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Growth in Emerging Europe Bodes Well for Cleaning Industry
By ISSA Staff — posted 05/10/2011
Europe

Standards of cleaning professionalism, performance, and productivity in Central and Eastern Europe have undeniably soared in recent years under the leadership of ISSA and the Polish Cleaning Chamber of Commerce (PIGC). However, the joint hosting of the Euro 2012 Soccer Tournament in Poland and the Ukraine–and the resultant massive boom in construction of new and refurbished stadiums, travel terminals, hospitality, and leisure facilities–will be a clear catalyst for accelerating economic growth. It will also present further opportunities for manufacturers and service companies that are in on the ground floor.

While construction alone doesn’t create a demand for cleaning, the combination of growth along with a growing focus on the value of facility management, plus additional acceptance of the need for sustainability efforts, does create the perfect storm of opportunity for ISSA members doing business in the region.

To capitalise on this growth, ISSA/INTERCLEAN Central & Eastern Europe (CEE), with its audience of highly qualified visitors, is a low-risk and very affordable route to reach potential buyers in Poland and surrounding countries including the Czech Republic, Slovakia, Hungary, Russia, the Baltic states, Romania, and the Ukraine.

With the fifth edition of the show being staged in Warsaw, Poland from 18-20 May 2011, there is an inescapable feeling that, now more than ever, this is an event being held in the right place at the right time—and for all the right reasons.

Regional Trends
Commercial real estate investments in emerging Europe is beginning to rival that of other, more developed countries, according to the Royal Institution of Chartered Surveyors’ (RICS) Global Commercial Property Survey Q3 2010. Poland charted the second highest number of investment transactions in commercial property in Q3 2010, out of 48 developed and developing countries, coming in only behind Singapore and just ahead of India. The Czech Republic, Russia, and Hungary came in just behind the United States, Hong Kong, and Japan in number of commercial property investments at 21-23 respectively.

When looking at commercial property tenant demand within Central and Eastern Europe, it was highest in Q3 2010 in Russia, Poland, Turkey, and Bulgaria according to RICS. Rental improvement expectations, also a sign of increased tenant activity, were highest in Russia, Turkey and Poland. Occupier demand and availability also has risen in Russia in the latter half of 2010, in a steady growth pattern that began in Q3 2009.

In addition, the prevalence of facility management is on the rise in Emerging Europe, according to a study by Per Anker Jensen at the Technical University of Denmark. The most progressive change found in the Central & Eastern European region was found in Poland, The Czech Republic, and Hungary. In fact, the International Facility Management Association has a presence in these countries, denoting another sign of increased professionalism.

These countries, along with the rest of the European Union, were estimated to represent a €655 billion market, with €331 billion apportioned to in-house services and €324 billion in outsourced services.

The same study also revealed that prior to the global economic crisis, facility managers in Europe were moving from a cost-based decision-making process to one of lowered cost through productivity if they could maintain higher service quality. While the dip in the economy slowed this progress, predictions point to resurgence now that construction has increased and real estate operations are once again stabilising.

Growth of Sustainability Movement
While Emerging European countries are still developing their sophistication in facilities management, many are advancing quickly in their understanding of sustainable solutions for their buildings. Professional firms, rather than governments, are the main drivers behind sustainable solution implementation in developing Europe, according to a 2010 RICS Global Property Sustainability Survey Report. Globally, office occupiers seem to outpace industrial and retail tenants in implementing greater sustainability options in their facilities. When it comes to Emerging Europe, the same is true. Office occupiers show the greatest implementation rates, followed by hoteliers and retail organisations.

Of special note is that the percentage of office occupiers in Emerging Europe who are implementing new sustainability solutions was ahead of the percentage doing so in North America and Australasia, according to survey responses in the RICS sustainability report, a sign that the learning curve in this region is shorter, due to the amount of supporting evidence available from other regions of the world where the movement took root sooner.

When asked how attitudes toward implementing sustainable solutions has changed over the last three months of the survey, compared to the three months prior, respondents in Emerging Europe identified that facility/real estate professionals were the strongest proponents of such a focus. Survey responses also indicate that Central and Eastern European governments are the least progressive of all regions of the world, behind emerging Asia, Australasia and Latin America, in improving their interest in sustainability.

When asked how long it might take the majority of facilities to meet acceptable sustainability standards in this developing region, more than 25 percent felt it could happen within two to five years, while about 50 percent felt it would be within the next five to 10 years.

