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

Dariusz Bazeli General Director Geoban Polska

“In 2008, Geoban established its branch offices in . 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”.

Olivia Business Centre, Gdańsk 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 with Port Island • Regular and frequent flight connections with Polish and major and secondary European cities. 1 • 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. 2 • 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.

Strong Economy

• The Tri-City’s population is 748,000 people, while the metropolitan area is home to more than 1.2 million people. 3 • 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. 4 • 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. 5 • Competitive rents. • High construction activity. 4 On Point • Tri-City Office Market Report • October 2013

Economy Towards modern business services

The Tri-City metropolitan area, home to more than 1.2 million Przekrój magazine. Among the 26 cities surveyed, Gdynia was people, is the leading economic hub in northern Poland. It acts as a named the best and Gdańsk was ranked third. vital transport hub, linking the north and west of Europe with the To support companies that open service centres in the Tri-City BPO central and southern parts of the continent. Education Center was established, thanks to collaboration between

local service centres, public institutions and Sopot High School. The Recently, the Tri-City was awarded the prestigious ‘Best City of the Center is the first institution in Poland that aims exclusively at Year' title in the BPO/SSC Sector at the Polish Outsourcing & recruiting and training future employees of service centres. The Shared Services Awards Gala. The Tri-City competed for that title school has attracted recognized experts in accounting and with the other nominees: Cracow, Wroclaw and Poznan. It was the information systems, members of the staff, as well as specialists first contest in the Polish BPO/SSC sector aimed at identifying and from local service centres. The training program covers the most distinguishing domestic leaders. The winners were selected by important qualifications for service centre employees, including international jury consisting of experts from the BPO/SSC sector training in SAP, corporate accounting and a range of soft skills. representing service centres, consulting agencies and the most The course ends with a compulsory internship at a service centre, influential trade associations in Poland and in Europe. which is the final verification of the acquired knowledge.

Its advantageous geographic location is a tremendous asset of the Also, the Economics Faculty of the University of Gdańsk has Tri-City metropolitan area, which results in good accessibility launched a new course “Finance in companies”, which is accredited through different modes of transportation. Gdańsk Lech Wałęsa by Association of Chartered Certified Accountants (ACCA). Thanks international airport can be reached by a direct flight from more to this accreditation students will obtain not only an MA degree in than 50 destinations, including major European airline hubs such financing but also an ACCA diploma that is recognized all around as Amsterdam, Copenhagen, Frankfurt, London and Munich. The the world. The Economics Faculty is also working to launch the large number of connections with German cities (Berlin, Dortmund, ACCA Examination Centre, which will be designed not only for the Hamburg) and Nordic cities (Bergen, Oslo, Stockholm and Turku) students of the new faculty, but also for all those that want to makes Tri-City a good near-shoring location to serve those markets. acquire new competences in that particular field. The dynamic growth of passenger traffic illustrates the increasing role of Gdańsk airport. The passenger flow in 2012 exceeded 3 The Gdańsk Scholarship Scheme is a unique mechanism, available million. only for investors who wish to locate foreign operations in Gdańsk. It provides financial assistance for training personnel of newly The region witnessed a construction boom in road transport established businesses, either in Poland or abroad. The grants it infrastructure resulting from the preparations for Gdańsk to co-host gives cover the costs of training, accommodation, travel and living the Euro 2012 European football championships. Thanks to those expenses for a period of six months and amount to up to PLN preparations, the Tri-City gained a motorway connection with central 30,000 per person. 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. Invest in is a regional initiative that provides free-of- charge services to foreign investors interested in carrying out From a social and cultural point of view, the metropolitan area of the projects in Pomerania. It was created by the Marshal’s Office of Tri-City offers many advantages: high quality education, good Pomorskie Voivodeship, the cities of Gdańsk, Gdynia, Słupsk medical care, efficient public transport and a good quality of life. and Sopot, Pomeranian and Słupsk Special Economic Zones, InvestGDA and Pomerania Development Agency, which coordinates the actions of the initiative. This has been reflected in Gdynia and Gdańsk occupying leading places in ‘the most friendly cities to live in’ survey published by

