Occupier perspective The TMT sectorMay 2015

• •

01. A growing sector, rife with consolidations 3

02. The TMT sector as the largest occupier of office real estate in the country 4

03. Optimisation and flexibility 6

04. Preferred locations 8

05. Conclusions and prognoses 10

Contents

For the past few years, we have noted an increased demand for office space from companies in the TMT sector (technology, media and telecommunications). The IT sector is and has been, for the past four years, the leading creator of new jobs, cur-rently employing 400,000 people in Poland.

According to statistics gathered by PAIZ, around 70% of the largest IT firms in Poland operate using foreign capital, including the likes of HP, Google, Oracle, IBM and SAP. Polish companies, such as Asseco, Comarch and Ericpol are also growing dynamica-  lly, significantly increasing their presence in Poland and in Central and Eastern Europe.

The general consensus is that the IT sector will continue to grow, driven mainly by its potential for developing new technologies, the positive influence of foreign invest-ments and the ready availability of public funds.

According to PMR’s estimates for 2014, the value of the telecommunications sector in Poland was PLN 44.4B, which is lower than the same statistic for 2013 (by 0.7%) and by 4.6% compared to 2012. These results were heavily influenced by telecommu-nications operators, who accounted for over half of the sector’s revenue. Analysts predict that there will not be further drops in revenue in the sector in the coming years due to the increase in types of services provided by operators, most notably banking services and television viewing packages.

Despite the fact that the structure of the telecommunications market in Poland is relatively stable and predictable, the number of companies operating on the market is decreasing. This is a result of a consolidation trend in the TMT sector, which is most visible in the telecommunications and pay TV segments. A number of takeovers and mergers occurred in the past year, including the merger of Cyfra+ and n, the purchas-es of Aster by UPC Polska and Polkomtel by Spartan Capital Holdings (controlled by Zygmunt Solorz-Żak), as well as the takeovers of the Telefonia Dialog and Crowley Data Poland Group by Netia.

We can expect further consolidations in the TMT sector in the coming years. This is mainly due to the fragmentation that has occurred in the cable operator segment and market saturation, which has forced optimisation and new investments, in order to increase competitiveness.

A growing sector, rife with consolidations

01.

The short to medium term future of the TMT sector will be full of changes. The IT sec-tor will continue its dynamic growth in terms of numbers employed and overall rev-enue. The telecommunica-tions and media sectors will continue with the trend of consolidation, process op-timisation and inter-sector competition. All of the above factors will doubtless have a decisive impact on the office real estate market, especially taking into account the fact that it is companies from the TMT sector that are the larg-est occupiers of office space in Poland.

Biggest companies in the TMT sector in terms of employment

Biggest telecommunications companies Biggest IT companies Biggest media companies

Orange Polska S.A., Warszawa Asseco Poland S.A., Rzeszów Agora S.A., Warszawa

T-Mobile Polska S.A., Warszawa Comarch SA, Kraków Cinema City Poland (CC Sp. z o.o. S.K.A. )Warszawa

Polkomtel Sp. z o.o. (Plus), Warszawa Sygnity S.A., Warszawa Polska Press Sp. z o.o., Warszawa

P4 Sp. z o.o. (Play), Warszawa Comp S.A., Warszawa Grupa Bauer Media, Warszawa

Netia S.A., Warszawa AB S.A., Wrocław Multimedia Polska S.A., Gdynia

DTZ | TMT Sector 3

The TMT sector as the largest occupier of office real estate in the country

02.

Warsaw is the largest and most mature modern office real es-tate market in Poland - with 60% of the total office space lo-cated there – and with most large enterprises (including from the TMT sector) having a local presence.

Of the total take-up in the period between 2002 and 2014 in Warsaw (over 6M sq m), 19% was leased by TMT sector occupiers, which was more than the financial sector (18%) and professional services sector (15%).

Total take-up in Warsaw between 2002 and 2014 broken down by sector

IT companies, followed by the media sector, were the most active in this period. Due to the telecommunications sector’s stable and relatively homogenous structure - dominated by a number of large mobile operators – its activity in terms of take-up was very limited. These operators (Orange, Polkomtel, T- Mobile, P4 and Netia) are among the largest occupiers of office space in Warsaw, usually leasing thousands of square metres of space at a time. This typically involves long-term leases (five years plus) and therefore infrequent relocations.

