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Synergy of skills

There are over 250.000 employees only in the class A and B office buildings in Bucharest and around one million employees spread around the city. How does the office market cope with the need of companies to accommodate the necessary pool of workforce and what are the benefits of working here or there, is one of the question Outsourcing Today addressed some experienced real estate consultants as well as large offices developers.

2018-08-06 16:02:27

In Bucharest's office market, over 30 per cent of the demand came from the companies that moved from old buildings in modern projects, a recent study conducted by JLL in this field shows.

Creating "the perfect date" for companies

The consultants, including the real estate consultants can be one of the first mediums that a new company interacts with when they are analyzing Romania as a potential destination to set up a BPO/SSC center, as George Didoiu, Associate Director, Office Agency within Colliers International Romania describes. "However, the real estate cost for an operator can range anywhere from 5 to 7 per cent, which is not huge. In Romania, for example, the cost related to the employees reaches 87 per cent, so the companies deliver their best efforts in that area. We can make sure that in our meetings with the developers and office owners we promote the right way of developing office locations for these companies, and we certainly do that," the Colliers manager says. "We also put in our best efforts to prove this is a safe bet for most investors whenever we have the chance (international real estate conventions mostly). But, at the end of the day, new players are mostly interested if they can find people for their operation and if they are the right people and if setting up an operation in Bucharest vs. Prague, for example, is more lucrative," George Didoiu adds.

George Didoiu, Associate Director, Office Agency within Colliers International Romania: "At the end of the day, new players are mostly interested if they can find people for their operation and if they are the right people and if setting up an operation in Bucharest vs. Prague, for example, is more lucrative"

The Colliers' manager thinks that Romania remains a "perfect date" for companies looking to set up outsourcing operations here. Which are the reasons staying for saying so? "Well, on the one hand, we have highly skilled talent that can handle the highest complexity of services offered. In fact, on "Accenture's Next Generation BPO" scale, Cluj-Napoca and Bucharest both reached the top level. This means they deal with matters such as flexible online platforms, social media, cloud services and integrated online communities. Moreover, a report from the Milken institute indicates the north-western region of Romania as being the fastest growing in terms of hi-tech services (Cluj plays an essential role in that)," the Colliers' manager says.
According to George Didoiu, a deeper focus of the educational institutions on specific roles for their future graduates, rather than mass-market education, would definitely help. "The two most frequent complaints our clients from the BPO industry have are about the sheer number (low) of graduates they have access to and also the fact that the Romanian Universities are stuck in old paradigms and do not update their curriculum to what's needed in today's job market. That comes in a market where the BPO/SSC sector gets up to 20% of the total number of graduates in Bucharest alone," the Colliers manager explains. Regarding the costs, as George Didoiu explains, "although the cost of operating an outsourcing center have increased by over 40 per cent in Romania in the last 5 years, we are still cheaper than most countries in the region. In solid figures, the cost of operating a service center with 100 employees in Bucharest stands at 1,8mn Euro yearly, whilst for example Prague is at 2,7mn Euro and Warsaw at 2,6mn Euro," he adds.
In this respect, according to Colliers data, a significant factor to be considered is that the average hourly rate in Romania is 4 Euro, while Poland reaches 6,2 Euro and Slovakia 7,2 Euro. "The rise in wages seems to pose little concern, as it is usually accompanied by an increase in skill as well. Connectivity also plays a role, and it would serve as well to have direct lines with more countries (airport connections). Education is paramount - Bucharest has 33 universities, while Warsaw reached 70. The overall quality of life (which includes the pollution index and cultural index) plays an important part as well, and this is definitely something we can work on," George Didoiu explains.
Meeting the day to day changes

The real estate consultants can help by educating and by providing consultancy to the landlords and developers, in how to design or re-design their office projects, in order to meet the day to day changes in the outsourcing companies' requirements for real estate accommodation, is the opinion of Marius Șcuta, National Director Head of Office Department and Tenant Representation JLL Romania. "This is a business where in order to attract talent, companies need to improve their way of doing business, including the office spaces where they operate. Developers/Landlords need to innovate as much as those companies are always innovate their way of doing business. They need to design the new buildings to provide more flexibility in the tenant occupancy, they need to incorporate new technologies into their buildings to improve the quality of life, and they need to develop a friendly work environment," the manager said.