On Point • Tri-City Office Market Report • October 2013 5

Labour market

Poland is one of the leaders in the world BPO/SSC market. Other languages include French (with 225 students) and Slavic According to Everest Group, an international consulting company, languages (with 176 students). Poland is one of five mature locations for outsourcing worldwide. According to data from Hays Poland, 90% of employees in the The sector is maintaining constant rapid growth, making it one of Pomorskie region say they have knowledge of English, more than Poland’s fastest growing industries. 30% German, and more than 20% Russian. Additionally, 6% of the residents speak French, and 5.6% Spanish. Those results confirm Due to the intellectual potential of the region, most notably a talent the high level of language knowledge in the Pomorskie region. pool that possesses knowledge of foreign languages, it is expected to develop even further in the near future. The competitive advantages of the region, including the availability of highly qualified employees with knowledge of foreign languages, The growth of the knowledge-based economy is very much have attracted many world-class employers, such as Bayer, OIE dependent upon a constant inflow of graduates to the labour market, Support, WNS, Sony Pictures and Metsä Group. The large pool of especially finance, language and IT graduates, as those are the experienced candidates with a working knowledge of more than 20 most popular processes in BPO/SSC centres. Currently, there are foreign languages makes it possible for new investors to develop nearly 100,000 students in the Tri-City, and 26,000 graduates per their business in the Tri-City, the most recent example being annum, of which approximately 7,000 graduate from a finance Kemira, which has centralized in the Tri-City its procurement, faculty and almost 1,000 from IT-related divisions (source: CSO). accounting and customer service processes. This large available pool of staff with higher education and specialist It is also worth mentioning that the Tri-City offers a very high knowledge attracts centres with more advanced functions and standard of living: Gdańsk, Gdynia and Sopot consistently achieve processes, which are referred to as KPO (Knowledge Process high scores in various quality of life rankings. The attractiveness of Outsourcing) centres. the region makes it possible to relocate staff from other cities in Poland, thus considerably increasing the available talent pool. Moreover, the Tri-City has substantial science and research Moreover, the number of foreign nationals living and working in the potential, as well as technical facilities and a good number of Tri-City has been increasing rapidly over the last few years: engineering specialists, which are all critical for the growth of R&D currently they are a significant group among employees of the local centres. The Intel Technology R&D centre in Gdańsk, specialising in BPO/SSC centres. application development, is a good example of successful co- The costs aspect, including the financial expectations of candidates, operation between science and business. The facility currently is particularly important when establishing and developing an employs 1,000 staff and plans to expand in the future. organization, as well as when taking investment decisions regarding The Tri-City provides opportunities to source a pool of talent with a location. The Tri-City, despite the high living standards, has lower very good command of foreign languages. More importantly, in salary levels than those found in other developed markets. addition to fluency in the popular European languages, such as Remuneration of a particular specialist is obviously strictly English and German, staff in Gdańsk, Gdynia and Sopot can also dependent on factors such as experience, qualifications, foreign speak niche Scandinavian languages. This is a clear competitive languages required and the availability of talent in the local market. 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 Average Gross Monthly Salaries in BPO/SSC Sector in Tri-City Scandinavia, and historically and traditionally strong economic and Salary (in PLN) tourist connections with both the German and Scandinavian Position Min Max markets. The University of Gdańsk offers a wide range of language Junior GL Accountant 2,800 4,500 faculties, including Danish, Finnish, Swedish and Norwegian, GL Accountant 3,500 6,000 which is still rare in Poland. Junior IT Specialist 2,500 3,500 In the academic year 2011/2012 there were a large number of IT Specialist 4,000 7,000 language students at the University of Gdańsk, including 996 people GL Team Leader 7,000 12,000 studying English, 473 German and 489 Russian. The Scandinavian Centre Director 20,000 40,000 faculty mentioned above was chosen by 214 students. Source: Hays Poland, September 2013 6 On Point • Tri-City Office Market Report • October 2013

