PropTech – Redefining the Real Estate Business

November 15, 2018

MONTHLY ANALYSIS

The makings of PropTech began in the mid-1980s, marked by the founding of companies that provided software for the commercial real estate industry. Autodesk and NCREIF in 1982, Yardi in 1984, and CoStar in 1987.

However, PropTech didn’t really spring to life in a big way until the mid-2000s, when cloud computing, broadband connectivity, and mobile devices enabled residential PropTech giants RightMove, Trulia, and Zillow to launch and show investors the value of disrupting real estate through technology.

Since the mid-2000s, more and more PropTech startups have been bringing new technologies to market that address a wide variety of inefficiencies, scoring more attention and capital from technology VCs and growth funds, which legitimizes the real estate technology movement. – Nathan Dever, Founder, Ten-X

The University of Oxford research distinguishes three PropTech sub-sectors (verticals), and three drivers (horizontals).

The verticals:

  • Real Estate FinTech – Technology-based platforms that facilitate the trading of real estate asset ownership. The assets can be buildings, shares or funds, debt or equity; ownership can be freehold or leasehold. The platforms may simply provide information for prospective buyers and sellers, or they may more directly facilitate or effect transactions of asset ownership or leases with a (negative or positive) capital value. This sector supports real estate asset, property and facilities management.

  • Shared Economy – Technology-based platforms that facilitate the use of real estate assets. The assets can be land or buildings, including offices, shops, storage, housing, and other property types. The platforms may simply provide information for prospective users and sellers of space, or they may more directly facilitate or effect rent- or fee-based transactions. This sector supports the real estate occupier markets.

  • Smart Real Estate – Technology-based platforms that facilitate the operation and management of real estate assets. The assets can be single property units or entire cities. The platforms may simply provide information about building or urban center performance, or they may directly facilitate or control building services. This sector supports real estate asset, property, and facilities management.

The horizontals:

  • Information

  • Transactions (or marketplaces)

  • Control.

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Source: PropTech 3.0: the future of real estate, The University of Oxford

One of the areas that have been affected the most by data-focused platforms is the search and discovery of properties. An HSBC study called Beyond the Bricks found that 86% of recent homeowners looked for available properties online and a similar proportion (85%) searched online for house prices. Some 82% went online to help research where they would like to live.

Online marketplaces for real estate are the most common representatives of the PropTech business, which will soon have two important implications:

  • The organic expectation of the modern consumer to be able to find relevant real-time listings online in a friendly interface;

  • The necessity for businesses to go an extra mile – integrate predictive analytics for estate pricing, life-like 3D models for virtual tours, incorporation of financial instruments like insurance, payments management, and a lot more.

The Oxford University research offers a framework by James Dearsley, Co-founder of Unissu, to showcase the hottest sections of PropTech:

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Source: PropTech 3.0: the future of real estate, The University of Oxford

The intersection of the real estate FinTech vertical with transactional capabilities in the form of a marketplace appears to be the most saturated in options. Indeed, the largest number of startups focuses on creating an online marketplace where buyers and sellers can perform all necessary operations to deal in property.

Co-working spaces have been redefined by the legendary WeWork among others. With the increasing mobility of the global workforce, this particular area will likely see significant growth of investments in the future. WeWork alone is reportedly growing at 111% per year with a 422-million-dollar Q2 2018 revenue. It’s growing 50 times faster than other shared workspace competitors.

The 2018 Real Estate Outlook found that globally, the number of real estate tech startups rose from 176 in 2008 to 1,274 by 2017. In the same period, the cumulative investments in these startups soared from $2.4 billion to $33.7 billion. According to the Commercial Real Estate Outlook 2019, in the first half of 2018, global commercial real estate (CRE) transaction volume increased 13% YoY to $341 billion. The Americas’ volume rose by 9% YoY to $132 billion.

While venture capital remains the dominant funding source, the report revealed that there is substantial capital flow from non-VC investors as well, including real estate investment trusts (REITs), established real estate service companies and investors, private equity firms, and high-net-worth individuals. In the five-year period between 2011 and 2016, funding from non-VC sources for real estate tech startups increased at a CAGR of 65.7% to $2.3 billion in 2016. Between January and September 18, 2017, the funding reached an all-time-high record of $5.8 billion.

The impact of technology

Technology sets new standards on how to discover, review, buy, sell, and lease estate. The process has always been controlled and defined by the largest real estate conglomerates – for example, Keller Williams, Weichert, C21, RE/MAX, Coldwell Banker, Sotheby’s International Realty, The Keyes Company, Windermere, and others.

The way we consume real estate and PropTech will be affected by three main factors: changing consumer behavior; generational shifts, which will intensify the growth of urban centers while creating hyperlocal micro-communities; and technological shifts that will bring niche technologies into mainstream society, notes Angelica Krystle Donati, Co-founder at Houzen.

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Data source: How technology will redefine real estate, and why companies need to prepare now, CBRE, 2017

One of the most important catalysts of change in the real estate business is mobile technology, CBRE, one of the largest commercial real estate services and investment firm in the world, emphasizes. With the penetration of nearly 60% in APAC, for example, mobile phones are the primary means by which many people collect information, approach customers, and dispatch services.

The 2017 CBRE report called How Technology Will Redefine Real Estate emphasizes that technology is already enabling individual mobility when it comes to the physical place of work, all the while fostering a more creative and sharing culture within companies, business units, and individual teams. This is supporting the use of third-party spaces such as co-working centers and serviced offices – a relatively young, but massive industry, which is the most receptive to PropTech innovations.

Some technologies will have a stronger transformative impact on the development of PropTech than others. Forty/8, a specialist property company, sees the benefit of using VR to help potential buyers visualize finished apartments at a development in Manchester, the Telegraph reports.

Of the emerging technologies, I’d expect VR to play a huge role in real estate. With VR, buyers and renters can view homes remotely and secure a place. Potentially, there could be a service like TaskRabbit where consumers can hire people to go view a home for them. From my own perspective, I want to see everything currently done offline to be brought online with a heavy focus on mobile, so that the home buying and rental processes can be done on-the-go. — Yardley Ip, Trulia

Examples of PropTech companies redefining the real estate business

There is also a number of dedicated events:

Over time, we will see an increasing number of dedicated funds (like Fifth Wall Ventures), and even innovation labs (like Property Innovation Labs (Pi Labs)), which will play a curative and accelerative role to the industry with yet-to-be-measured outstanding potential around the world.

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