Any new-ish industry is bound to have its booms and busts, and proptech is no exception.
Real estate owners and managers, historically reluctant to implement new technologies that might not work as advertised or become obsolete quickly, were compelled to reverse course during the pandemic as the need for efficiency took hold. The result was a lot of purchasing by real estate companies and a lot of investment from venture capitalists, who appeared to throw money at every new app or software around. But the boom years of the early 2020s seem to be giving way to a more measured response, according to several global proptech leaders.
“It’s no secret that the past few years have presented some serious challenges for the proptech industry,” said Brad Pilgrim, CEO of Parity, a remote platform that optimizes HVAC systems for multifamily residential buildings and hotels. “A turbulent real estate market, the aftermath of the global pandemic and wider economic headwinds have put real pressure on technology providers to prove their value.”
Where investors seem to be finding value now is in energy efficiency and sustainability, which offer provable returns. This is a sharp contrast from in 2017, when climate-tech startups had the lowest expected returns compared to nine other emerging tech verticals; now, Pilgrim said, recent years have seen rapid growth in VC investment — outstripping many other submarkets within proptech.
In fact, the hottest technologies in proptech right now are focused on sustainability, construction tech and AI.
“Sustainability, in particular, has evolved from being merely an ethical consideration to a crucial financial driver, with savvy investors integrating ESG [environmental, social and governance] strategies to enhance profitability and property valuations,” observed Maureen Waters, chief growth officer at Measurabl, and a former partner at Metaprop. “While macroeconomic conditions have slowed new adoption, the commitment to proptech, particularly in multifamily and residential segments, remains steadfast.”
The situation, basically, is that real estate contributes 40% of all global emissions, pushing governments, investors, owners and operators to make serious changes, both to do good and to do well.
“Fundamentally, value is seen in solving a problem. It’s hard to argue that there is a bigger problem facing real estate than the need to dramatically reduce carbon emissions,” said Parity’s Pilgrim. “Increasing legislation, as well as the potential for operating cost savings, shorter payback periods and increased asset value, have only added more reasons to cut carbon.”
Carbon measurement technologies are now being supplemented by solutions targeting specific carbon emitters like HVAC, which accounts for 43% of all energy use in the country, he added.
Centralizing the Data
On the residential side, the industry may be on the verge of yet another revolution, according to former city planner Jonny Britton, co-founder and CEO of LandTech, a U.K.-based solution that provides networking, site identification, market insights and more.
“Megatrends are happening that will change the way we work, to the same degree that the internet did,” Britton said. “AI improvements will enable proptech companies to train their own models to analyze data and automate workflows across the lifespan of a property.”
Surprised by the fragmentation of zoning ordinances, codes, development standards and Future Land Use data was in the United States, the leaders of LandTech invested $1 million into startup technology Zoneomics, that has centralized and standardized that data digitally across the country.
“In my view, zoning data determines so much about how we live,” Britton said. “Combine this with our work on other planning datasets such as site plans, rezoning applications and demographics and you get a crystal ball into market change.”
Current U.S. clients include larger homebuilders in Florida such as Toll Brothers, Pulte Group, KB Home and D.R. Horton, and the company expects significant growth, especially in the mid- to premium end of the market, where home buyers are more active.
Investment Outlook
As buyers continue to see the benefits of climate-related proptech, investment continues, although at a slower pace. Despite a brief lull in the U.S. due to political uncertainties, Waters observed, the ongoing need for sustainable solutions has driven continued investment, albeit not at the same levels as before.
“The market has notably shifted over the past year, with deal volume dropping signifi cantly, especially for new startups,” observed Waters. “At MetaProp, we used to see around 200 new startup ideas monthly, but today, that number has halved.” Even so, she said, activity remains robust, especially, yes, in sustainability. “Despite the slowdown, M&A activity remains robust, particularly in sustainability,” Waters said. “Real estate sustainability has emerged as one of the stronger sub-sectors in proptech due to the increasing recognition of its importance in addressing environmental challenges.”
