Every dollar and every euro counts

Tomasz Trzósło, The Managing Director of JLL Real Estate Consultancy, talks about Poland's Investment attractiveness Interview by Beata Socha WBJ Observer: The geopolitical situation in our region is far from ideal. A few years back we could have been perceived as a safe haven, but then the Ukrainian conflict broke out and now the Russian-Syrian turbulence is making headlines around the world. How does it affect Poland in the eyes of potential investors? Tomasz Trzósło: After the events in Crimea and eastern Ukraine, we kept our ear to the ground and we talked to a lot to investors to see whether the situation in Ukraine would make a difference to them. Luckily, they are well-informed as to what effect, if any, the conflict has had on Poland, and therefore the whole situation has had little or no bearing on Poland as an investment destination. If anything, I would say that it has had a slightly positive impact as some funds that were looking to invest farther east decided to withdraw their capital and look elsewhere, with Poland as one of the possible alternatives. The situation of Russian involvement in Syria is the same in terms of its impact on Poland. It’s still too soon to tell for sure, but the Ukrainian situation is much closer to home and it still hasn’t made a dent in investor confidence. How is Poland perceived now? From the point of view of the entire market, including real estate, the general sentiment is vital for attracting investment. Either it is good and the country gets good press, or it isn’t, regardless of indicators and ratings. These soft elements are extremely important as any investment decision usually boils down to two or three possible locations which are very similar in every aspect. These soft factors are what determines which area a business will locate to. I hope the new government understands that the marketing of the country and its investment potential is extremely important. The early days of the new government suggests it is focusing more on communication within the country, rather than internationally. I hope they will bolster their efforts with respect to the latter, too. Some could say that whether or not more money comes into Poland makes little difference to the entire economy, but this is definitely not true: new investments do create new jobs in the economy, and new money for the real estate market creates income for the government (locally or on a national level) but it also fuels the country’s various advisory businesses (lawyers, tax advisors, technical advisors, banks, insurers, agents, etc) and so generates wealth in the country and also tax revenues. Do you think the new government will see it that way as well? I know the new government wants to put an emphasis on creating incentives for Polish investors. All well and good, and I definitely support efforts to build a stronger investment capital base in Poland, but I am sure it’s more important for a fresh out-of-school graduate to get a job in Poland rather than consider whether the money is coming from a Polish-owned company or otherwise. It is actually the opposite, working for a big international company could be a bridge to an international career for some. Secondly, the scale of Polish capital available for investment compared to international money is insufficient. We need to make use of what we are offered and develop employment in Poland using the capital available. In an interview, Deputy Prime Minister Morawiecki said that the government will seek to continue the wave of success Poland has had in the business services sector. I think that’s extremely important. The BPO/SSC industry is one of the fastest growing employers in the country. We already have some 150,000 jobs in the sector. This should definitely continue to be the area of focus for one simple reason – it creates a multitude of jobs for young graduates. How long do you think this BPO trend can continue? Isn’t Polish labor becoming a little too expensive? We can see that in the real estate market when an investor looks to buy a building leased to BPO/SSC companies, they ask a question: what happens if they leave to a cheaper location in the future? Well, I don’t think it’s like that at all. Labor costs are only one aspect of a BPO operation. Investors look at other factors as well: the quality of education, number of students, foreign languages spoken or employee loyalty, which translates into employee turnover costs, which are equally important. Poland is doing well in these areas, too. What is even more important is that these jobs in the business services sector are not susceptible to business cycles within Poland. These centers offer services to many countries in Europe and around the world. The company I work for, JLL, also has several hundred employees in Poland who service international markets, as well as our own BPO. We also have a shared service center rendering accounting and financial services to the JLL group in Europe, the Middle East and Africa. These employees do not depend on the Polish economy or selling services in Poland. This is, in my view, a super-strength of the entire BPO/SSC services industry in Poland – it provides much more stable and sustainable jobs as these are for a much wider geography, and therefore much less dependent on business cycles in Poland. One more thing that is vitally important for the Polish economy as a