Concrete Analysis

Internet+ turning into a buzzword in China

PUBLISHED : Monday, 14 December, 2015, 9:01am
UPDATED : Monday, 14 December, 2015, 9:01am

Internet+ is one of the main buzzwords of late, and is on many people’s lips in China. The phrase was first used by Chinese entrepreneurs in the IT industry, in an effort to expand their businesses into certain service sectors.

In essence, Internet+ is a new business model where traditional industries align themselves with technology and the Internet. In China in the future, this model is expected to promote the widespread use of information technology in industrialisation and advance and exploit networking, digitalisation and smart technologies.

As the Internet+ economy gains impetus, additional industries will arise, which will generate new job openings in China. Millennials, with their box-fresh ideas, will aspire to be a part of the Internet+ economy, and this will drive new innovation and industry diversification in China.

Today, China has nearly 650 million Internet users, a fivefold increase from 2005. Each user in China generally spends an average of 26.1 hours per week browsing the web but what’s interesting is that the user penetration rate of the Internet in China only stands at 47.9 per cent. Given other regions, such as Sweden or the Netherlands, have penetration rates of around 94 per cent, China still has much room to grow regarding the size of its Internet+ economy.

Social media provides another example of the huge potential of the Internet+ economy. Let’s take the world’s largest social media online portal – Facebook – and China’s largest social media online portal – WeChat. If we were to treat their user base number totals just the same as a country’s population total, then today by population size, at 1.18 billion people, Facebook would be the world’s third largest nation, while WeChat, at 438 million, would be the world’s fourth largest nation.

Looking forward, the rapid expansion of the Internet+ economy is expected to continue to bring enormous benefit to other industries and the wider economy in general. Moreover, it has been estimated that in the future, 40% of China’s GDP will be contributed by traditional enterprises that have realised the utilisation of Internet platforms and technologies.

The impact of Internet+ on the three main commercial property sectors in China is and will continue to be multi-dimensional and multi-faceted. However, from a developer perspective, industry practitioners will have to be aware of how Internet+ is:

•Harnessing the power of crowdfunding to change the property development investment game;

•Expanding the presence of co-working office space;

•Engaging big data to enhance the operation of shopping centres, and;

•Involving technology to advance logistics property facilities management.

Moreover, on the occupier side, industry practitioners will have to understand how Internet+ is:

•Allowing technology to create agile office workplaces;

•Bringing together offline bricks and mortar retail and the online environment to create O2O platforms, and;

•Employing the Internet of Things to reduce logistics property energy consumption.

At the moment, crowdfunding is riding on the back of the Internet+ economy in China and changing the nature of property investment in the region. Developers in China now have a financing and risk diversification alternative available to them when considering property development financing. This alternative is crowdfunding, which can be built into an ‘Internet asset light’ property development investment platform.

On the office property front, Internet+ (and specifically technology) is changing the way we work. As a result, office space in China is becoming more agile, which is what employees want. Consequently, agile office workplaces will help companies in China in the ‘war for talent’ by making them better able to attract and retain talent. Co-working office space is also expanding due to the growth of Internet+. Today, China has a good number of incubator office space facilities, but pure co-working office space is still in its infancy. Thus, with the existence of a gap in the market, pure co-working space in China has the potential to develop and grow.

The retail property sector has also embraced Internet+, and two Internet+ related items transforming the sector are Online to Offline (O2O) platforms and ‘big data’. Today, to stay ahead of the e-commerce curve, a number of shopping centres and tenants in China are joining forces to be part of shopping centre O2O platforms. Additionally, big data is being used by shopping centres in China to good effect to examine sales and consumer behaviour. Shopping centres in the region which are doing this now have a noticeably better tenant mix and design.

Finally, energy cost has been a heavy burden for industrial logistics properties to bear. Internet+, via the the Internet of Things, can now lower energy costs for warehouses in China. What’s more, the Internet of Things, through Building Information Models (BIM) is also transmuting the process of facilities management (FM) for property, including warehouse property. The use of BIM is now not only enabling the minimisation of data and information loss, but also making the whole FM process that much more efficient.

As China continues to develop an action plan to integrate mobile Internet, cloud computing, big data and the Internet of Things with manufacturing to promote the development of e-commerce, industrial networks and Internet finance, so there will be implications for the real estate industry in the region in the future.

As technology becomes increasingly used by real estate professionals, major goals for the industry in the region will be to successfully adopt new technology across the built environment sector, generate new avenues for value creation from the new technology and develop new technology management skill sets among professionals.

Finally, we expect the real estate industry to form a closer working relationship with the technology sector and its major firms, because, to maintain a competitive edge in the future, real estate companies will need to be progressively aware of the latest technology at any given time.

Shaun Brodie, Head of China Strategy Research at DTZ/Cushman Wakefield