The real money is in real estate, runs the old adage. That looks true of property tech —”proptech” — too, as both global and European venture funding floods into startups helping investors and property managers make data-driven decisions and giving consumers access to digital mortgages and property investment platforms.
The appeal is clear: property is the world’s biggest asset class, with the global managed real estate investment market worth a whopping $10.5tn in 2020, up from $9.6tn in 2019.
Add to that a lack of digitisation to date — this bricks and mortar industry still stubbornly relies on Excel and emails — and there is both a problem and an opportunity.
New niches popping up
Proptech founders can look forward to opportunities ahead, thanks to structural shifts in their favour.
While real estate has had a wild ride during the pandemic, with plenty of carnage, the crisis has opened new niches and accelerated existing trends — think of virtual viewings during lockdown, or office space “matchmaker” platforms built at a time when remote and distributed work were a fringe trend.
Rising interest rates might be bad for homeowners — but they’re good news for property investment-focused startups
Macro trends could also help. Rising interest rates might be bad for homeowners — but they’re good news for property investment-focused startups, as capital flees volatile equities into a safer asset class. That will increase demand for their advanced data and analytics for deal-making, valuations and portfolio tracking.
Environmental regulations are tightening, and the continents’ ageing building stock is in dire need of a sustainability overhaul. That will require innovations in materials, data, sensors and environmental performance analytics. Europe’s housing stock also needs to grow much faster as prices rocket out of reach for many, especially the young.
The continent’s ageing populations, meanwhile, are likely to force new kinds of co-living and retirement-friendly housing models. Delivering that work in time and on budget will require plenty of tech by developers and construction companies.
Property looks like one of the few sectors in which blockchain is actually solving a problem
The property tech stack itself is evolving too. The flowering of the API ecosystem, driven by open banking, is allowing end-users to stitch together different proptech software, ensuring interoperability and fostering collaboration. Virtual reality, immersive content and the metaverse have decent use cases in areas like property viewings and building design.
Property looks like one of the few sectors in which blockchain is actually solving a problem, in areas like “fractional” ownership, where investors can buy part of a property through retail investment platforms.
Artificial intelligence continues to break ground in terms of power, performance and range, and is well-suited to the vast number-crunching involved in investment and portfolio optimisation. Hoovering up useful datasets, like satellite imagery for plot identification, or sifting through reams of planning and zoning laws, could be a new gold rush.
Some ideas won't pan out
There will be shakeouts too — and some business models may not pan out.
The instant buyer — or “iBuyer” — trend, which sees homeowners selling their home without a broker or real estate agent, could struggle if the analytics are off and valuations prove faulty. While property markets do not whipsaw like stocks do, they are not immune to downturns. IBuyers could also find themselves limited to markets where houses are similar and pricing is simple.
Many startups are doing the same thing, which will lead to consolidation and some falling away
Many startups are doing the same thing, which will lead to consolidation and some falling away. Experts reckon the most successful will dominate their sector in a clutch of companies and then partner with bigger players to expand globally.
The beauty of proptech, though, is that the problems startups focus on are generally universal. With the right product and growth strategy, Europe’s startups can go global.
For an in-depth look at proptech in Europe, download the latest Sifted report here.