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 the services offered by the Tri-City’s centres are provided in more leading global brands to locate their investments here. The than 30 languages. significant potential of the region is also reflected in the growth of The business services sector in the metropolis is growing rapidly, centres that are already operating in the local market. which is evidenced by the fact that one in every four service centres More than 40 investors from 13 countries — mainly the USA here started its activity between 2012 and 2013 (including Bayer, (15 investors) and the Nordic countries (10) — have established OIE Support, WNS Holding, Metsä Group and Kemira to name a service centres in the Tri-City. Currently (2013), BPO, ITO, SSC and few). R&D centres with foreign capital employ more than 10,000 people,1 New investments are to generate a total of nearly two thousand new which is the fourth highest number in Poland (after Krakow, Warsaw jobs. Employment in the sector has increased by about 30% since and Wroclaw). Employment in the sector has been generated mainly the beginning of 2012. It can be assumed that, by the end of 2013, by capital from the United States (52%). employment in service centres with foreign capital in the Tri-City, will It should also be noted that one in five service centres with Nordic have doubled in comparison to what it was at the beginning of 2010. 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. Association of Business Service Leaders in Poland The map showing the business services sector in Poland illustrates (ABSL), Regional Chapter in the Tri-City that the Tri-City is specializing in IT services (infrastructure The ABSL Regional Chapter in the Tri-City is the local management, application management) and R&D (mostly software organization of investors operating within the area of development) — over 65% of centres operating in the Tri-City business services. Through close co-operation with local provide such services. authorities, universities and Pomeranian companies, ABSL Centres for IT outsourcing (ITO) together with R&D centres account aims to influence the improvement of the investment for more than one third of all employment in this industry in the climate in the region. metropolitan area, one of the best rates nationwide. Financial and One of the main tasks of ABSL is to support its local accounting services play a significant role in the structure of members in all areas identified by them. At the moment, business centres, being provided in one in three entities in the area the activities are focusing on knowledge sharing; training described. support for Tri-City university graduates; collaborating with These activities are carried out most often in shared service centres regional and municipal offices; and on promoting a positive (SSC). Of the twelve SSC centres with foreign capital that operate in vision of the business services sector within the region. the Tri-City, eight work for their parent corporations in the Industrial The following companies, among others, participate in this and Consumer Goods sector. ABSL Regional Chapter: Thomson Reuters, Sony Pictures, The structure of employment in SSCs (by industry types of SSC First Data, Arla Foods, Metsä, Transcom, Geoban, Bayer, parent companies) clearly shows the highest share of BIFS WNS, HAYS Poland, Jones Lang LaSalle, PwC, the (Banking, Insurance, Financial Services). It is worth mentioning that Pomerania Development Agency as well as guests from public administration and representatives of universities.

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 Content provider: thousand employees. On Point • Tri-City Office Market Report • October 2013 7

Office Market

One of those is the area of and Wrzeszcz in Gdańsk, with Ready for growing business key modern developments such as Arkońska Business Park (five The Tri-City (Gdańsk, Gdynia, Sopot) is not only well prepared in buildings of nearly 27,000 m2); Olivia Business Centre (including terms of educated labour and stable economy meeting the needs Olivia Gate, Olivia Point and Olivia Tower, totaling approximately of companies representing business services sector: the region 40,000 m2 and offering large floor plates); OPERA Office also offers a wide choice of modern office space for potential (7,500 m2) located in the vicinity to the campus of the Gdańsk investors. Until recently, the market was dominated by experienced local developers, such as Allcon, BCB, EURO Styl, University of Technology; and Garnizon.biz to name just a few. Hossa, Torus and TPS, and provides high quality office space The Tri-City’s office market is also able to meet the needs of similar to the standards offered by international real estate companies which want to have their office close to the airport, developers in other Polish cities. with such developments as Allcon@Park and BCB Business At the beginning of November 2013, total office supply in the Park operating in that area. In addition, BCB plans further Tri-City amounted to 430,000 m2, which makes the Tri-City the extension of its park. fourth largest office market (behind Warsaw, Kraków and Establishing office locations may be also observed in Gdynia, Wrocław) in Poland in terms of total office supply. with Łużycka street considered as a rapidly developing office hub The Tri-City began to develop in the mid 1990s, as a market of in this part of Tri-City. 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 Construction activity and available for lease. Also, the presence of international/national developers has increased with such companies as Hines, Swede planned developments Center and Echo Investment already developing or planning At the end of October 2013, more than 71,000 m2 of office projects in the Tri-City. space was in construction stages across the Tri-City. It is worth noting that 35% of this space has been already secured by Currently, Gdańsk remains the largest office hub with a share of pre-lets. 62% in total Tri-City office supply, followed by Gdynia (30%) and Sopot (8%). All the previously mentioned locations will be bolstering their districts seem to be the largest construction site in the Tri-City. One can see that a couple of office locations have started to Delivery of currently under construction developments, such as emerge and have become core office destinations within the Alchemia (16,300 m2), Olivia Four (12,500 m2) and Centrum Tri-City region. Biurowe Neptun (15,300 m2), will strengthen the position of this core office area.

