Client-facing front office functions such as service delivery areas are expanding in key global hubs across Europe - a well known example is Barclays Capital’s 25 year lease agreement at Canary Wharf. “As front office functions in key hubs grow, offshoring of back-office functions such as sales teams to lower cost labour or tax-efficient markets such as Switzerland, Ireland and areas of Eastern Europe is becoming increasingly popular.”
“There is no large scale exit of corporates from the UK, but we have noticed clear and meaningful rise in demand for office space particularly in markets such as Geneva and Zurich, from hedge funds and investment banks based in the UK,” continued Hallissey.
Core Central European markets have been also favoured as back office locations for a range of companies. One of the major knowledge centres of Morgan Stanley moved to Budapest some years ago while McKinsey set up a global centre in Wroclaw, Poland.. “We can’t restrict our scope to investment banks, when it comes to back office operations – added Borbély CEE Research Analyst of CBRE Budapest. This part of the continent is popular also with other type of businesses to relocate their non-core units like Finance, HR, or IT to the region. Although the outsourcing activity is unlikely to get back to pre-crisis levels, we see the increase on 2009 already. Budapest is very competitive in pricing when it comes to real estate, availability has never been a bottleneck.” Prime rents in Warsaw rose by nearly 9%, as vacancy fell and leasing demand accelerated. With Poland among the strongest European economies, and having a limited office development pipeline in 2011, further rental growth is expected. “This is clearly not the case yet in Budapest. Recent change in the tax system and remarkably lower cost of living are also contributing to the competitiveness of the country.”
Vacancy in Dublin (higher than Budapest) remained stubbornly high at the end of 2010, despite improved take-up during the year. Over 130,000 sq m of office space was let in Dublin last year, with a significant proportion of letting activity in the Irish capital emanating from the expansion activities of existing multinational occupiers such as Google. There were many new corporate announcements in the capital during 2010 also including D&B, Bentley Systems, Facebook and Linkedin all of whom set up European headquarters in Dublin in the last 12 months. Ireland is becoming a more attractive location as labour costs have decreased significantly. The corporate tax status, combined with a dramatic drop in rents and increase in supply makes it an attractive destination for investment banking back-office functions.
Office markets in Switzerland are strong due to its robust domestic economy and a location proving to be increasingly popular for foreign direct investment.
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