Companies have rented in the first quarter almost 70,000 square meters of office space in Bucharest, one third of the demand came from companies that formerly had its headquarters in old, small buildings or in other spaces than modern buildings (noncompetitive stock), JLL says. This segment of demand increased compared with last year, when accounted for only 7 per cent of the total take-up.

Marius Șcuta, National Director Head of Office Department and Tenant Representation JLL Romania: "This is a business where in order to attract talent, companies need to improve their way of doing business, including the office spaces where they operate"

On average, each companies that moved its offices for the first time into a modern office building contracted 2,200 square meters, more than the average of the total demand, of 1,166 square meters. "The growing interest of these companies in modern office space can be explained by the fact that either the spaces they occupied previously no longer respond to their requirements, or because most of them expanded their business and needed more spaces. In addition, there are cases when companies consolidate their activities from several small buildings into one modern project. In addition, as we observe, more and more companies are having difficulty finding and retaining employees, and the work environment has become an important tool in recruiting employees", comments Mădălina Marinescu, consultant Office Department JLL Romania.

Four in ten Romanian millennials want to work in corporations, a Deloitte study shows. More than four in ten (43.5 per cent) young Romanian university graduates want to work in a big corporation and only 17.3 per cent want to become entrepreneurs, according to Deloitte ‘First Steps into the Labour Market' 2018 report. The study describes the views on work, life and education of more than 5,700 students and recent graduates from leading universities in 14 countries across the region. Only 15.6 per cent of Romanian millennials think that university graduates in the country are well prepared for professional work. However, 75 per cent of the Romanian students wish to continue their education to a post-graduate level, compared to 39 per cent across Central and Eastern Europe.

Mădălina Marinescu, consultant Office Department JLL Romania: "The growing interest of these companies in modern office space can be explained by the fact that either the spaces they occupied previously no longer respond to their requirements, or because most of them expanded their business and needed more spaces"

When choosing their jobs, Romanian millennials value first and foremost the opportunity to develop and acquire new skills (59.7 per cent). An attractive salary is the second most important factor, selected by 10.4 per cent of the respondents. Nearly half of young Romanians (46.8 per cent) wish primarily to become experts in their fields, while 35.6 per cent wish to hold managerial positions in the future. When it comes to salary, only 17.4 per cent of the respondents said they wanted to earn more than 3,500 lei and 8.1 per cent aim to earn more than 4,500 lei, most of whom are men planning to become managers. Women expect lower pay and are most likely to say that they want to earn up to RON 2,000, whereas men most often selected 2,501-3,000 lei. When it comes to moving abroad, just a little over 50 per cent would move to another country for a job, slightly below the average across the region (56 per cent).

The workplace trends

From JJL's manager experience, all developers and even the vast majority of tenants seem to still prefer open spaces, "which will be designed according to corporate guideline of the company that will accommodate that space. We are seeing tenants that prefer the final space to be delivered to the turn-key project by the landlord, but also on the exact requirements and guidelines of the tenant. On the other hand, there are more creative companies in terms of space they want to make available to employees that are looking for buildings which offers a different structure than classical rectangles. These buildings may have a curved facade or modular spaces with terraces on certain floors to divide the internal departments in a more innovative format," Marius Șcuta said. Still, as the JLL manager admits, closed offices are still preferred by the Romanian managers, many preferring this type of spaces instead of having the office in the middle of the team. At the same time, the "open space" model begins to show its limits or disadvantages because of the noise in such spaces. However, to maintain collaborative open spaces, there are systems or fit-out solutions that are increasingly being used in modern offices, which help absorb the noise.

The areas in Bucharest targeted by companies that moved their headquarters into modern office buildings were Center, with more than half of the demand and West, with 30 per cent of the total. IT & communications companies continued to be the most active tenants with more than 60 per cent of demand in Bucharest, followed by energy companies which cumulated over a quarter of total take-up. More than 60 per cent of the total take-up represented new demand (new contracts, extensions of the existing offices and pre-lettings), which can accommodate at least 4,100 employees. On supply side, only one building was delivered in the first quarter, Globalworth Campus Building 2, with an area of 28,000 square meters. For the whole year, developers plans to deliver around 230,000 square meters new office spaces, compared to 140,000 square meters completed in 2017.

