Real estate technology or proptech is quickly becoming its own category in the startup world. Top tier investment firms Softbank and Goldman Sachs are spending hundreds of billions of dollars to invest solely in real estate tech. Real estate landlords Blackstone and Brookfield Asset Management are also pilling money into proptech.
Earlier this year, Brookfield, a Toronto-based global landlord with assets of $285 billion, announced plans to invest $200 million to $300 million over the next three years in startups in its four business lines including real estate.
In the past seven years, total investment in proptech pushed past $5 billion in 2017 from a comparatively meager $33 million in 2010.
Factors driving proptech investment
The real estate sector, unlike others industries, has for the most part been slower to invest in technology. Legacy brands have been slow to adopt new tech, and while the industry as a whole has been lagging, it offers investors ample space to gain traction in a relatively level playing field with no clear market leader.
Real estate is one of the largest asset classes in the world accounting for more than 13% of the U.S. GDP. The sector’s market size alone justifies massive venture capital investment, and as the costs of technology such as IoT digital sensors decline and savings from platforms developed using predictive analytics and cloud services continue to emerge, it is rapidly becoming a prime area for investment in startups that solve long-standing issues such as energy savings.
Proptech also has a diverse set of applications. Settings range from retail, hospitality, storage, warehousing, and facilities management and advances in data analytics have proven to be successful at reducing energy and costs- making innovation in the marketplace a profitable proposition. As innovations in modular building, construction robotics and security continue to proliferate the diversity of applications make it an attractive area for investment.
Perhaps most importantly the success of startup unicorns like Airbnb, RedFin, and WeWork, which have all reached far beyond billions of dollars in valuations, makes investors confident and comfortable that proptech investment opportunities will result in growth and liquidations over time.
What does proptech investment mean for building owners?
According to 2018 global outlook report by PwC, areas most likely to be affected by technology were design and construction, big data, tenant requirements and property management- investment in these sectors far outnumbered the investments made in real estate leasing, valuation, sales, and finance.
This trend indicates the emergence of an increasingly competitive marketplace which will be soon be defined by technological improvements inside of buildings. In other words, building owners with more technology will better be able to compete as tech-oriented investment flows through funnels to the marketplace.
Today more than ever, building owners have the opportunity to use data to make better decisions and install smart devices to not only increase the value of their buildings but also save burgeoning energy costs by optimizing energy and occupant use through predictive analytics.
The earlier property managers, building owner, and developers adapt to technology the better they will be able to stand out from the competition.
Amping up on fiber-based connectivity, IoT sensors and occupant data analytics will not only enable building owners to attract and retain tenants now but also prepare them for a more competitive, connected future.