Take-up of the TMT sector broken down by specific sector

Source: DTZ, WRF Source: DTZ, WRF

15%Professional services

19%TMT sector

13%Production sector

6%Public sector

18%Financial services

3%Construction sector

3%Commerce

2%Energy sector/Industry

21%Other/unknown

39%IT sector

36%Media sector

25%Telecommunications sector

TMT Sector | DTZ4

Public sec

tor

2,027

TMT secto

r

1,387

Finan

cial se

rvices

1,325

Professio

nal serv

ices

988

Energ

y sect

or / In

dustry

952

Production se

ctor

895

Constructi

on secto

r

799

Commerce

730

In the past four years, almost all the major telecoms play-ers have either signed new lease agreements or renegotiated current leases. Orange rented 43,000 sq m in a dedicated business park in 2011, into which it relocated two years later. T-Mobile leased 27,000 sq m in the Marynarska 12 building in 2012, and Polkomtel is planning a move to new headquarters at Konstruktorska 4, totalling 23,000 sq m, in 2015. The con-sequence of the above is that this sector is unlikely to be highly active in terms of real estate in the near future.

The dynamic growth of the IT sector is demonstrated by its significant take-up of office space, especially since 2010, av-eraging over 50,000 sq m annually. IT companies are among the most significant tenants not only in Warsaw, but in regional cities as well, using the space for, among other purposes, IT outsourcing. The main enterprises that function in such a man-ner are Ericpol, with its headquarters in Łódź, Future Processing based in Gliwice and SMT Software operating from Wrocław. According to the prognoses, we can expect an increasing de-mand for modern office space from the IT sector in the com-ing years.

The average annual value of lease agreements signed by the media sector between 2002–2014 was close to 32,000 sq m, with the largest take-up occurring in 2008 (70,000 sq m), when transactions with Saturn Media Holding (8,000 sq m in Blue Office) and Gruner+Jahr (5,600 sq m in Mokotów New City) were concluded. The media sector will see further consol-idations, which may lead to the consolidated entities relocating to premises that are better-suited to their needs.

Source: DTZ, WRF

Year-by-year break down of TMT sector take-up in Warsaw (sq m)

Between 2002-2014, the average area leased in the TMT sec-tor amounted to 1,400 sq m, which was smaller only than that from the public sector (circa 2,000 sq m).

Among the companies that comprise the TMT sector, the average lease agreement was largest for telecoms firms  (3,000 sq m) and the smallest for IT companies (1,000 sq m). This is a result of the structure of the respective sub-sectors of the TMT sector, mainly the number and size of entities present on the market. The average size of real estate transactions in both the media and IT sectors could increase, influenced by consolidations within the media sector and the rapid develop-ment of the IT industry. Telecoms operators, who account for the majority of take-up in the sector, are expected to display little activity in terms of real estate transactions, and as such the average transaction size for the sector will likely see a sig-nificant drop compared to previous years.

Average real estate transaction by sector, 2002-2014 (sq m)

Source: DTZ, WRF

Average transaction size in each part of the TMT sector, 2002-2014 (sq m)

Source: DTZ, WRF

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

20022003

20042005

20062007

20082009

2010 20112012

20132014

IT sector Media sector Telecommunications sector

Telecommunications

3,000

Media

1,300

IT

1,100

DTZ | TMT Sector 5

STRATEGY + DESIGN

According to recent reports published by companies such as Workplace Solutions (workplace studies and optimisation), TMT companies use only an average of about 50% of their office space. The same data demonstrates that employees spend com-parable amounts of time on individual and team work. This may significantly influ-ence the choice of best functional office layout and determine the choice of a par-ticular building.

This situation stems from many factors, including staff profiles (mostly young peo-ple), high levels of M&A activity, fast growth rate, dynamically created teams, and constantly developing telecommunications tools. Therefore, buildings which offer ef-fective space and flexible lease conditions are widely sought-after.

Creating an office which is functional and attractive to staff is important also due to the constantly increasing competition in the labour market; this applies especially to the IT sector.

Investing time and energy into a comprehensive examination of the company’s struc-ture and working patterns is crucial for creating cost-effective and functional offices, which address the needs of the staff and all types of tasks they perform. The employ-ees can choose from a wide range of areas, including quiet work space, creative work space, meeting & conference space and social areas.

Some enterprises from the TMT sector, especially the largest media companies (Ag-ora, TVP, TVN and Polsat) own the buildings they’re occupying. This trend, how-ever, is being reversed. More firms need more flexibility due to the dynamic nature of the market situation, and as such are opting to lease space rather than own it, the former option frequently being more financially favourable.

Optimisation and flexibility03.

