The newest (at least to me) tech neologism: Proptech
Technological disruption, for a long time, has been the central driver of growth all around the world. This has translated into strong financial returns for investors who backed the companies that were driving this technological innovation. Right now, there are specific themes within technological disruption that seem to be attracting lots of investors. The likes of fintech and biotech come to mind, sectors which have drawn the most attention from venture capitalists last year. However, there are other areas and many more neologisms within this space that are growing and could represent good opportunities for years to come – one of those is proptech.
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So, what exactly is proptech? Just like the other -techs, this is the combination of property and technology. Technological innovation has never really been inherent in the real estate sector and why would it? The property market has soared and soared, so there has never really been a need to innovate in this industry. As a result, despite being the largest asset class globally, the sector has very much lagged on the technological front and is probably one of the most environmentally damaging, which will create numerous opportunities.
There are three main processes within the real estate industry that are likely to be targeted for technological innovation – that is construction, transactions and operations.
Construction will be the most important from a climate change standpoint. New materials and new construction methods that are more efficient will have to be developed. This is the only way to ensure that construction becomes more environmentally friendly, especially considering the current supply and demand imbalance of housing across the world, which will lead to a lot more construction going forward. Outside of actual construction, the digitisation of processes is an area that, like in many other industries, could make its way into the construction industry to enhance efficiencies.
Within the transactions phase, a large driver will be the modernisation of real estate marketplaces. This can come in the form of virtual and augmented reality technologies, which can enhance property viewings, to blockchain-based home buying and selling solutions. This is just the start – there are also advances that could be made in mortgage and general transaction management.
Operations is probably the area of real estate where there has been the most focus on innovation. This has come from things like smart buildings (automated processes to control the building's operations, e.g. heating, air con, lighting etc.), which has been particularly important for carbon emission reduction and reporting. This will only develop with the rise of so-called smart cities. But other areas such as property and tenant management software, last mile logistics (final step of the delivery process from a distribution centre or facility to the end-user) and property fittings could all benefit from technological developments.
Last year, some of these proptech companies were able to attract significant attention. In November, it was reported that Place, self-described as a “broker agnostic technology and business services solution,” raised $100m in a Series A round, led by Goldman Sachs, at a valuation north of $1bn. Side, a real estate technology company that works to turn agents and independent brokerages into boutique brands and businesses, raised “$50 million-plus” in a funding round in the summer that more than doubled its valuation to $2.5bn. Lintil, which launched early last year and aims to “streamline the homebuying process by connecting buyers with mortgage brokers, solicitors, surveyors and others all in the one place and at cheaper rates” has managed to secure €250,000 from Enterprise Ireland. And last but not least, is RSquare, “a data-driven platform to digitise the commercial real estate brokerage process” in South Korea. RSquare, which enables tenants to compare multiple properties and find an office, raised $72m in series C funding from private equity firm STIC Investments.
These are just some examples of proptech companies in the market today and no doubt there will be many more like these in the years to come, as the real estate industry catches up with other industries with respect to a technological overhaul. This means that a lot of the opportunities in this space right now will be at the venture capital or private equity stage, but these companies are thinking about going public and, before we know it, the real estate sector on listed stock exchanges will be much broader, with a much greater technological angle, which could be a huge opportunity, given property buying, selling and letting won’t be ceasing anytime soon!
21 January 2022