The demand for BPO services and SSC functions in Central and Eastern Europe is expected to remain high over the next few years, providing a strong driver of occupational activity in some of the region’s capital and secondary cities.
 
The impact of BPOs and SSCs on office space is greater in secondary cities
 
Central European markets have been seeing growth in business process outsourcing (BPO) and shared services center (SSC) activities over the last few years, with international companies increasingly recognizing their prime assets of low labor cost and access to a highly skilled workforce. The phenomenon has been driving demand for office space across the region.

As the difficult global economic situation forces businesses to look for ways to optimize their expenditures, the trend is set to continue for the near future, providing some of the region’s cities with new BPO- and SCC-related opportunities and sending an important message to real estate developers, according to a recent report prepared by Colliers International and A.T. Kearney.

This will certainly also significantly impact Poland which is now, according to NelsonHall data, a regional leader in these industries. The country hosts one-third of CEE’s outsourcing centers and its BPO/SSC market’s value is estimated at $2 (zl.5.8) billion.

Champions and challengers

Admittedly, Central and Eastern European countries’ global position as recipients of BPO and SSC activities has recently weakened following an increase in labor costs and the growing attractiveness of highly popular destinations including China, India and Malaysia. However the region remains, according to the companies’ analysts, relatively attractive.

This appeal is due to factors including processing costs 30 to 40 percent lower than in Western Europe and North America, stable business and legal environments, cultural proximity and the availability of modern office space.

Not all of CEE’s principal cities have had the same ability to appeal to the companies that outsource their services to the region. In Poland, for example, Krakow has the most BPO/SSC experience, while substantial potential for hosting such services also exists in Warsaw and Wroclaw. That picture could change however, as attractive alternatives emerge, including cities such as Szczecin and Bydgoszcz.

A message to developers

In the opinion of Damian Harrington, a regional research director at Colliers International, developers will have to pay close attention to the predicted continued interest in outsourcing to CEE and the possible emergence of new urban centers as BPO and SSC investment recipients. Their activity will certainly be affected by these trends.

He noted that while in the CEE region’s capital cities the impact of the BPO and SSC sectors remains rather limited, in its secondary urban centers they matter greatly. In Warsaw BPO and SSC activities account for between just two and three percent of the city’s office occupational base; in Krakow the share is more than 50 percent.

On the one hand, this shows that some cities, like Torun, in which BPO and SSC functions are not present yet, may have considerable growth potential. On the other hand, it highlights possible risks related to developers’ overdependence on occupiers from those sectors. It also offers hope that continued BPO and SSC expansion will help some of the ailing office markets out.

“Occupiers that are tied to the local economy tend to expand and contract in line with local and national economic growth. Choice-based occupiers such as those operating BPO and SSC functions, by contrast, tend to be contracyclical to that growth and actually benefit in difficult economic times,” Mr Harrington said, pointing to the growing labor pool and availability of real estate as reasons for the phenomenon.

Thus, increasing BPO and SSC activity could help fill some of the occupancy gaps left as a result of flagging demand from occupiers tied to local economies.