The massive proliferation of PropTech startups seeking coveted investment dollars from a growing number of venture capital firms and other investors is making it difficult to separate the signal from the noise.
The state of the industry
In the last two years, more than $18.6 billion have been invested into real estate property technology with more than 25 % nearly $5 billion in the fourth quarter of 2017, according to a report from real estate tech research firm Re:Tech.
Chinese behemoth investor Softbank led the funding investing $4.4 billion in WeWork and $450 million in Compass. Overall, U.S.-based firms received the lion share or 52% of funding raised in 2017.
Globally PropTech venture capital investments increased by nearly 104% from May to June of this year, as the number of startups funded declined slightly from 48 to 35 deals during the same period.
While the state of the PropTech economy seems to be booming, the industry’s disaggregation is likely to result in more missed opportunities.
“The choice for the sector seems clear, create a clearer vision, better market information and more collaboration between the sector or wait for someone else to join the dots and create a business that makes the impact of WeWork look relatively benign, ” said Stefan Webb, head of Digitizing Planning at Future Cities Catapult.
PropTech’s untapped opportunities
A report by Future Cities Catapult, commissioned by the BPF and released in September, highlighted some relevant areas of untapped potential for greater adoption of Proptech in the real estate sector.
While 50% of PropTech companies focus on sales/leasing, a significantly limited number of companies apply themselves in construction technology (16%) and investment/financing (12%). Land acquisition and refurbishment represented less than 5% of active PropTech companies, and no companies fell into the category for demolition/remediation, according to the report.
Articulating industry pain points
Part of the problem has been a lack of clear direction from the real estate industry to clearly define and engage technology makers with an understanding of pain points.
“In our 2018 global PropTech survey we found that while nearly all decision-makers in the real estate industry agree they need to engage with technology, two-thirds don’t have a clear tech strategy. Therefore, it is hugely helpful to have an industry-wide group to help understand how to respond to and capitalize on the opportunities technology creates,” stated Andy Pyle who is the head of Real Estate at UK’s KPMG.
The report highlights that the real estate sector needs to better at articulating pain points across the property lifecycle so that innovators can decipher requirements for technology solutions.
Unified standards and systemic approach
The members of the group recommend creating a precise and quantitative database or library of all current and emerging PropTech innovations, classified in line with the lifecycle, user needs, and technological drivers.
Also, developing a Property Innovation and Maturity Indexes to assess a company’s capacity and preparedness for innovation/tech and understand the level of maturity of technologies to enable the investors to determine better which market opportunities to pursue will significant in separating signal from the noise for investors.
While educational institutions like MIT’s Center for Real Estate is doing some excellent work in the field, an increasing emphasis should be placed on research regarding technology needs of members and their occupiers.
Much of the lack of clarity stems from an uneven distribution of digital skills and lack of innovation within the real estate sector when compared to other industries, the report found.
The group recommends that real estate industry leaders should recruit talent and place individuals with digital skills into influential roles in property companies, create challenged-based procurement platforms and design leadership development courses within the industry.
Last but not least, due to the diversity of asset classes, actors, innovators and regulators, the industry continues to remain disconnected sending unclear responses although many shared challenges exist.
To resolve this discontinuity a shared language and vision for the PropTech sector is needed including a regulatory sandbox for industry, government and other strategic players to create standards related to building data and a greater emphasis on occupant productivity and well being in early development stages without limiting innovation should be undertaken.