Low rate of office space use: 50%

Flexible office: cost optimisation, better   work  environment

Best workplace design: latest trends

Individual work Desk coworking Internal mobility

0% 50% 100%

Administration/Law City Townhall of Warsaw, Chajec Don-Siemion & Żyto, WKB, Bird & Bird, BWW

Media/IT Publicis, GroupM, MEC, Orange, Mediacom, CGI, Cognifide, Maxus, Comp SA

Industry Fortum Power & Heat Polska, ABB, Cargotec, PGNiG, Tauron Polska Energia

Construction Skanska, Bouygues Immobilier, Kulczyk & Silverstein Properties

FMCG Nestle, Lactalis, Diageo, Matras

Consulting KPMG, Mazars, Cap Gemini

Insurance Generali, Proama, Warta, Aviva

Finance Pekao, Citi, Credit Suisse, UBS, BNP Paribas, mBank, Rai�eisen, Alior, Credit Agricole, ING, LahiTapiola, Romanian International Bank, BZ WBK, GE Money, DNB

Bogusz Parzyszek

TMT Sector | DTZ6

1. Concentration: Recognizing that workers need to concentrate as well as collaborate, workplace strategists are including small rooms and larger quiet zones in the work environment.

2. Outdoor Amenities: If it’s not possible to offer opportunities to work outdoors, companies are adding green walls and taking advantage of sunlight and views to help bring the outdoors in.

3. On-Demand Space: Companies are able to offer work spaces and amenities when and where they’re needed by tapping into coworking and shared-space options available through third parties.

4. Transparency: Glass walls and perforated materials improve visual ac-cess to natural light and allow casual sharing of in-progress work which enhances employee engagement.

5. Talent: Workplace amenities and branding the look and feel of the workplace can help attract a specific employee base in line with a company’s demographic and diversity goals.

6. Wellness: Organizations are providing workplaces that encour-age people to be active, access fresh air and eat well to promote em-ployee health and productivity.

7. Social Media: New communication modes support vir-tual team interactions, help employees maintain visibility, and of-fer ways for the organization to deliver positive messages that support desirable behaviors.

8. Cloud Computing: Software applications on the cloud support mobility and address licensing and cost issues associated with using multiple devices to access files and collaborate virtually.

9. Hierarchy-Free: With less ownership of individual spaces, territoriality is diminishing and traditional hierarchies are becoming less obvious, which encourages creativity and innovation in the workforce.

10. Next-Gen Ergonomics: Beyond traditional ergonomic features such as adjustable height monitors and gas-lift seating, today’s workplace includes sit-stand desks and light-weight mobile elements.

Top 10 Workplace Innovations

Model global occupancy costs,taking into account workplace strategy for a single location or your entire global portfolio.

occupiermetrics.dtz.com

Optimisation and flexibility

DTZ | TMT Sector 7

Preferred locations 04.

Aside from the effective use of space and flexible lease terms, TMT occupiers value good public transportation links, as well as an attractive price-to-quality ratio. These conditions can usually only be met by modern stock located outside the city centre (in business districts) with well-developed public trans-port connections.

The highest concentration of TMT sector firms can be found outside Warsaw’s central business district, in the so-called Up-per South district (especially the Służewiec Południowy area) where the largest telecoms operators (T-Mobile, Plus, Play), IT occupiers (HP, Nokia Siemens Networks, MCX) and media sec-tor firms (TVP, Axel Springer, Gruner + Jahr) have their offices. The TMT sector accounted for 24% of the entire transacted volume in the Upper South district of Warsaw between 2002 and 2014 (440,000 sq m).

The relatively large amount of TMT sector occupancy in the Warsaw city centre is in large part a result of a significant number of leases signed in 2003/2005-2006. This was most-ly an effect of the lack of available stock in locations outside the city centre.

The following years saw a significant decrease in the number of TMT sector firms that occupied space in the city centre, a phenomenon that is linked with the need to optimise costs and space usage. However, a number of TMT sector tenants (small and medium IT companies, occupying 500-700 sq m)have remained present in the city centre, mainly due to the prestige and positive perceptions that are associated with be-ing centrally located.

TMT sector take-up by district and year

Many TMT companies have also chosen to locate themselves in the South West part of the city (225,000 sq m, 21% of take up in the Warsaw). This volume is distributed along Al. Jerozolimskie, as well as in the area of Żwirki i Wigury Street. Most of these oc-cupiers are from the IT (Microsoft, IBM, Gtech, Qumak–Sekom) and Media (WSiP, PWN, WP.PL) sectors. Additionally, Orange (the largest telecoms provider in Poland) has its headquarters located in a dedicated business park on Al. Jerozolimskie.

