The Evolution of Real Estate and PropTechs

As the world’s largest asset class, real estate has historically created wealth and consequently attracted investors and entrepreneurial activity. In this sector, both commercial and residential real estate are owned by various entities as individuals, governments, institutions, and REITs. However, digitalization and technology have not accompanied the industry’s evolution as in other sectors until recently.

While start-ups are sprouting from the ground in other industries, the Real Estate sector is considered the laggard in the degree of digitization. As an example of this, transactions continue to be intensely negotiated based on instinct and experience rather than data-driven due to the lack of information on operations and financing. Ultimately, this analogue way of working and acting on information in the industry prevents the market from attaining maximum efficiency and transparency, negatively impacting the participants.

We will outline how in recent years, the amount of PropTechs has grown exponentially and is starting to change the sector and improve the market. PropTechs give players accessibility to real and valuable data and facilitate transactions by making them more convenient and fluent. In recent years, the ecosystem of start-ups has grown exponentially, and several services have been created to, among other things:

• Locate real estate agents

• Find pre-approved cash buyers

• Improve the searching process with virtual property tours

• Simplify mortgages closings, making them efficient

• Purchase a house and move before selling

The endless world of PropTechs and the future of Real Estate

The global real estate service company Jones Lang LaSalle “JLL” has recently published its latest Global PropTech Report for 2021. Within this report, JLL identifies critical areas where innovation could help transform Real Estate and looks at some of the most promising developments in the notoriously old fashioned Real Estate industry.

Source: PriceHubble

But first - to understand the PropTech movement, it is essential to look at the long way PropTech has come. Whilst it is unclear when the movement started precisely, the first PropTechs started to catch on and gain severe media exposure from 2012 onwards. In 2012, according to CBInsights, some 72 PropTechs raised a total of 221 m USD in Venture Capital in the United States. By 2016 the US PropTech scene had already seen exponential growth, collected 2,665 bn USD, and produced its first unicorns.

The PropTech market today

Ever since the humble beginnings of PropTech, a lot has changed, and the industry has become somewhat convoluted. While it is impossible to accurately measure the exact number of PropTechs, JLL has identified more than 7,800 PropTechs. Those 7,800 have collectively raised more than 97 billion USD between 2010 and H1 2021.

The number of PropTechs in the Real Estate industry has grown by more than 300% since 2010. However, the time of rapid growth has passed when looking at the most recent figures:

Whilst the period between 2012 and 2018 was characterized by solid levels of investment and only one period without growth from 2019 onwards, both the total investment level decreased and the number of companies invested in. Furthermore, looking at the investment by region depicted below, it becomes evident that the Asia Pacific region has moved from the growth phase into a consolidation phase.

This market has been hit extremely hard by the ongoing COVID pandemic.

Another fascinating point is that the investments in the US and Asia Pacific have been noticeably higher than in EMEA, which gives the impression that the Asian market is already very mature and embedded whilst the US is slowly maturing. The EMEA market is still exploring the potential of the PropTech market as a laggard.

Why are the Europeans lagging?

The notion that the EMEA region, specifically Europe, is lagging also becomes apparent when looking at the number of PropTech unicorns. Whilst the number of PropTech “Unicorns and $1bn exits” has most likely changed due to COVID, it is reasonable to assume a small 3-digit number of PropTech unicorns worldwide despite a substantial impact on some sectors. In Europe, there are only 7 (1) companies considered Proptech unicorn. The individual firms and their most recent valuations are outlined below:

Source: EuropeanStartups

1 Depending on the definition of Unicorn and valuation of individual firms. Less favorable sources argue that Europe has not yet developed any “real” Proptech Unicorn

The impact of COVID-19 on the PropTech industry

In recent years, Property and technology have proven a winning combination. That said, the global pandemic has brought the perfect scenario to test the flexibility and efficiency of the innovative solutions created by PropTech companies. Moreover, with the spread of the virus, government restrictions were implemented, and an economic slowdown was registered. Hence, firms and investors turned to technology and digitalization, harnessing its competitive advantage. Some of the most impactful applications were linked to:

Monitoring space usage

Due to the change in users’ requirements and needs from properties, some commercial real estate owners implemented live metrics to ensure that employees could return to the offices safely, maintaining social distancing.

Occupier experience

Landlords incorporated new features to their rentals, for example, an intelligent locker system that allows the occupiers to collect parcel and online purchases with maximum safety and no direct contact with the delivery company personnel, improving tenant retention.

End-to-end online transactions

Distance guidelines made the industry go into a digitalized world of sales. Several platforms that combined data and neuroscience surged as the solution for real estate agents to acquire clients and deliver them the correct information, making buyers more likely to make an offer and complete a fully online transaction.

Mobility of the future

To reduce the number of infections, the use of private transports was reconsidered, in detriment to shared public transportation. As a result, both commercial and residential real estate owners incorporated intelligent electric vehicle charging points powered by solar panels in their properties, contributing to the sustainability trend and social distancing

What is next? Market outlook

At last, it is also vital to take a look at what might be next. The MIT Real Estate Innovation Lab identifies potential future PropTech disruptors that might one day change how we live. In conclusion, we want to present some of the ideas - which might sound absurd today but may become very real one day.

Graphene

“Graphene is a single layer of tightly packed carbon atoms arranged in a honeycomb lattice. It is only one atom thick and 100 times stronger than steel is also one of the strongest materials in the known universe. Graphene is flexible, transparent, highly conductive and seemingly impermeable to most gases and liquids. Graphene-strengthened concrete has the potential to achieve higher strength and impermeability with less material than traditional concrete, reducing the environmental footprint of construction projects.”

Digital fabrication

“Digital fabrication is a design and production process that combines 3D modelling or computer-aided design with additive and subtractive manufacturing. Additive manufacturing is commonly known as 3D printing and consists of layering material until the completed shape is produced. Subtractive manufacturing is where objects are carved out of a solid block. Robotic and digital fabrication on building sites could revolutionize the construction industry, enabling for materials to be produced on-site, which could reduce delivery time on materials, facilitate shorter project lengths, reduce material costs and allow for more consistent product quality.”

Self-cleaning materials

“Self-cleaning surfaces are a class of materials with the inherent ability to remove any debris or bacteria from their surfaces in a variety of ways. The self-cleaning functionality of these surfaces is commonly inspired by natural phenomena observed in lotus leaves, gecko feet and water striders, to name a few. Self-cleaning materials allow for a reduction in operational costs as the buildings can essentially clean themselves.”

While recent innovations have already changed the industry for the better - the room for improvement and innovation is still gigantic. We feel strongly that new processes, together with a further advance in the use of automation and more frequent use of artificial intelligence, will shape the industry and drive the evolution of the asset class in the next few years.

AUTHORS:

Francisco Rei

Friedrich Bücker