Services Centers Help Drive Success of the Budapest Office Market

In recent years Hungary and other Central European countries, notably Poland and the Czech Republic, have successfully promoted themselves as advanced but cost-effective business destinations for international companies establishing SSCs, making the sector aprincipal driver for the developer-led office market in their capital cities.

This has enabled developers to undertake speculative development projects and provided substantial preleases allowing projects to go ahead. Demand for well-located space from the sector has acted as a catalyst for developing higher quality and more sustainable office space. 

“Hungary is a particularly popular shared service center location in CEE. With Budapest being a mature location for established centers, there is a huge potential to invest in the countryside,” comments KPMG. Hungary’s SSC/BSC sector employs more than 70,000 professionals in close to 200 business centers, according to the Big Four consultancy, which even has a dedicated department advising companies on outsourcing.

SSCs have been widely regarded as one of the core drivers of Budapest office demand and take-up and a promotional tool for promoting inward investment by, among others, the Hungarian Investment Promotion Agency. Further, secondary cities such as Debrecen are attracting SSCs with commercial office complexes specifically developed to meet demand.

An SSC is an entity within an organization responsible for executing and handling specific operational tasks such as accounting, human resources, IT, legal, compliance, or purchasing and security. Essentially it is the spin-off of corporate services to separate operational tasks from thecorporate headquarters; such adecision is usually made from a cost-sensitive perspective.

Business process outsourcing involves contracting an outside vendor with the appropriate skills and resources to carry out the work, while an SSC is a single, autonomous business unit within the company. Both sectors are part of the business services sector, a broader term for the industry dealing with, for example, IT outsourcing and R&D.

From a real estate perspective, the essential requirement for BSS centers has been a stock of well-located class “A” office space with a premium on public transport links. One metric you often hear quoted is that the building should be 400 meters from a metro station, for example.

More recently, interiors and a well-being interior environment that enables increased productivity and staff loyalty have risen up the checklist. Companies, in general, are prepared to invest in a better working environment with a design, layout, and suite of property management services that potentially increases employee productivity and attracts andretains employees long-term.

Classic Corridor

The Váci út Corridor has long been the classic Budapest SSC destination, with the District XIII municipality promoting what had been a post-industrial area with numerous brownfield development plots and direct access to metro and road links. These provided easy access to the city center and residential areas, making a short commute by public transport, auto, or bicycle possible.

As more developers moved into the business district, urban infrastructure including retail, restaurants, and services has emerged.

“Labor is cheaper than in Western Europe. But educated Hungarians are strong in languages, for example, which makes relocation [of business functions and jobs] to Budapest possible,” comments Máté Galambos, leasing director at Atenor Hungary. His firm built the 130,000 sqm Váci Greens development, where Unilever, for example, has established an SSC.

Concerning design and interiors, third-party sustainability accreditation has become a core requirement, drawn into sharper focus by the current concerns over energy efficiency and utility bills.

Advance Tower by Futureal on Váci út is the third office complex in Budapest to be awarded Well accreditation, with both its 12,000 sqm and 8,000 sqm phases achieving “Gold” certification.

In a recently topped-out project in the Váci Corridor, Skanska has achieved Well and Breeam “Platinum” pre-accreditation for the first 26,000 sqm phase of its 67,000 sqm H2O complex. Skanska, Horizon Development, and Futureal are committed to developing their projects in line with Well accreditation in addition to the more established Leed and Breeam systems.

New Business Districts

As suitably-sized, well-connected development plots become harder to source, developers are looking at other areas to establish attractive business districts for SSCs, such as South Buda, which now rivals the Váci Corridor as the most popular Budapest business district.  

The Budapest ONE office development by Futureal in District XI has reached the final construction phase. The 65,000 sqm project is located at the intersection of the Kelenföld railway and metro stations and two motorways. The final stages of the project will provide 40,000 sqm of office and nearly 3,500 sqm of retail and service space, with a green area of almost 2,500 sqm.

“Due to the successful mix of the excellent location, the unique architectural concept, and the wide range of available services, several large companies have chosen Budapest ONE. The newly built parts will house Vodafone’s new office center, and BT’s regional service center has also moved into the building,” says Tibor Tatár, CEOof the developer.

In line with Breeam sustainability certification requirements, Budapest ONE has been equipped with intelligent building management systems as standard to ensure optimal operation of mechanical andelectrical equipment, as well as low-carbon and energy-efficient heating and cooling technologies.

The office complex was one of the first in Hungary to be pre-certified with Well “Building Platinum,” which recognizes aspects that positively impact the health and well-being of employees during the design phase of buildings, according to Futureal.

Developers now need to include high-end office fit-out with break-out rooms due to SSCs establishing offices in Budapest, comments Galambos of Atenor.

Along with an increased emphasis on sustainability issues, BSCs are undertaking increasingly complex functions beyond an administrative role, such as R&D, with the resulting requirements for more sophisticated and highly specified office accommodation. The paradox is that as Hungary becomes a higher-end destination, offering better jobs and more exciting careers, it risks losing the cost advantage that brought many SSCs here in the first place.

This article was first published in the Budapest Business Journal print issue of November 18, 2022.