20022003

20042005

20062007

20082009

2010 20112012

20132014

0%10%20%30%40%50%60%70%80%90%

100%

Upper South

South West

Central areas (Core + Fringe)

Other, non-central areas

TMT Sector | DTZ8

Wisła

Core

Fringe

South West

Upper South

Lower South

South East

West

North

East

11,200

31,000

63,000

91,200

93,000

168,600

225,000

31,000

440,000

Preferred locations

Volume let to TMT sector companies by district

DTZ’s analysis indicates that the preferenc-es of TMT sector occupiers are unlikely to change dramatically over the coming years. Taking into account present and projected developers’ activity, we expect a rise in of-fice stock availability in the Upper South and South West parts of Warsaw. This will in-crease competition among building owners, strengthening tenants’ negotiating positions. This could lead to further TMT sector relo-cations to the above-mentioned areas, with companies looking to optimise costs.

DTZ | TMT Sector 9

Conclusions and prognoses05.

The TMT sector represents the largest group of tenants leasing modern office space in Warsaw and Poland’s other large cities. We predict that the volume of take-up originating from the IT and media sectors will increase in the co-ming years due to a growing number of employers and high level of M&A activity.

Owners of office buildings will have to adapt to the changing market conditions within the sector. In order to be able to successfully com-pete for tenants, open spaces promoting cooperation and creati-vity as well as attractive lease terms will have to be provided to occupiers. Furthermore, the young teams occupying these spa-ces and their work methods necessitate attractive office space which will positively influence creativity, collaboration, com-munication and effectiveness.

Tenants should use the coming years to implement pro-cesses designed to increase space optimisation, as they maintain advantageous negotiating positions as a re-sult of strong competition among landlords. Consi-dering the large amount of pipeline stock (both in construction and planning stages), it would be prudent to identify an optimal property (both in terms of location and technical aspects), ne-gotiate attractive rental conditions and adapt the space for increased performance.

TMT Sector | DTZ10

Conclusions and prognoses

The TMT sector represents the largest group of tenants leasing modern office space in Warsaw and Poland’s other large cities. We predict that the volume of take-up originating from the IT and media sectors will increase in the co-ming years due to a growing number of employers and high level of M&A activity.

Owners of office buildings will have to adapt to the changing market conditions within the sector. In order to be able to successfully com-pete for tenants, open spaces promoting cooperation and creati-vity as well as attractive lease terms will have to be provided to occupiers. Furthermore, the young teams occupying these spa-ces and their work methods necessitate attractive office space which will positively influence creativity, collaboration, com-munication and effectiveness.

Tenants should use the coming years to implement pro-cesses designed to increase space optimisation, as they maintain advantageous negotiating positions as a re-sult of strong competition among landlords. Consi-dering the large amount of pipeline stock (both in construction and planning stages), it would be prudent to identify an optimal property (both in terms of location and technical aspects), ne-gotiate attractive rental conditions and adapt the space for increased performance.

Author

Katarzyna LipkaAssociate DirectorConsulting & ResearchPhone: (+48) 22 222 3132Mobile: (+48) 606 993 860Email: katarzyna.lipka@dtz.com

Andrew FrizellHead of Project Management & Building ConsultancyPhone: (+48) 22 222 3122 Mobile: (+48) 668 259 688Email: andrew.frizell@dtz.com

Christopher RasiewiczHead of Property ManagementPhone: (+48) 22 222 3040 Mobile: (+48) 668 268 252Email: christopher.rasiewicz@dtz.com

Craig MaguireHead of Capital MarketsPhone: (+48) 22 222 3024 Mobile: (+48) 882 111 829 Email: craig.maguire@dtz.com

Alan ColquhounHead of Central & Eastern EuropePhone: (+48) 22 222 31 00Mobile: (+48) 668 268 103Email: alan.colquhoun@dtz.com

Kamila WykrotaHead of Consulting & Research Phone: (+48) 22 222 3133Mobile: (+48) 600 382 322Email: kamila.wykrota@dtz.com

Ian ScattergoodHead of Corporate Real Estate ServicesPhone: (+48) 22 222 3141 Mobile: (+48) 666 021 771 Email: ian.scattergood@dtz.com

Barbara PrzesmyckaHead of Office AgencyPhone: (+48) 22 222 3036 Mobile: (+48) 600 499 509Email: barbara.przesmycka@dtz.com

Contacts

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