The past year has seen the emergence of a new technology buzzword: PropTech (or property technology). Google trends shows the search PropTech has spiked in 2017 amid a surge in attention and funding for technology supporting the real estate industry. Tech analytics firm CB Insights projects that $3.4B in venture capital will be invested in PropTech startups by the end of 2017, a 25 percent increase on 2016.
But what is PropTech? It’s an ambiguous term used to describe technology that relates to real estate, property, or the built-environment. That could mean technologies enhancing our understanding of building performance, facilitating real estate transactions, enabling sharing of physical space, or just creating smarter physical places connected by an Internet of Things.
More important than understanding the loose definition of PropTech, though, is understanding the problems that so-called PropTech companies are working to solve. Real estate, the world’s largest asset class, is notoriously slow to adopt new technology. But a host of well-funded PropTech startups (the University of Oxford research estimates there are currently 2,000+), both in competition and in partnership with established real estate and technology companies, are offering creative new technology-driven solutions. Let’s take a look at four areas of interest that fall under the broad category of PropTech.
Transparent Property Analytics
Property technology took root in the ’80s with companies like AutoDesk (computer-aided design), Argus and Yardi (investment analysis and management software), and CoStar (commercial real estate brokerage and analytics) harnessing computer power to offer software solutions to real estate professionals. These solutions have laid the groundwork to create digital representations, or even identities, for physical property assets.
Newer companies have been reimagining how property data can be harnessed to help property managers run assets more efficiently, and to help investors make more informed decisions in an asset class that many professionals would describe as opaque. Companies like VTS (View the Space) have been leading the way in developing real-time analysis of real estate assets and portfolios for both property managers and investors. Their statistical dashboards establish transparent and immediate understanding of a property’s financial performance. This intelligence can be expanded to assess full portfolios of real estate. The goal is to make property investment performance as easy to evaluate as a blue chip stock on Yahoo Finance.
Facilitating Transactions and Increasing Property Market Liquidity
Real estate is a relatively illiquid asset that takes time and expertise to transact. Buying or selling property requires time, agents, lawyers, insurance, and incomplete information. Such inefficiency offers opportunities for FinTech and brokerage platforms to remove friction from the transaction process and reap rewards as a result. According to estimates in University of Oxford’s 2017 report “PropTech 3.0: The Future of Real Estate,” a 10 percent reduction in transaction costs combined with an increase in real estate liquidity could unlock $50B in revenue.
Brokerage platforms like Zillow or CoStar have been connecting property buyers and sellers online for years. Newer companies like Compass, which recently fetched a $1.8B private valuation, are using more data-intelligent platforms to match buyers with the perfect neighborhood or home. Other companies like Opendoor and Knock are actually purchasing property to facilitating faster transactions. To support consumers looking for passive income opportunities, companies like Revester cater specifically to smaller scale property investors looking for income producing real estate.
Young FinTech companies are also increasing the liquidity of the commercial real estate market through crowdfunding. Equity and debt capital markets for developers have expanded to include money from the masses. Companies like Fundrise, Peer Street, Realty Mogul, and over 100 other similar crowdfunding sites are battling to create platforms for developers to raise money and for lay-people to invest more easily in real estate.
Sharing and Accessing Property
Some of the more interesting applications of the 21st Century sharing economy have manifested in the real estate world. WeWork has led the way in creating flexible coworking office spaces–a movement so enticing that the 7-year-old company recently received a $20B valuation after a $4.4B SoftBank investment. Convene is another company rethinking the way people will work in the 21st Century. They are creating a workplace-as-a-service platform, partnering with landlords to create full-service common and event spaces for companies to access on-demand. Spacious, operating in both New York City and San Francisco, is putting unused real estate to work by partnering with restaurants to offer daytime office spaces for a growing freelance workforce. In the retail world, companies like Appear Here are creating an ecosystem of pop-up shops and short-term leasing options. Let’s not forget about the platform that has created a new category in the hospitality industry, Airbnb, which is now valued at $30B. Each of these companies has increased optionality and flexibility for both businesses and individuals through the use of technology platforms.
Making the Physical World Intelligent
The most tangible application in the realm of PropTech is smart real estate, where the digital meets the physical. Smart real estate leverages the Internet of Things and technology platforms to create more efficient, accessible, secure, and healthy living environments. Consumer-facing solutions include smarter WiFi networks, locks and security systems, HVAC systems, kitchen appliances, audio & media, lighting and a host of other solutions. With the rise of internet-connected devices, companies like Amazon and Google are investing in camera, lock, thermostat, alarm, and other systems for our homes.
A recent surge in high-profile investment in smart cities has also peaked interest in the subject of smart real estate. Alphabet’s Sidewalk Labs recently partnered with the City of Toronto to re-develop a waterfront neighborhood as a connected smart neighborhood, one that coordinates infrastructure such as transportation and other services like health care clinics. An investment arm of Bill Gates has purchased land outside of Phoenix, AR with plans build a smart city named Belmont. Elon Musk is funding a Melbourne neighborhood development named YarraBend, which will feature homes fully equipped with Tesla rooftop solar arrays, home battery packs, and electric vehicle charging stations. According to Curbed, “the market for the technology that holds [smart cities] together is projected to be worth $34.4 billion per year by 2020.”
Innovation in Property Technology
This article is by no means an exhaustive look at PropTech. We’ve neglected the vast technologies supporting the construction industry, the applications of blockchain technology that many believe will truly remove friction from the transacting process, the use of augmented and virtual reality in property marketing and other applications, and where artificial intelligence and machine learning fits into all of this. One takeaway might be that PropTech is such a broadly defined term, that any strong statements including the word PropTech should be viewed with skepticism. Regardless, the current examples of innovation in the real estate industry strongly indicate that the buzz is real. A leading venture firm focused on property technology, Fifth Wall, believes “we are entering a supercycle of innovation in the real estate industry as new technologies are dramatically improving how assets are designed, built, managed, bought, sold, financed, and everything in between.” Coming from a VC, we ought to take Fifth Wall’s statement with a grain of salt. But we cannot deny technology is infiltrating and supporting the physical world in more interesting ways each day.