (7,500 m2) located in the vicinity to the campus of the Gdańsk University of Technology; and Garnizon.biz to name just a few. The Tri-City’s office market is also able to meet the needs of companies which want to have their office close to the airport, with such developments as Allcon@Park and BCB Business Park operating in that area. In addition, BCB plans further extension of its park.

Establishing office locations may be also observed in Gdynia, with Łużycka street considered as a rapidly developing office hub in this part of Tri-City.

Construction activity and planned developments At the end of October 2013, more than 71,000 m2 of office space was in construction stages across the Tri-City. It is worth noting that 35% of this space has been already secured by pre-lets.

All the previously mentioned locations will be bolstering their districts seem to be the largest construction site in the Tri-City. Delivery of currently under construction developments, such as Alchemia (16,300 m2), Olivia Four (12,500 m2) and Centrum Biurowe Neptun (15,300 m2), will strengthen the position of this core office area.

Alchemia, Gdańsk


In addition, further extensions of Alchemia and Olivia Business Centre are planned. Moreover, Oliva Business Park Alfa (5,000 m2) has been recently delivered in this submarket.

Apart from this office hub, construction activity is spread across Gdańsk and Gdynia. It is worth mentioning a couple of office destinations. One of them can be considered as a typical business park developed on the city’s fringe close to Armii Krajowej Ave: BHP Office Park (9,150 m2 in two buildings, a third building is in the construction stage).

Another interesting project is the planned multifunction Gdynia Waterfront, the first phase of which is being developed by Swede Center. Together with existing high-rise landmark development, Sea Towers, it will form a new urban tissue. The first phase of the project will become a main office of Nordea Bank, which is to occupy approximately 11,600 m2 of office space in the first phase of this extensive development.

Also in Gdynia, the construction of Łużycka Plus (5,500 m2), located next to Łużycka Office Park, is to be finalized shortly. A new office development in this area has been recently announced by EURO Styl, which plans to deliver the Tensor office park (three buildings totaling 19,300 m2, completion in Q3 2015). This planned office park will strengthen this developing location on the office map of the Tri-City.

EURO Styl has also revealed its plans regarding Gdańsk. The developer is to refurbish the existing building at Marynarki Polskiej 177 Street and adjust it to the B-class standard, offering reasonable, low rents. Together with Tryton (21,000 m2 by Echo Investment), the construction of which should start soon, it will create an office destination with a convenient access to the strict city centre.

Tenant-favourable market The high level of construction activity and substantial completion volume have been sharply influencing the vacancy rate in the Tri-City since the beginning of 2012. Since that time, the vacancy rate has increased from 7% to more than 12%, which means that tenants have a wide choice of options and are in a more favourable situation when negotiating lease agreements. Due to the quite significant construction activity, the vacancy rate will remain in upward trend at least until the end of 2014. In terms of office space take-up, the Tri-City is clearly bolstering its position as a BPO/SSC hot-spot on the business map of Poland.

Mikołaj Konopka vice president of the management board of EURO STYL

“The past two years have been years of high activity in the office sector in the Tri-City for EURO STYL. We have signed lease contracts covering a total leased area of 28,000 m2. In 2012, we delivered OPERA Office, providing a total leasable area of 8,200 m2, 95 % leased, and in 2013 the first stage of BPH Office Park was completed, delivering a leasable area of 10,000 m2. OPERA Office building was developed on speculative basis and has been successfully leased, while the second project is being developed in two stages in the built-to-suit formula for Bank BPH, so the lease had been secured before the construction work started. We are proud that such prominent and high quality tenants as Bank BPH, Lufthansa Systems Poland, KPMG, Metsa Group Services, Raiffaisen Polbank and Lloyd’s Register have trusted us. We are currently preparing our next office projects in Gdańsk and Gdynia totaling approximately 35,000 m2, which will be ready in 2015.”

OPERA Office, Gdańsk


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Net Take-up Renewals Vacancy rate

After the record-breaking 2012 with registered take-up of 69,000 m2, Q1-Q3 2013 seems to be a bit subdued in terms of demand, with an observed take-up of only 28,000 m2. However, many transactions are still pending and may be closed till the end of 2013.

The largest lease transactions signed this year include those by Geoban (2,800 m2 lease renewal in Łużycka Office Park), Gdańskie Wydawnictwo Oświatowe (2,500 m2 pre-let in Alchemia) and Acxiom Poland (a renewal for 1,600 m2 in Garnizon.biz), just to name a few. In addition, many companies have expanded, however, the most important factor is that newcomers are opening offices in the Tri-City. The recent deal signed by Finnish company Kemira is an excellent example and proves that the Tri-City is well perceived by Nordic companies, among others.

In November 2013, the prime headline rents in the Tri-City stood at €12.25 to 13.50 / m2 / month, with the highest rents being recorded in Gdynia. Compared to the other largest office markets in Poland, rents in the Tri-City seem to be at a reasonable low level. Moreover, developers continue to attract tenants by increasing incentives, such as rent-free periods and/or upgraded fit-outs, depending on the original standard of the space, and/or additional relocation budget. Factoring in this additional tenant inducement, effective rents are typically 10% to 20% lower than headline rents. We are of the view that office market conditions will most likely remain tenant-favourable, at least until the end of 2014.

We are of the opinion that the Tri-City region is going to grow as a strong destination for shoring activities. The cities’ tourist attractions and good quality of living, amongst other important factors, underscore this opinion.

Take-up (m2) & Vacancy Rate (%) in Tri-City

Source: Jones Lang LaSalle

Building City Completion Office Area (m2)

Łużycka Plus Gdynia 2013 5,500 Alchemia phase I Gdańsk 2013 16,300 Amber Tower Gdańsk 2013 1,300

BPH Office Park C Gdańsk 2014 8,780 Centrum Biurowe Neptun Gdańsk 2014 15,300

Olivia Business Center - Olivia Four Gdańsk 2014 12,500

Gdynia Waterfront Office (Nordea HQ) Gdynia 2015 11,500

Construction activity in the Tri-City

Source: Jones Lang LaSalle


Map of Major Office Developments

Centrum Biurowe Neptun, Hines, Gdańsk

Contacts

Magdalena Reńska Head of Office Gdańsk Jones Lang LaSalle +48 602 116 816 [email protected]

Anna Kot Head of Office Agency and Tenant Representation Poland Jones Lang LaSalle +48 22 318 0000 [email protected]

Mateusz Polkowski Associate Director Research and Consultancy, Poland Jones Lang LaSalle +48 22 318 0042 [email protected]

Wojciech Tyborowski Project Manager Invest in Pomerania +48 58 32 33 240 [email protected]

Janusz Górecki, PhD Head of Business Analysis Unit Association of Business Service Leaders in Poland (ABSL) [email protected]

Jadwiga Naduk Head of Market Research & Consultancy Hays Poland +48 22 584 56 79 [email protected]

Tri-City Office Market Report – November 2013 www.joneslanglasalle.com

COPYRIGHT © JONES LANG LASALLE IP, INC. 2013. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.

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