Property technology investors may be licking their wounds after a tough year, with valuations resetting and broader macro concerns around inflation. But the intersection between technology and real estate still presents a broad canvas of untapped potential.
“Even in a choppy macro environment, proptech is as important as ever,” says Jeanne Casey, global head of proptech and innovation at Nuveen Real Estate. “It still makes the shortlist of executive-level priorities and has become familiar enough that there is a wider recognition that technology can help generate revenue,” she says, warning that firms which don’t embrace proptech could be left behind.
Capital raising has also boomed since PERE launched its first dedicated proptech fundraising ranking last year, even against this backdrop. Capital raised by the top-ranking managers has skyrocketed to just shy of $10 billion, with the top three managers comprising just over half of all the capital raised.
Industry leader Fifth Wall again topped the list, almost doubling its raised equity to $2.65 billion, while Hidden Hill Capital held firm in second place, on $1.86 billion, for a second consecutive year. Four managers entered the top 20 list: Greenpoint Partners in 13th position, was the highest of the four, followed by Round Hill Capital just behind, Israel’s Greensoil Investments in 16th and Tishman Speyer in 20th.
These managers are raising capital at an exciting time for the industry, and technology is becoming ever more central to real estate. Here are three key trends to watch.
1Sustainability in the spotlight
Proptech is helping drive the ESG conversation, with European investors in particular demanding greater progress and clear decarbonization milestones.
“[One] area I am most bullish on is the intersection of sustainability and proptech: tools that facilitate decarbonization projects, as well as those that measure and manage the energy and carbon footprints of real estate portfolios,” says Casey. “There are a lot of sticks and carrots emerging for real estate investors to set and meet decarbonization goals.”
Data is one of the most obvious applications for proptech. Firms are increasingly relying on software systems to collect and analyze huge volumes of data produced across assets and operators, the environmental focus on tracking carbon emissions, energy efficiency, water consumption and other key ESG metrics. “Different jurisdictions collect and store that data, so it can be really challenging for a real estate owner to analyze, measure and benchmark that data in a consistent way,” says Jake Fingert, managing partner for the proptech venture firm Camber Creek.
Buildings contribute around 40 percent of global carbon emissions, with half of that coming from commercial real estate, demonstrating the need for rapid transformation and tools to help accelerate the transition. “Other than oil and gas, it is the single largest industry contributing to carbon emissions,” stresses Clelia Warburg Peters, managing partner at New York-based proptech investment firm Era Ventures.
Firms like Measurabl, Audette and Carbon Title offer tech services to help create a carbon-transition strategy based on relevant ESG data. “For the environmental part, clients want to measure energy, water and waste, and incorporate the data into a single system,” adds Joseph Consolo, director at Yardi Energy. “Energy and assessing greenhouse gas emissions are crucial for targeting net zero.”
Deploying digital tools like AI or digital twins can be used to build reactive models that help cut costs as well as emissions. Rather than spending money on expensive retrofits, without quantitative data to back it up, models can be produced to experiment with different scenarios to find the best solutions that tackle environmental concerns and boost ESG credentials.
“We seek technological systems, programs and devices that add value to our real estate operations and investments, and we pilot hundreds of solutions each year, some with success and others not,” says Lisa Brylowski, vice-president of operations for Brookfield’s real estate business. “There is no doubt that our use of technology has improved our ability to meet stakeholder and regulatory demands, improve our asset performance and monitor our renewable energy procurement, all creating value for our stakeholders.”
2Journeying into the metaverse
The digital frontier may sometimes move at breakneck pace, but savvy investors are keenly aware of the opportunities that come with blending the physical and digital worlds. Consultancy McKinsey & Company says the market could be worth as much as $5 trillion if Mark Zuckerberg’s efforts to replicate the success of Facebook take hold and the world embraces the metaverse.
Already, several big brands and financial institutions have been “buying up tracts of virtual land or opening metaverse shopfronts,” says Aimee Dring, associate in the real estate team at law firm Lewis Silkin.
Metaverse platforms like Decentraland allow users to buy virtual plots of land, while others let users purchase virtual real estate which can then be revamped, resold or rented at a later stage. In many ways, the best way of thinking about the emerging virtual market is the classic life simulation computer game The Sims, but for a modern audience and with endless monetization possibilities.
“When you buy property in the metaverse, you are buying a non-fungible token, not actual real estate,” explains Neil Oberfeld, US leasing practice co-chair at law firm Greenberg Traurig.
“But unlike real property, an NFT potentially could disappear with the push of a button.”
Much of this emerging digital real estate relies on cryptocurrencies and the blockchain technology underpinning it all. Much has also been made of the transaction transparency that blockchain offers, meaning the technology has plenty of wider use cases. With rising interest rates, one potential advantage of blockchain-backed real estate could be the cutting out of middlemen, highlights Jawad Ashraf, chief executive of digital collectables platform Terra Virtua.
Blockchain could also transform the investment fund space, allowing investors to purchase assets in similar ways to cryptocurrencies. One of the earliest attempts came in 2018 with the arrival of Aspen Coins, tokens that denoted ownership of the luxury St Regis Aspen Resort in Colorado.
“Tokenization automates manual actions such as yield distributions or ownership tracking in the secondary market,” says Oi-Yee Choo, CEO at ADDX, a regulated private market exchange in Singapore. “This means it is efficient enough to serve a large number of investors each holding a fractional share of a portfolio of properties, and minimum investment thresholds can be significantly lowered.”
The seismic shift toward data and tech also has big implications for teams and sourcing talent. “The vast majority of the technology talent is under 30,” says Serena Althaus, senior managing director and head of European searches at executive search firm Ferguson Partners. “This, combined with CEOs’ desire not to have an unwieldy board, often prevents them from incorporating a new hire in the technology space into boards.”
Typically, the head of technology sits at a C-suite level, but in real estate this is not yet the norm. “Often the head of technology will report into the chief operating officer or the chief financial officer and sit one level below the C-suite,” says Emily von Kohorn, co-head of search firm Sheffield Haworth’s real assets practice.
Lack of clarity on management and governance structures means boards have been slow to integrate data and proptech into their wider strategy, but the culture is starting to change. A 2022 survey from Ferguson Partners shows that almost 40 percent of firms now have a technology/data strategy committee in place and around a quarter have a chief information officer, with another quarter staffed with a chief technology officer.
Finding and hiring talent is tough regardless, and shortages are driving up pay. “I found that clients were often being unrealistic in matching their budgets with their talent expectations,” says Chantal Clavier, head of European real estate at Heidrick & Struggles. “I would often say to them, ‘I can bring you Silicon Valley talent, but can you afford Silicon Valley?’”
Competition for graduates is fierce, particularly with plenty of other industries also looking to digitalize and real estate not always the first point of call for tech students. “Finding the right tech talent is not easy in this climate and it is important to remember that it is not just real estate but business in general that is digitalizing,” says Vincenzo Tortis, chief information officer at investment, development and management group COIMA. “Successful hiring and retention is not just about money.”