Emerging real estate startups, known as proptech, are successfully using big data to help companies create efficiencies, deliver personalized services and stronger products, and ultimately make better, more informed business decisions.
As interest in proptech has grown, venture capital has poured billions of dollars into the proptech marketplace in recent years – $75.2 billion since 2015, according to an EY and CREtech study, and almost a third of that has been in 2019 alone.
Proptech is generally defined as technology startups affecting physical spaces and tangible assets. In recent years, real estate firms have started to embrace technologies that automate processes. Leveraging artificial intelligence and machine learning tools, proptech startups can streamline and even automate predictable tasks such as data entry, preventative maintenance and security scanning. As a result, firms can reallocate workers to focus on high-value tasks, such as tenant satisfaction.
Emerging trends in real estate are creating opportunities for proptech to deliver value in new ways. For example, the growing demand for flex office space has many landlords interested in proptech startups that are vertically integrating procurement, facilities and property management – services that were traditionally outsourced. Companies focused on running profitable building operations while measuring how tenants are using both the asset and surrounding amenities are helping landlords improve the overall tenant experience.
Firms focused on corporate social responsibility and green initiatives are also benefiting from new technologies that can be integrated into building operations systems to automate management of heating, cooling, HVAC and even detect system malfunctions. In Europe, where regulations are tighter, proptech startups are leading the industry with sustainability technology solutions that reduce environmental impact through energy efficiency improvements and drive cost savings.
To date, the lion’s share of venture capital funding has been funneled into real estate finance and flex space sectors, and a few key areas are poised for increased investment going forward. Investors are particularly interested in startups with a focus on property and facilities management automation, smart building sensor technologies and tenant experience platforms that improve building operational efficiencies and positively impact net asset value.
However, proptech investing is still a nascent trend, and investors should take caution when applying traditional venture valuation methods to an industry that is traditionally capital and operationally intensive.
Emerging corporate venture firms spun out of real estate companies, such as JLL Spark, are taking a more comprehensive and prudent approach to proptech investments, and post investment, help startups achieve scale and profitability by identifying viable distribution channels.
2020 and beyond
The tides are changing in real estate as confidence in proptech continues to grow. While critics may argue it will take decades for widespread adoption, companies such as Skyline AI are creating value by disrupting the traditional underwriting and acquisition process through artificial intelligence and machine learning. As we look to the future, it is crucial that the next wave of technologies pinpoint measurable ROI for investors and deliver scalable and consistent financial returns that translate into enhanced bottom-line asset valuations.