Co-working is becoming a powerful trend, and the Colliers' manager estimates show that with an estimated 10 per cent of the total take-up by 2025. "More and more companies are starting to look at the possibility of having that sort of environment in or near their office. Closely related is the "work from home" system, in which employees with a certain degree of seniority can choose to work remote for 1, 2 or even more days a week. In the latter case, an excellent IT security system is a must," George Didoiu says.

Office spaces are being adapted to millennials' requirements, says Colliers. One third of Central and Eastern European professionals (CEE) - Poland, the Czech Republic, Slovakia, Hungary, Romania, Bulgaria - believe their workplace will change over the next 2-3 years, according to a new survey by Colliers International and the international law firm CMS. Approximately 77 per cent of respondents considered work-life balance as the most important factor in choosing a job, while salaries, leadership development opportunities, and the location were very important, with 58 per cent of responses - together represent the key to job satisfaction.

Office design and facilities were less important - only 37 per cent of respondents said these factors were very important - while only 18 per cent considered the office′s durability and green certifications as a significant feature of a modern office. Work from home is gaining ground throughout the region. 57 per cent of professionals said they were working from home for at least a part of their time. Those who are part of the board of an organization and seniors have indicated the possibility that this can become a common practice for the CEE-based millennials.

Breaking the Bucharest barrier

The demand for offices outside Bucharest - Timisoara, Braşov, Craiova, Iaşi and Cluj-Napoca totaled 17,000 square meters in the first quarter. Nearly half of the demand outside Bucharest was recorded in Timisoara (8,239 square meters), while 30 per cent of the rented spaces (5,100 square meters) targeted Cluj-Napoca.
IT, BPO and professional services companies were the most active tenants, with nearly 60 per cent of the total take-up.

The estimation state that that the modern office stock in Braşov, Timişoara, Iaşi and Cluj-Napoca will increase by almost 25 per cent this year, to about 865,000 square meters. In Timisoara, developers announced projects of 83,000 square meters, in Cluj-Napoca, the stock will grow by 43,000 square meters, in Brasov will be delivered 25,000 square meters, and in Iasi only 9,200 square meters will be completed in 2018.

As the JLL manager states, all cities with universities might become, at a certain time, interesting for such companies. "Of course, only one university will not help to become a Tier 3 city. An airport or the proximity to a Tier 2 city, with an easy connection (National Road or Highway) will support the development of new office investment, which will attract some outsourcing companies looking to change or to expand their current offices. During recent months, we have seen some increase in demand for cities like Sibiu, Craiova, Suceava, Arad and Oradea," Marius Șcuta added.

According to Colliers data, cities with population of around 100,000 inhabitants, with relevant education institutions (both private and state) can provide a stream of candidates for the BPO/SSC sector. In fact, we have number of clients who are looking at Tier 3 cities to expand their operations. The cost (both with employees and OPEX) would be lower, and most candidates would be happy to earn a decent wage while staying in their home town. Cities like Oradea, Tg. Mures, Galati and even Constanta (and others) are starting to come up more and more in our meetings. Although definitely underdeveloped from an office stock perspective, a determined enterprise can find solutions in those markets. "The stronger the education system (past high school) is in that type of city and the better connected it is (ideally by an airport), the better the chances are for them to host a BPOS/SSC operation," George Didoiu from Colliers adds.

Silviu Pop, Head of Research at Colliers International Romania: "We expect that the major regional cities in Romania (Cluj-Napoca, Timisoara, Iasi, Brasov) will contribute with a higher share of GDP over the next years: the good quality of life they offer influences the migratory movement of the population at the expense of the Capital"

According to the latest report of real estate consultancy company Colliers, Romania's regional cities will be major drivers of growth. In Bucharest, the office market experienced a moderate increase, registering new deliveries of 123,000 sqm which led to a total stock of modern office buildings of 2,3mn sqm. This lower-than-expected outcome is the result of delays caused by a tight labor market, an overstretched construction segment and developers wanting to improve their pre-lease percentage. However, the total take-up for Class A office buildings amounted to 320,000 sqm, as the net take-up exceeded 150,000 sqm, both quite solid results, with the latter a multi-year high. The IT&C segment remained the main driver of demand, generating 44% of the rental activity (140,000 sqm). The most active areas were Floreasca/Barbu-Vacarescu and CBD (19% of total transactions), followed by Piata Presei/Bulevardul Expozitiei and Center-West.