whole is that the BPO sector offers a lot of jobs in cities other than Warsaw. We all know that Warsaw has a markedly better job market than any other major Polish city, and therefore I think that it’s important for Poland to prevent Warsaw from dominating other markets and to try and keep the other regional cities attractive. This should allow young people to be able to find good jobs throughout the country rather than limiting the options to Warsaw and abroad. Such as the situation in Germany, where there are seven top cities with comparable attractiveness for investors as well as for Germans looking for work? Exactly. Just like the German model. The business services sector is great for the jobs market in Poland’s regional cities, but importantly it also drives further job creation. People who have jobs spend their money and through consumption or investment create other jobs as a result. Therefore, the benefit of the cities attracting BPO/SSC firms is much wider than the jobs in the sector. There are those who say that BPO firms offer little in terms of professional development and that it’s just a way for a graduate to gain his or her first professional experience and then move on to something more advanced. It’s only natural that people want to move forward with their careers but it is also a fact that we already have a number of more advanced processes and positions within the business service sector in Poland. It’s not just customer services and accounting. There’s IT, KPO – Knowledge Process Outsourcing units, and an increasing number of R&D centers that are being moved to Poland. There is also huge potential for fund management in Poland, but it still requires legislative changes. We have the people, the knowledge and the quality to do it, but Poland would need tax solutions that would allow funds to have similar effectiveness as, for example, in Luxembourg. I hope the new government will look into this. There is another macroeconomic reason why this would be good for Poland. Everything seems to indicate that such changes would help bring more capital to the Warsaw Stock Exchange providing these funds are traded on the WSE. And, as we all know, our stock exchange would benefit from additional capital. After the pension fund debacle in 2014, its position has suffered and so a positive impulse would undoubtedly be good for it. What about the new government’s position related to favoring Polish companies with Polish capital? I strongly believe that every dollar and euro that comes to Poland is in the country’s best interest. When an international giant buys a company built here, its profit stays here, it will pay its Polish employees more and produce more goods in Poland for export. Naturally, it is important that the company pays its taxes here. But it is always a good thing and I find it surprising when some politicians question it. The only way for long term success of Polish companies is for them to be as internationally competitive as possible, and this includes cost, but also creativity and pro-activeness of quality. No governmental regulations will ensure this. Internal support from the country should focus on easing access to capital that would help Polish companies to grow, and this should be the focus of the government. Hopefully, the new government will see it the same way. The new ministerial appointments to financial and economic related posts are good and I am hopeful. Where is the capital coming from as far as the real estate market is concerned? How much of it is Polish? In 2015, Polish capital accounted for some 10 percent of the entire real estate investment volume. The majority of it is international: American, Western European, Canadian, and others. Recently we’ve seen a new player from South Africa in the Polish market acquiring several shopping centers. It’s a fund called Rockcastle. It’s a completely new source of money for Poland, which is great news. We’ve also seen several major deals with South Korean and Chinese capital. We have money from the Middle East coming into Poland, which is invested mainly through international money managers, although there have also been direct purchases, such as Qatar Holding’s acquisition of the new building where Orange HQ is located. It is therefore, a truly international and diversified market, which is what we should be proud of in Poland – Poland has positioned itself very well on the international map of real estate, international pension funds also want to have an allocation on this market. The latest EU round of funding will likely be the last one in which Poland receives such funds for developing its infrastructure. What will happen after this source of money dries up? That is another reason why we need to work on creating as many jobs now and bring as much business to Poland as possible. Not only in the service sector, but also in the financial industry or in the manufacturing sector. These investments, and workplaces, are made with a long-term perspective and therefore should be really high on the governmental agenda. Polish companies should, of course, be given as much support as possible to help them grow, and their investments are very important in facilitating long-term growth. That being said, attracting more international capital will also definitely be to our benefit, not only in terms of job creation, but additionally in long term stability, safety and growth in the country.