Open collaboration is the key to accelerate the development of China’s proptech ecosystem

Shanghai, 18 August 2020 - The innovation mentality in China’s real estate industry is evolving from the “silo” mode to open collaboration. Real estate and technology companies constantly interact with each other to generate ideas, promote integration, and create value.

According to JLL’s latest, Reimagine the Future of Real Estate report, real estate enterprises, technology companies and relevant professional organisations have jointly contributed to the evolution of China’s proptech ecosystem, which is undergoing an early stage of development. Looking forward, it is expected to accelerate the digital transformation of China’s real estate industry in terms of integration, efficiency and talent development.

The report summarises the key categories of proptech applications currently available in the market, and identifies a series of promising proptech solutions for the future. KK Fung, CEO of JLL Greater China, indicates, “Proptech serves as the key growth engine in reimagining the future of real estate. By enhancing the resilience of any commercial property, proptech can mitigate potential market risks and maximise long-term asset values.”

Enhancing ‘asset resilience’ through proptech in four dimensions

• Using the language of the mobile application market, proptech can improve the “retention rate” of end-users by enhancing human experience in the built environment.
• Property managers and asset operators have, in some cases, succeeded in creating an agile architecture, which coordinates applications, APIs, and management systems. Operational excellence can, therefore, be realised to mitigate risks, save energy and improve workflow efficiency and flexibility.
• Safety and health are of greater importance for workforces and buildings. Such standards and measures are expected to become a “must-have” in property management post-COVID-19.
• Companies that are ready for the digital transformation will be at the leading edge. It is also important to recognise that it will take time and commitment to navigate the journey towards the digital drive successfully.

Demand for emerging technologies in real estate industry expands further

After surveying over 200 proptech companies and key stakeholders in China’s real estate industry, the report summarises twelve key property technologies. It also categorises them into four types: “Ubiquitous” (e.g. Cloud Computing, Big Data, Artificial Intelligence); “Catalyser” (e.g. Internet of Things, Building Information Management); “Contextual” (e.g. Virtual Reality/Augmented Reality, Indoor Navigation, Robotics); and “Frontier” (e.g. 5G, Blockchain, Unmanned Aerial Vehicles, Autonomous Vehicles).

In China, key proptech players consist of equipment manufacturing, software development, Internet and start-up companies. They vary significantly in terms of technological capability, business development, clientele and scale. Therefore, when choosing among which partners to work with, real estate companies need to maintain clear vision and redefine purposes for proptech innovation or digital transformation.

Notably, China is expected to become one of the first countries to roll out 5G, which is known for faster data transmission and a much greater degree of connectivity. It is, thus, foreseeable that the development of cutting edge IoT and AI applications will accelerate, and the marginal cost of adoption will decrease rapidly. The survey also shows that the inquiries for IoT, 5G, and AI among Chinese real estate companies will increase significantly over the next two years (see Figure 1). As China continues to invest in its digital infrastructure, ensures regulatory framework and strengthens data security and privacy, demand for new technologies from the real estate industry is expected to expand further.

^{Figure 1: Demand for new technologies from real estate companies in China is expected to change significantly.}

^{Note: based on JLL's survey of Chinese proptech companies and end-users in 2020.}

^{Source: JLL research}

Future proptech solutions

Based on the existing and future trends in office, retail and logistics market, the report summarises a series of proptech solutions, which address specific “pain points” of each property sector.

Office: Key solutions include smart property management, digital asset management and smart workplaces. Looking forward, operating costs are expected to continue to rise. The pandemic has led a large number of corporate tenants to review their workplace strategy and diversify their office portfolio. Office property owners are paying more attention to proptech solutions that can either save costs in property management or asset operations, or otherwise, offer differentiating tenant services.

Retail: Omnichannel marketing, digital operations and seamless shopping experiences have gained growing interest. Retail property owners and operators are expected to not only lease and manage the space, but also provide services for tenants and shoppers. As a result, shopping mall developers and operators have become early adopters of proptech solutions and digital transformation.

Logistics: Proptech applications such as location intelligence, green technology and automated warehouses have received increasing attention. Technology will play a decisive role as user maximises efficiency by making the best use of the highest-quality warehouse space available. There will be greater requirements for equipping warehouses for automation, cold chain, and other high-tech uses. In turn, operators must future-proof their assets to cater to these needs.

Building the proptech ecosystem in China and driving innovation

The proptech ecosystem in China is unique, mainly for two reasons. Firstly, China has a relatively separate digital ecosystem, which differs from the global landscape. Secondly, government priorities and digital culture have a big influence on the commercialisation of proptech in China. For instance, solutions that contribute to smart city, new infrastructure initiatives, sustainability or urban resilience are likely to enjoy earlier success than others are.

^{Figure 2: An innovation-driven proptech ecosystem consists of a variety of diverse players.}

^{Source: JLL research}

“China’s proptech ecosystem will continue to play an important role in optimising and integrating resources, improving industry standards, stimulating innovation, cultivating talent, and accelerating transformation,” noted Lou Chen, Senior Director for JLL Research. “In the proptech sector, we are likely to see more partnerships in the form of joint ventures or revenue sharing rather than simple cash investments. Large enterprises, SMEs and start-ups each have their own strengths and weaknesses when it comes to technology innovation. Those who are quick to embrace new technologies will benefit the most in the digital era.”

To download the Reimagine the Future of Real Estate, please click here.