Thanks to the overall improvement in the national COVID-19 situation, local governments have introduced support policies for consumption. Commercial management and operation sectors such as Wanda Property Management, Bao Long Commercial Management, China Resources Vanguard Life, and New City Holdings have seen a comprehensive recovery and are expected to maintain continuous growth. During this year's Spring Festival (from New Year's Eve to the sixth day), 480 Wanda Plaza locations across the country saw a passenger flow of 160 million people and sales revenue of 12.68 billion yuan. Among them, the comparable Wanda Plaza locations experienced a year-on-year passenger flow increase of 15% and sales growth of 29% compared to 2019.
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Introduction to the China Business Management Service Market
1Overview
Commercial operation services refer to the services provided to commercial property developers, owners, merchants, and consumers from the pre-opening phase to the entire life cycle of retail commercial properties (including commercial plazas and shopping streets). The purpose of these services is to determine the positioning and design of retail commercial properties, optimize the merchant and brand portfolio for owners, select merchants from the service provider's brand inventory, assist merchants in improving business performance, provide professional property management services, create unique life experiences for consumers, and help owners improve daily management levels and reduce operational risks through professional energy consumption regulation and fire protection systems.
Most developers (especially small and medium-sized ones) lack experience in commercial property development and operation. This presents market opportunities for commercial operation service providers with a complete business operation service system, a light-asset model, and strong service capabilities. With the continuous development of China's retail commercial operation service market, it is expected that the light-asset model will become more prevalent within the industry.
2Service scope
Before the retail commercial property is opened, the commercial operation services provided to the owners mainly include (i) market research, market positioning, and design consulting services; (ii) investment promotion preparation services; and (iii) opening preparation services.
After the retail commercial property is opened for business, the commercial operation services provided to property owners or tenants include: (i) Operation management services, such as marketing and promotion services, tenant guidance services, and consumer membership services; (ii) Retail commercial property management services, such as security services, cleaning and landscaping services, maintenance and repair services; and (iii) Rental operation services within the retail commercial property.
Source: Analysis by Frost & Sullivan
In addition to standard business operation services, business operation service providers can offer various value-added services at large commercial squares to broaden their revenue sources. Such services typically include (i) marketing services provided to merchants; (ii) offline advertising space management; (iii) parking space management, including charging piles to meet the charging needs of new energy vehicles; and (iv) public area management, including setting up mobile KTV karaoke rooms, blind box vending machines, branded flash stores, and hosting exhibitions and events. It also includes cloud commerce services, where business operation service providers provide merchants with SaaS-based customized services (such as operation management, membership management, and marketing promotion) and conduct daily operational management.
3Introduction to the Light-asset Model
Under the light-asset model, commercial operation service providers do not need to invest funds in purchasing land or developing retail commercial properties; instead, they focus on the operation and management of retail commercial properties. This model can reduce the financial burden on commercial operation service providers for holding or acquiring assets, improve their operational efficiency with capital, optimize resource allocation, thereby leading to higher profit margins and capital returns. The light-asset model mainly includes leasing operation (income-sharing) model, leasing operation (traditional) model, entrusted management model, as well as management output service model and brand output service model.
Compared to other light-asset models, the leasing operation (revenue-sharing model) has the following characteristics: no minimum guaranteed rent, long contract term, stable business operations, and commercial information security. Therefore, the leasing operation (revenue-sharing model) allows commercial operation service providers to fully utilize their core capabilities, achieve alignment of interests between property owners and service providers, and thus ensure the competitiveness of service providers in independent third-party projects.
Source: Analysis by Frost & Sullivan
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China Commercial Operation Service Market
Market scale and development status
1The incremental market develops steadily
The number of commercial plazas and the total managed construction area are continuously increasing. From 2016 to 2021, the total number of managed commercial plazas in China increased from 15,167 to 22,646, with a compound annual growth rate of 8.3%. It is expected that the number will reach 30,068 by 2026, with a compound annual growth rate of 5.8% from 2021 to 2026.