Alchemia, Gdańsk 8 On Point • Tri-City Office Market Report • October 2013

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 In addition, further extensions of Alchemia and Olivia Business Office, providing a total leasable area of 8,200 m2, 95 % Centre are planned. Moreover, Oliva Business Park Alfa leased, and in 2013 the first stage of BPH Office Park 2 (5,000 m ) has been recently delivered in this submarket. was completed, delivering a leasable area of 10,000 m2. Apart from this office hub, construction activity is spread across OPERA Office building was developed on speculative Gdańsk and Gdynia. It is worth mentioning a couple of office basis and has been successfully leased, while the destinations. One of them can be considered as a typical second project is being developed in two stages in the business park developed on the city’s fringe close to Armii built-to-suit formula for Bank BPH, so the lease had Krajowej Ave: BHP Office Park (9,150 m2 in two buildings, a third been secured before the construction work started. We building is in the construction stage). are proud that such prominent and high quality tenants as Bank BPH, Lufthansa Systems Poland, KPMG, Another interesting project is the planned multifunction Gdynia Metsa Group Services, Raiffaisen Polbank and Lloyd’s Waterfront, the first phase of which is being developed by Swede Register have trusted us. We are currently preparing Center. Together with existing high-rise landmark development, our next office projects in Gdańsk and Gdynia totaling Sea Towers, it will form a new urban tissue. The first phase of the approximately 35,000 m2, which will be ready in 2015.” 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. OPERA Office, Gdańsk

On Point • Tri-City Office Market Report • October 2013 9

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. Construction activity in the Tri-City Take-up (m2) & Vacancy Rate (%) in Tri-City Office Building City Completion 2 Area (m ) Net Take-up Renewals Vacancy rate Łużycka Plus Gdynia 2013 5,500 80 000 14% Alchemia phase I Gdańsk 2013 16,300 70 000 12%

60 000 Amber Tower Gdańsk 2013 1,300 10% 50 000 BPH Office Park C Gdańsk 2014 8,780 8% 40 000 Centrum Biurowe Gdańsk 2014 15,300 6% Neptun 30 000 4% Olivia Business 20 000 Gdańsk 2014 12,500 Center - Olivia Four 10 000 2% Gdynia Waterfront 0 0% Gdynia 2015 11,500 Office (Nordea HQ) 2008 2009 2010 2011 2012 Q1-Q3 2013 Source: Jones Lang LaSalle Source: Jones Lang LaSalle

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

Map of Major Office Developments

Centrum Biurowe Neptun, Hines, Gdańsk

Contacts

Magdalena Reńska Anna Kot Mateusz Polkowski Head of Office Head of Office Agency Associate Director Gdańsk and Tenant Representation Poland Research and Consultancy, Poland Jones Lang LaSalle Jones Lang LaSalle Jones Lang LaSalle

+48 602 116 816 +48 22 318 0000 +48 22 318 0042 [email protected] [email protected] [email protected]

Wojciech Tyborowski Janusz Górecki, PhD Jadwiga Naduk Project Manager Head of Business Analysis Unit Head of Market Research & Consultancy Invest in Pomerania Association of Business Service Hays Poland Leaders in Poland (ABSL) +48 58 32 33 240 +48 22 584 56 79 [email protected] [email protected] [email protected]

Tri-City Office Market Report – November 2013

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