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Real Estate Tech Boom has Room to Run

Technology March 02, 2020
Technology March 02, 2020


Favorable tailwinds and macro trends like urbanization, consumer expectations of mobile technology and disintermediation of traditional brokers mean an investment bonanza in real estate technology and software (PropTech) has room to run as the industry continues to catch up to a digital transformation that has already swept through other sectors.

Initially slow to adopt technology relative to industries like healthcare or business services, PropTech is as much as three- to five years behind the broader technology curve, depending on the sub-vertical; for instance about 1/3 of the $13 trillion global real estate investment market is still managed on spreadsheets.

That is an imbalance investors in the industry are working hard to rectify, with Venture Capital and Private Equity dollars pouring into technological solutions focused on finding efficiencies and enhancing user experiences for providers and consumers, in categories ranging from design & construction, sales & brokerage, property management, portfolio & investment management, and vacation rentals.

Disrupting Inefficiencies

Rife with layers and processes that are ripe for automation, real estate is already undergoing rapid disruption. Nowhere has that been more apparent than in the sales & brokerage sub-vertical, where companies are eliminating the need for once-entrenched, lower-value intermediaries. Today’s real estate buyer, seller or renter need not spend hours with a broker to establish search specifications. Instead, they can turn to online marketplaces with an abundance of listings and utilize virtual reality applications to take personal control of their searches, including previewing the property remotely.

Venture Capital and Private Equity firms are taking note and investment in PropTech has more than tripled over the last three years. Equity and debt raised in U.S. PropTech venture investment rose 69% y/y in 2019 to $9bn, from $5bn in 2018, reflecting continued momentum for growth companies in the PropTech sector, in both residential and commercial opportunities. According to data from Capital IQ, out of the $9bn raised, about 60% was for the Residential segment and 40% for the Commercial segment, showing that investors can and are choosing to seek growth through different outlets, businesses and use cases. It’s a similar story in mergers and acquisitions (M&A) activity. In 2019, 45% of the 100 material M&A transactions in the U.S. PropTech market occurred in Residential / Mortgage segments and 55% in Commercial, according to data compiled by Pitchbook & 451 Research. Of those deals, 80% were from strategic acquirers and 20% from financial sponsor acquirers.

Recently, PropTech has seen some of the most aggressive activity in the property management, investment & portfolio management and data/valuation analytics sub-verticals.

Investments are also getting bigger and competition for high-quality opportunities is increasing as the number of active strategics and private equity investors in the space jumps; incumbents who initially resisted change now embrace technology adoption and enablement, and have established venture functions to invest in emerging technologies.

Recently, PropTech has seen some of the most aggressive activity in the property management, investment & portfolio management and data/valuation analytics sub-verticals. Companies in these spaces are for the most part recession-resistant, offering a strong value proposition even in a downturn.

Over the past year, especially public PropTech companies in these three verticals have seen sharp increases in share prices, making them more able and willing to acquire bolt-on acquisitions at richer multiples.

Growth Drivers – Urbanization & Modernization

Growth drivers differ for consumers and providers, but urbanization and modernization of cities is a prevailing theme on both sides as PropTech strives to reduce costs and overheads, and automate to reduce inefficiencies and eliminate low-value functions or processes. As more and more people move to cities on a global scale, developers are building taller and closer. Where before they planned one building at a time, today’s developers and investors think in terms of groups of buildings that are tech-enabled and managed as one unit. Rather than one-off buildings, developers are planning entire neighborhoods with their related services and amenities.

As we get closer and closer to smart cities, property managers must consider societal change, as well as topography and demographics and, increasingly, providers are collecting and analyzing huge inflows of data to optimize processes and make data-driven investment decisions. Consumers are increasingly turning to online marketplaces with a plethora of data and analytics tools to help them make informed buy, sale and rental decisions.

There is more data available in real estate than ever before, and as that continues to rise exponentially there will be increased pressure on the industry to take every opportunity to collect, analyze and learn from data to optimize processes and make data-driven decisions that make the real estate industry more efficient and effective.

Software and technology are increasingly reshaping every aspect of how real estate is developed, procured, managed and utilized. What is clear is that the market for PropTech still has plenty of room to run.

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Manthan Choksey Director in the Technology & Business Services

  Manthan is a Director in the Technology & Business Services group and is responsible for covering Real Estate Technology (PropTech), Data ...



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