Work, like much of life, is becoming more digital. Real estate as an asset class is alive to this fact, but also has some serious catching up to do.
As companies adjust to the questions being posed by the new digital age, investors and managers are increasingly looking to property technology for the answers. Fundraising is picking up the pace as the potential applications of proptech, not least in the workplace and the home, provide cause for enthusiasm.
Proptech’s time has come
Proptech has become the focus of a wave of capital raising, as PERE’s inaugural Proptech 20 ranking demonstrated this year. A growing number of private real estate managers are launching dedicated technology-focused funds.
The rush to adopt proptech is long overdue. Real estate’s lack of previous progress is perhaps a symptom of a wider lack of value being attributed to technological expertise. A recent Deloitte survey found only 33 percent of respondents believed their real estate firm had the resources and skills to operate a digitally transformed business, and only 41 percent had accelerated redefining business processes, job roles and skill requirements to include the use of technology and tools. When asked whether covid-19 highlighted a lack of digital capabilities at real estate firms, 82 percent agreed it did.
There is no shortage of potential. Professionally managed real estate reached $9.6 trillion in value in 2019, according to MSCI, while EY notes that there was less than $25 billion of capital investment in technologies focused on the built environment in the same year. The Center for Real Estate Technology & Innovation says the amount invested in proptech deals in 2020 was $23.8 billion.
Many of the biggest players are still on the sidelines. Half of the real estate technology funds in the PERE Proptech 20 are below $150 million in size, so their average equity ticket is lower than the level at which most institutional-level investors are willing to engage.
That has allowed venture capital to play a significant role in the space. JLL data shows venture and angel capital raising hit $9.7 billion in the first half of this year, a record performance for the first six months that suggests 2021 could be the biggest year yet for the growing proptech market. As for how money is being invested, construction technology is one significant winner.
“Construction tech is a big area for investment, especially when that technology can help reduce the environmental footprint of buildings,” says Raj Singh, managing partner at broker JLL’s proptech platform JLL Spark.
“The impact of the pandemic on workplace safety and culture has driven an uptick in solutions that improve tenant experience in a hybrid environment.”
Back to the office?
Office life is also firmly in proptech’s crosshairs. Although many employees have resolved never to return to being in the office five days a week, home working is increasingly becoming hybrid working at the very least, so offices are filling up once more.
Owners need them to. UK REIT British Land reported in May 2021 that covid-19 had wiped off over £1 billion ($1.4 billion; €1.2 billion) from the value of its shops and offices, with offices losing 3.8 percent of value over 12 months.
If proptech can make the office experience more pleasant, and therefore offices more likely to be populated, that is a result not just for workers, but for the asset owners as well.
“Advanced building management systems, tenant engagement phone apps and touchless entry are just a few examples of how we are using or exploring proptech as a tool to create the most user-friendly, safe and welcoming work environment we can,” says Brad Hyler, managing partner and head of European real estate at Brookfield Asset Management.
Proptech can make offices not only safer, but also more pleasant. “The biggest task is to create usable spaces that provide everything workers need to concentrate on their main tasks. This includes building offices around the idea of flexible work, along with offering useful amenities like food delivery and digitizing as many administrative tasks as is possible,” says Speedinvest partner Heinrich Gröller.
All of this matters as owners and operators have to compete with the safety and comfort of the home office. And homes are benefiting from proptech, too.
There’s no place like home
Residential accounts for 26 percent of global real estate investment, behind only office (27 percent). As has been the case in offices, residential technology adoption has been accelerated by the covid-19 crisis, with developers and managers taking advantage of an array of smart home solutions. Proptech can add value to properties, improve customer experience and achieve greater operational efficiency.
“Over the last 18 months, most real estate managers have realized that tech is the way to go, particularly as they have had to manage things remotely,” says Faisal Butt, founder and chief executive of proptech venture capital fund Pi Labs.
Self-guided tours, which avoid the need for prospective residents to meet an agent in person, are a particularly popular innovation. Greystar senior managing director Scott Berka notes that for some properties more than half of all tours are self-guided or virtual, with no difference in rental rates between virtual or in-person tours.
Automated platforms can speed up the letting process. Software can make repair and maintenance more efficient. In private homes, the take-up of smart devices is growing significantly, as is the whole sector. There may be no place like home, but for private real estate, there is also no space like proptech.