Source: Analysis by Frost & Sullivan
China's total managed retail commercial property area increased from 5.952 billion square meters in 2016 to 8.952 billion square meters in 2021, with a compound annual growth rate of 8.5%. Among them, the total managed area of retail commercial properties over 20,000 square meters increased from 3.769 billion square meters in 2016 to 6.201 billion square meters in 2021, with a compound annual growth rate of 10.5%, higher than the overall level. The total managed area is expected to reach 12.542 billion square meters by 2026, with a compound annual growth rate of 7.0% from 2021 to 2026. The total managed area of retail commercial properties over 20,000 square meters is expected to maintain a stable growth rate, with a compound annual growth rate of 8.0% from 2021 to 2026.
2The commercial operation service market is growing rapidly.
Source: Analysis by Frost & Sullivan
From 2016 to 2021, the total revenue of China's commercial operation service market increased from 552.4 billion yuan to 992.6 billion yuan, with a compound annual growth rate of 10.8%. Revenue from commercial operation services increased from 121.1 billion yuan in 2016 to 238 billion yuan in 2021, with a compound annual growth rate of 14.5%. Rental revenue increased from 431.3 billion yuan in 2016 to 684.6 billion yuan in 2021, with a compound annual growth rate of 9.7%.
In 2026, the total revenue of the business operation service market is expected to reach 1.3638 trillion yuan, with a compound annual growth rate of 8.1% from 2021 to 2026. The compound annual growth rates of business operation service revenue and rental income are expected to be 9.7% and 7.5%, respectively.
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China Business Operation Services
Future opportunities for providers
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Integrated development of online and offline platforms
More and more business operation service providers are committed to launching platforms such as mobile applications and WeChat mini-programs. These platforms divert online traffic to offline commercial squares, providing consumers with more information and a better shopping experience. As a result, they help merchants improve customer acquisition efficiency and reduce related costs.
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Diversification of service supply
Business operation service providers increase the profitability of their services by offering more diversified value-added services. Additionally, as the number of paying members continues to grow, business operation service providers have also explored new revenue models by providing services related to membership benefits. Business operation service providers can monetize SaaS solutions using merchant and consumer resources.
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Application of new technologies
With the promotion of new technologies such as information technology, big data, cloud computing, and artificial intelligence in China, the digital and intelligent transformation of the commercial operation service market has become one of the main development trends in the market. Applying these technologies can help property owners and businesses better understand customer needs, analyze customer preferences, and improve customer loyalty. It can also assist commercial operation service providers in expanding their service scope, improving management efficiency, and reducing management costs. In addition, intelligent energy consumption regulation and fire safety systems can enhance the daily management of retail commercial properties and reduce operational risks.
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Demand for high-quality and professional services
The demand for immersive shopping experiences and diverse consumption scenarios is increasing day by day. However, the Chinese commercial operation service market faces challenges such as weak commercial operation capabilities, limited technical empowerment of commercial squares, and homogenization of services. These challenges can bring broad opportunities to commercial operation service providers that offer personalized shopping scenarios, immersive shopping experiences, and professional operation services.
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Promotion of light-asset model
The light-asset model is expected to become increasingly common within the industry. Commercial operation service providers adopting the light-asset model will be able to realize value appreciation and higher profit margins for retail commercial properties, further promoting the development of China's commercial operation service market.
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Urban development is accelerating
The acceleration of urban development is expected to promote the development or renovation of retail commercial properties and increase the demand for business operation services. With the accelerating urban development in China, the development or renovation of retail commercial properties will penetrate into third- and fourth-tier cities, further expanding the market scale of the business operation service sector.
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China Business Operation Services
Challenges Faced by Providers
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Weak business operation capabilities
Many small commercial operation service providers cannot offer comprehensive services and lack strong operational and management capabilities. As a result, they find it difficult to attract high-quality merchants and ensure sufficient customer traffic.
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Weak technical capabilities
Most small and medium-sized commercial operation service providers in China lack the ability to integrate online and offline channels in commercial plazas. As a result, they are unable to build an integrated online and offline consumer ecosystem to attract consumers, nor can they reduce labor costs through intelligent management or help businesses improve operational efficiency through data analysis.
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Service homogenization
Most of China's commercial operation service providers are small and medium-sized ones. The homogenization of services has intensified competition in the Chinese commercial operation service market. Adverse competition such as price cuts and reduced service quality will affect the project acquisition capabilities of high-quality commercial operation service providers.
