What is Proptech and Why Should I Care?

What is Proptech and Why Should I Care?

real-estate

From Uber to Airbnb, technology is disrupting existing and long standing business models in every corner of industry.

 

The property industry plays a fundamental role in our lives, for many, a large proportion of their net worth is tied up in their property. But as important as the property industry is, the customer and seller experience hasn’t changed that much in decades. In fact, for the most part the property industry has been virtually standing still while innovation has been thriving in the digital space.

 

A Little History on Landlords and Tenants

From the feudal days where landlords had genuine control over the permissible actions of their tenants the process of allowing someone to live in your owned property has changed, but not as much as you may think. We still refer to each actor in the business relationship of a tenancy as landlord and tenant, which in turn seems to retain some psychological meaning for the tenant, i.e. they are subservient and lesser than landlords.

 

Let’s have a look at estate agents too. Originally called house agents; the change to estate agents happened in the early 20th century, likely because it sounded grander. They caused a great transformation in the rental market when they became more commonplace and added a lot of value over the years, enabling landlords to manage and invest in larger portfolios. 

 

The definition of an agent requires that it act on behalf of someone and in this instance the landlords are being represented. But tenants have been under represented for years. There are still some small increments of progression with online lettings agents which reduce the costs for both landlords and tenants but they’re still ultimately based on the same model. The shop window is just replaced by a website, a little like an online retailer. Everyone seems incapable of true ‘out of the box’ thinking, choosing to focus on the same issues with the same understanding of the customer that we had 10 years ago. Real innovation is needed based on what the customers of today really want.

 

Proptech

So what is Proptech? Proptech is the application of technology to fundamentally change the property market, whether applied to construction materials, techniques, visualisation technologies, brokerage, trading platforms, retail innovations or Internet of Things. Despite the boom in other areas, the tech market has been sluggish in taking the ever growing property sector under its wing and making it its own. However, globally, things are set to change, as technology startups begin to focus on the property market in ways that haven’t been seen to date.

 

Overall, investors threw a projected $1.5 billion at real estate tech startups in 2015, according to venture capital database CB Insights. That’s a jump from the $1.1 billion in venture funding in 2014 and represents a more than 350 percent increase from 2010.

investment-in-real-estate-tech-soars

BIGGEST AREAS OF OPPORTUNITIES (COMMERCIAL VS RESIDENTIAL)

The first technology innovators to focus on real estate primarily addressed the residential market. Companies like Private Property and Property24 showcased the power that technology can have when applied to a market as large and lucrative as residential real estate. Each of these companies operate, generally speaking, as residential listing services, and this has proven to be the low-hanging fruit of the real estate vertical.

 

For the most part, technology innovation on the commercial side of the market has been limited. This resistance to innovation could be a legacy issue related to the old guard of industry CEOs and CIOs. A generation that believed in spreadsheets and silos.

 

That being said, some of the biggest near-term opportunities for innovation that we’ve seen globally are: 

  • Property Management: Companies such as, Rentify, Cozy, and SMS Assist are already competing for dominance in this category, most offering software that helps property owners and management companies oversee and easily track commercial real estate assets. Industry-wide adoption is still sub-10 percent, though, so lots of opportunity for growth remains.
  • Research and Analytics: Traditionally, commercial real estate developers would hunker down with teams of analysts using HP calculators and gather demographic research to evaluate an investment opportunity. Today, open initiatives between municipalities and companies like Compstak, Rentlytics and Reonomy, is changing this landscape.
  • Listing Services/Tech-Enabled Brokerages: Contrary to the incumbents in the residential market, which are predominantly media businesses generating revenue from advertising, a real opportunity exists for tech-enabled commercial listing services, Redfin, and Triplemint, that could level the playing field, acting as marketplaces, and replacing the less efficient relationship-driven model that still persists today.
  • Mobile Applications: By their very nature, real estate professionals are on the go, pound-the-pavement types. Brokers, landlords, appraisers and developers are constantly running around visiting properties. One can assume that many of the most successful applications serving this market will have a healthy and robust mobile component.
  • Residential and Commercial Lending: Regulatory changes have opened up opportunities for innovation in lending, and real estate lending is by far the largest sub-category. We’re starting to see a number of emerging companies target this area in different ways. Residential and commercial lending are different animals so my guess is that we’ll see a dozen worthwhile challengers going after each market.

 

The real estate industry is vast and we’ve only just begun to scratch the surface when it comes to opportunity for technology-enabled innovation. Given the amount of money at risk and the proportion of the broader economy that real estate represents, there is every reason to believe the category will produce multiple startups worth millions in enterprise value. The past two years have been the most exciting yet for proptech and we can’t wait to see what the next few will bring.

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