As developers are becoming increasingly cautious, 185,000 sqm of A-class offices will be delivered this year, with a gross take-up forecasted around 300,000 sqm, with a net take-up of 135,000 sqm. The infrastructure constraints faced by the northern area of Bucharest will result in the expansion of the stock in areas such as Center-West or focusing on the new hub in Expozitiei. At the same time, the magnetism of regional cities will also be supported by a generous pipeline: if the total office stock in the four major regional cities is now 3.5 times lower than that of Bucharest, it will increase in 2018 with 150,000 sqm, which will reduce the gap to the Capital.

In 2017, GDP grew by 7 per cent due to private consumption and good results from services, manufacturing and agriculture. The main driver of consumption was wage growth stemming from government policies and a tightening labor market. We believe the increased wages will prove to be sustainable given the higher gap between productivity and labor costs in Romania than most countries in the region. "In 2018, GDP growth will slow down to a more sustainable level (around 5%) as a result of reduced fiscal stimulus, monetary policy tightening, accelerating inflation, a higher appetence for saving and a weaker RON, issues that will pressure consumer confidence, not just real wages. We also expect that the major regional cities in Romania (Cluj-Napoca, Timisoara, Iasi, Brasov) will contribute with a higher share of GDP over the next years: the good quality of life they offer influences the migratory movement of the population at the expense of the Capital, and the low operating costs combined with their large number of IT&C students could cause large companies to expand in the rest of the country", according to Silviu Pop, Head of Research at Colliers International Romania.

According to the consultancy company, 2018 will be a turning point for the investment market, especially from the perspective of the office segment. Whereas office buildings which changed hands from 2015 to 2017 had an average surface of 20,000 sqm, the pipeline for the next period includes projects with an average surface area of over 50,000 sqm. Therefore, the volume of investment in the office market could increase from 160mn Euro in 2017 to 500mn Euro in 2018. Also, the total volume of investment for this year is forecasted to exceed the 1bn Euro threshold, and the yield for retail, office and industrial projects could see a 25-50 basis points compression.

Accommodating the outsourcing needs
Taking into account all new office developments completed recently in Romania or are about to be delivered in the market, you will already notice the new approach of the developers, Marius Scuta observes. "They all have in mind all these outsourcing companies when are designing their new projects. The location, the area per floor, the amenities provided inside the site, the new materials used for the construction, the technical solutions and innovation implemented in the design and available for all tenants to use, the designing of the master plan to allow the development of large green areas into the office parks, etc. are supporting my affirmations above," the JLL's manager states.

When advising a client operating in outsourcing, the most important advise is to choose their location very carefully. "They have to pay attention to some important elements when they are looking at a new potential destination for investment. One category of elements is about the city: demographic, social, economic and education indicators (availability of work force and the salary costs; the languages skills in the respective area; their direct competitors). Other category is referring to location: if it is next to main residential area, close to universities or to students campuses, if it has access to metro stations or to other public transportation meanings, if there are commercial facilities available in the area or if it is providing a friendly environment. Also, they have to obtain information about the developers/owners which are able to accommodate their requirements: flexibility in the occupancy structure/steps, large floor areas with plenty of natural light, innovative technology that can be used by all employees within the common areas. All these are being considered by our team of consultants, when providing advice for both new companies and developers, in order to support the outsourcing market," Marius Scuta completes.

"The new office locations must deliver on the "experience" factor. Green areas, social setting, co-working spaces and a proximity to services and facilities are a must. Millennials want to have offices they like to spend time in, easy to access and where everything (or as much as possible) is handy," according to George Didoiu from Colliers. The manager adds that the already familiar paradigm is still in play, and even more sophisticated: the efficiency of the floors and the building itself, the grid structure, natural light, intelligent facades are very closely analyzed. "We are starting to see virtual receptions, video recognition of license plates and a BMS (building management system) that "knows" which parts of the building are more trafficked, where you have your next meeting and so on," George Didoiu explained.

When advising a client, as the Colliers manager explains, a technical due-diligence of the building analyze what the ratio of sqm per FTE is important to determine which is the better location. "Minutes of walking to the nearest subway station, public transportation infrastructure and additional cost of the property are all scrutinized. However, although this analysis has become more and more complex, covering more and more areas of expertise, at the end of the day the "feel" of the property (which incorporates everything, down to the way the landlord receives the prospective tenant's first visit) is often the deciding factor. However, the commercial offer, the architectural design and efficiency (from a technical perspective) of the property all have to be good to great," the Colliers' manager concluded.

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