When asked about the top barriers to customer acceptance of sustainability solutions, respondents from Emerging Europe cited the perception that benefits and savings do not outweigh the costs as the biggest challenge. RICS noted that the lack of knowledge regarding benefits and savings, or lack of budget, were not as highly referenced in responses as one would expect to see, signaling a level of sophistication that could be receptive to janitorial product and service providers who can offer sustainable solutions at low to no cost increase over traditional methods.

Poland
Among Hungary, The Czech Republic, and Poland, it appears that Poland will record the strongest economic performance over the coming year with growth in excess of 4 percent, according to a report in the RICS Global Real Estate Weekly. The news flow on the commercial property sector broadly seems to reflect this probability. The Q3 RICS Global Commercial Property Survey suggested that sentiment towards both rents and capital values was relatively upbeat in Poland. This arguably reflects the faster than expected recovery in the economy over the past year.

“At the same time, many real estate funds are looking for an existing centre with extension and/or improvement through asset management,” said Ian Elliott of Elliott Retail Property in Poland.

Also of note is the fact that Poland, the sixth largest country in the European Union, represents one of the biggest health care markets in Central & Eastern Europe. EU funds of €350 million have been allocated to be spent on modernising hospital buildings and purchasing new equipment in Poland by 2013. Another Emergency Services Plan also calls for a new network to be set up with one ER ward per 150-200 thousand people. EU funds expected to be spent on this project by 2013 amount to PLN350 million.

Russia
With an increasing number of residential and non-residential projects resumed after having been put on hold in 2008 and early 2009, and many new projects being announced, the Russian construction market is expected to return to growth in 2011. The regions which are pulling the construction market into recovery include the Krasnodar and Primorsky territories, which have been growing by about 20 percent so far this year due to extensive development projects being implemented in these areas. With the anticipation of hosting the 2014 Olympics and the 2012 APEC Summit, there also is an upswing in construction in Sochi, Vladivostok and their surrounding areas.

These developments include sports facilities, conference venues, and hotels, along with residential, retail, and numerous infrastructure projects designed to transport guests and visitors to and from event venues. In the next few years the very substantial spending envisaged for roads, bridges, airports, railways and ports will provide a major boost for the civil engineering construction industry and facility management sector as a whole.

"To date, the Russian real estate market is demonstrating positive stability. It seems to be the first strong sign of recovering,” says Sergey Chemerikin of Ernst & Young. “Nobody expects a second wave of fluctuation.”

The Ukraine
The Ukrainian construction industry is, at present, focusing on the completion of projects such as stadiums, airports, roads, and hotels, associated with the Euro 2012 Football Championship.

Construction work associated with Euro 2012 will also receive a boost because the new president, Viktor Yanukovych, and the new prime minister, Mykola Azarov, will want to prove their commitment to carry out proper preparations for the most significant event in Ukraine’s modern history.

“In 2010, construction work on many Euro 2012 projects was already in full swing. Therefore it is expected that 2011 will be the peak year in terms of the construction of Euro 2012 facilities, and that these projects will continue until the start of the tournament,” said Robert Obetkon, Senior Construction Analyst for PMR Publications.

The Czech Republic
Rental rates began to stabilize in Prague and Plzen in mid-to-late 2010 and are expected to do so in Brno in 2011. In spite of significant vacancy rates in all three cities, it appears that new supply of space in the office, retail, and industrial sub-sectors is being absorbed, according to Business Monitor International’s (BMI) Czech Real Estate Report Q4 2010. While rents increased in Prague, Plzen was the strongest growth sector in 2010 with a 20 percent increase in office space rent, around 12 percent in industrial space rental hikes, and up to a 40 percent increase for retail property rents in the area, according to BMI.

Prague continues to be the city where experts feel the best real estate recovery will take place in coming months due to its popularity with international companies looking for office space. Because there is little office space development in the pipeline, CB Richard Ellis predicts occupancy rates will continue to rise the fastest in Prague as compared with other areas in Central & Eastern Europe. This bodes well for facility services to step up and help property managers compete for tenants on the basis of quality building conditions.

In the last quarter of 2010, the total stock of office space in Prague topped 2.7 million square metres according to data from Prague Research Forum (PRF), which comprises CB Richard Ellis, Colliers International, Cushman & Wakefield, DTZ, Jones Lang LaSalle, and King Sturge. Class A office space accounted for 68 percent of this, with the remainder consisting of class B office space.

To learn more about the opportunities that exist in Emerging Europe, contact ISSA's European office at europe@issa.com.

 

Featured member articles are written based on interviews conducted by ISSA Staff.