Interest in real estate technologies continues to grow, and traditional industry players are more and more keen to invest in innovation. Here’s what to watch out for in the year ahead.
From global trade wars to a troubling retail climate, 2018 presented challenges for businesses and investors across a variety of industries. Alongside such challenges, however, there also come opportunities: Capital flows into real estate have remained strong, with returns at or above the historical average, and interest in real estate technologies continues to grow. Here are the key proptech areas to keep your eye on in 2019.
Investment turns to innovation
Investment in proptech is expected to have increased in 2018, building on record levels of over $12 billion in 2017. According to the annual KPMG Global PropTech Survey, 93% of those in the real estate sector believe that “traditional organisations need to engage with proptech companies in order to adapt to the changing global environment”. This figure is up slightly from 89% the previous year.
So far, though, the industry has been slow to embrace proptech innovations, suggesting there’s still plenty of room for growth and fresh ideas. Awareness of proptech as an accelerating tech sub-sector is increasing and investors are beginning to sense the magnitude of its disruption potential.
From growth in investment leads to later-stage raises and exits, there are many signs that the proptech market is maturing. As that happens, it’s crucial that companies and investors learn from high-profile mistakes. In that area, 2018 offered some harsh but important lessons.
Learning from startup failures
The most daunting step for many tech startups is to scale their business models and undertake global rollouts while still keeping up with the competition. It goes without saying that achieving this is no small task. Many new companies fail, and the proptech sector is no exception. Nobody likes to see promising ideas fall flat, but it’s how people learn from these mistakes that really counts.
Failure must be embraced as a catalyst for the overall proptech ecosystem, empowering it to strengthen and grow. When a startup fails, team members will move on and take their wisdom with them, which helps the industry as a whole develop. The entrepreneurs and investors involved shouldn’t be afraid to jump back in, and recycle capital and opportunities into new ideas and ventures — and quickly.
Blockchain technology turns 10
2019 marks a decade since the invention of the blockchain. Cryptocurrencies may be experiencing a downturn, but innovators are continuing to find new applications for the technology that underpins it. In the US, the Securities and Exchange Commission has called an end to the Wild West days and is beginning to regulate cryptomarkets. This may create some teething pains, but they’re ultimately necessary for the technology — and companies built around it — to attract institutional investors.
Now that the cryptobubble has burst, the use of distributed ledger technology should become more considered and well thought through. Blockchain’s potential in the real estate sector has so far been unrealised, but that could change in light of these recent developments.
Research from Altus Group shows that 37% of commercial real estate executives and investors believe blockchain will impact the industry within two years. Many believe that it could be used to remove cumbersome and costly middle steps from real estate transactions and facilitate rapid disintermediation. The introduction of regulated exchange STOs could be a crucial step in improving the security of transactions and injecting greater liquidity into markets.
New investment sources
Fresh capital from the US will create stronger competition among European and UK-based startups this year, but the greatest fuel for disruption may come from real estate incumbents, whose interest in proptech is increasing.
Keen to get in on the action, mainstays of the real estate sector are starting to create their own proprietary investment funds. Hotels, commercial landlords and brokerages are keen to leverage funding to stay ahead of potential disruption through both direct investments and strategic partnerships. Most importantly, though, these established players are seeking to adopt new technologies to enhance the experience of owners, operators and residents alike.
As the market grows, the biggest challenge still lies in matching investors and founders in terms of both expertise and capital. As more startups enter the proptech sector than ever before, securing capital will depend on much more than a good idea. Lower-quality and under-performing companies will fail faster than ever in 2019. The success stories will be those that look beyond a founder’s vision to focus on creating strong teams and operational processes.
Opportunities for analytics
Big data and IoT have been hailed as two of the most significant developments in proptech year after year, though much sensor technology is still niche or gimmicky. There are notable exceptions, however, like WeWork’s use of IoT and data to optimise their buildings and design new ones based on real-world user needs. The company is continually developing its tech platform in line with what it learns in its physical real estate pursuits.
We’re looking forward to seeing more startups build business models centred on leveraging data through digital platforms this year. Turning data and metrics into insights is a complicated and technical process, especially following the introduction of GDPR in Europe, so companies that create viable analytics platforms could quickly become the breakout successes of the sector in 2019, paving the way for developments in 2020 and beyond.
The momentum of proptech investment will continue in 2019, as it has year-on-year in the sector’s journey so far. As real estate incumbents become more involved with innovation and the ecosystem continues to mature, we look forward to meeting new cohorts of disruptors in the space and supporting investors as they navigate the ever-expanding landscape.
About the Author
Dominic Wilson is Co-Founder and Managing General Partner at Pi Labs. He leads the firm in a general capacity with a specific focus on investments and investors. He also sits on the boards of Brolly, FalconDHQ and Office App. Dominic has a wide background in Private Equity Real Estate worked with both AEW Europe and Savills Investment Management and transacted over €3bn of deals across Europe. He has a degree in Law with French from the University of Birmingham and an MBA from the London Business School.
About Pi Labs
Pi Labs is Europe’s first VC firm to focus exclusively on proptech investments. It has established itself as a pre-eminent global leader in the early stage domain in this vertical. To date, it has made 38 investments including Airsorted, Land Insight and Plentific. Pi Labs is global in its focus — it has backed founders from 19 different nationalities. To date, its portfolio companies have raised over $140m.