As the global pandemic lingers and causes turbulence in the broader capital and real estate markets, we as proptech-focused venture capitalists closely monitor and assess evolving market conditions in tandem with their implications for specific real estate asset types in a post-pandemic world. From the onset of COVID-19, MetaProp has been in close contact with proptech founders to assess runway, growth trajectory and their team’s health. We have remained in similarly close communication with our investor base, which represents over 15 billion square feet of real estate around the globe, as well as with our peers and co-investors in the venture capital community. A tertiary benefit to this level of engagement is a near real-time pulse on the proptech, real estate and venture markets.
By analyzing our own portfolio incorporating observations from our deal flow, conversations with industry professionals and the broader venture capital markets, we have discerned a directional understanding of how this crisis is impacting both investment activity and the adoption of technology throughout the real estate value chain. We have utilized these findings supplemented by narrative context from individual portfolio companies and feedback from investors and founders who participated in our PropTech Confidence Index survey to draw out broader themes in the market. Here are five proptech categories we are seeing accelerated by COVID-19:
As offices seek to reopen quickly, they are among the first to inquire, pilot and scale out property technology. We predicted monitoring density patterns and modifying floor layouts to influence social distancing would become a back-to-work staple for owners and occupiers. This assumption is proving to be right, with some occupancy analytics companies seeing accelerated growth in the second quarter. Prominent tenants have all turned to occupancy analytics post-COVID-19. We believe technologies that aid social distancing in the office space will continue to be adopted in droves.
“MANY FLEX SPACE OPERATORS ARE NOT ONLY SURVIVING BUT EXPANDING AS COVID-19’S IMPACTS CONTINUE TO PLAY OUT” — ZAK SCHWARZMAN
As widespread unemployment erupted due to COVID-19-mandated shutdowns, rental payments were immediately a point of concern for landlords and their tenants alike. We predicted that financial tools that ease the burden of rent, security deposits and mortgage payments would be adopted during this time. New tools that ease dual landlord and renter pain points have indeed hit the market, allowing renters to pay portions of rent in step with their income rather than a lump-sum payment. Tens of thousands of rental units now operate with this type of service, with some landlords signing up their entire portfolios to use these tools. As unemployment levels remain high, we believe affordability-oriented technology will be adopted more than ever before.
Architecture, Engineering & Construction (AEC)
Software solutions within the AEC space have shifted from a “nice to have” to a “must-have” within only a few short months. We began to see considerable adoption of AEC technologies late in the first quarter, with companies attributing success by selling directly to the C-Suite. As we have moved through the second quarter, other companies have had tremendous success selling to surveyors who rarely before purchased software-as-a-service (SaaS) software.
We attribute this success to the continuation of construction projects throughout the pandemic in both the residential and commercial sectors, with a strong focus on essential infrastructures like data centers and healthcare facilities. Contractors must now prioritize software that tracks and schedules employees on the job site and detects potential issues on-site before they materialize. In addition, a handful of portfolio companies attribute this pronounced uptick in demand to changing industry behaviors, such as owners and developers becoming less inclined to view projects in person and insurance carriers expecting higher volumes of disputes, litigation and claims from existing projects under financial stress.
As the pandemic lingers, office buildings have been under time-sensitive pressure to create a comprehensive back-to-work plan to keep tenants safe. We have seen an increase in both inquiries and deployments of tenant-facing technologies at a time when there are widespread office vacancies. As buildings plan to reopen, landlords value increased communication and community to the end-users of their space. This trend has resulted in the acceleration of tenant-oriented companies such as tenant experience platforms and providers of in-building fitness programming. A combination of moving to purely-virtual products along with integrations with software applications and centralized platforms has kept these companies on the rise.
One area that we expected to be among the hardest-hit was flexible space (co-working, living and warehousing) due to its reliance on physical space and human proximity to succeed. The reality, however, is more nuanced. Many flex space operators are not only surviving but expanding as COVID-19’s impacts continue to play out. A potential reason for this is with the lingering uncertainty, tenants are using flex space as a “wait-and-see” option as a full return to the office is more fleshed out. According to JLL, “67% of corporate real estate decision-makers are increasing workplace mobility programs and are incorporating flex space as a central element of their agile work strategies.” We will continue to watch this area as the reconfiguration of work and office space materializes.
By analyzing a combination of post-COVID-19 performance of and narrative threads from our portfolio companies over the past two quarters, along with feedback from investors and founders who participated in our most recent PropTech Confidence Index Survey, we have extrapolated a directional picture of how the pandemic is impacting the adoption of technology in the real estate industry. Solutions that ease immediate COVID-19-induced pain points in the office sector, such as aiding social distancing and tenant communication, are being adopted at a healthy clip. On the residential side, affordability products are being utilized at unprecedented levels. As construction and renovation projects continue through the pandemic, technologies that monitor project progress and allow for distanced management are being used by many stakeholders in the industry that have historically shied away from innovation.