Despite being the biggest asset class in the world, the property industry is still hampered by a lack of digitisation. Still very much a brick and mortar industry, real estate relies heavily on legacy software solutions, non-digital workflows, and inefficient processes.
While the industry was last valued at $10.5 trillion, a lack of digitisation is regularly one of the top complaints from workers involved in the sector. Frustrated with a lack of innovation, many property workers have now chosen to launch proptech startups and digitise the industry themselves.
Detailing the proptech phenomenon and the venture funding flooding into these startups is a new report by Sifted Intelligence, in collaboration with Pi Labs and Shoosmiths. The report explains how the industry is being reshaped by proptech, talking to industry leaders and startup founders about the obstacles and opportunities proptech affords.
Below, we’ve outlined the key takeaways from this report which can be read in full here.
The growing proptech sector
While the centuries-old real estate industry has struggled in its move to digitalisation, things are now beginning to take shape. Accelerating this shift from “excel and emails” is the growing property technology sector, better known as proptech.
The report focuses on European startups and notes that investment in these companies has grown exponentially over the past eight years. Data obtained from PriceHubble shows that the average annual investment in European proptech grew by 45% each year. The UK and Germany had been the most active with Q3 2021 seeing the most investment so far, with startups raising €625 million. This was up from €200 million in Q1 and €435 in Q2.
In an attempt to make sense of the proptech landscape, the authors propose the use of a categorisation system put forward by the VC platform, Proptech Capital. They suggest proptech startups are “grabbing land and offering services” across three broadly defined categories:
Proptech solutions targeting the Search phase relate to activities involved in searching for real estate. This includes:
Brokerage services: list and search tools.
Lease guarantee and financing solutions: for securing lease guarantors or deposits
Marketplaces: for matching buyers with sellers.
Data, valuation, and analytics: for property managers and investors to make informed decisions.
Virtual viewing solutions: to view properties remotely.
The report lists several of the biggest proptech solutions in the space right now such as Proportunity, Evernest, Nodalview, and ManoMano.
The proptech taxonomy also includes a definition of tools used for the managing and operation of buildings, including smart building solutions. These correspond to the day-to-day activities of professionals within the real estate industry such as facilities managers and asset owners. These services include:
Software-as-a-service: where software is licensed through a subscription for a range of services.
Agent tools: providing real estate agents with assistance tools.
Space-as-a-service and smart buildings: regarding co-living/co-working spaces and IoT products.
Project management solutions: Helps stakeholders involved in construction to better manage property development.
Manage and operation solutions: Helps manage properties and facilitate tenant-landlord relationships.
The third category is the Sell phase of proptech, which includes all of the innovative solutions regarding the trading, investing, and mortgaging of property. These proptech solutions include:
iBuyer (instant buyer) solutions: these companies use digital technology to speed up the property buying process and make it a lot less arduous.
Insurance and closing: these solutions make the purchasing of insurance and access to legal services a lot easier, especially for homebuyers.
The pandemic as a catalyst for change
One of the key turning points in the digitilisation of the industry has been the COVID-19 pandemic. The report explains that proptech has “not only withstood the pandemic but been invigorated by it.” Solutions such as virtual viewing went from an underutilised nicety to an essential component of construction and real estate overnight. The pandemic also normalised remote working and distributed work, something proptech solutions can help facilitate.
The UK, especially, saw record investment with £1.6 billion flooding into proptech in 2021. It now stands as one of Europe’s leading markets. There, a large private rental market has meant property managers are looking for solutions to help manage portfolios, more so than elsewhere. Germany, too, has a large private rental sector and is now also considered a proptech hotspot.
Elsewhere in Europe where homeownership rates are higher, consumer-focused solutions are seeing success. Companies such as Casavo cater to buyers in Spain, Portugal, and Italy with real-time valuations, purchasing, and the re-selling of property. They raised €200m in 2021 and intend to take the home-selling time down from months to days.
The report notes that, in fact, the whole tech stack is finding use in property. Startups are proposing proptech solutions for all stages of a property’s lifecycle, including the automation of tedious clerical work.
The pandemic and other continent-wide trends have lit a fire under proptech and caused an acceleration in adoption and integration. For some, such as Anja Rath, the managing partner at Proptech1 Ventures, this movement towards high-tech solutions can not have come soon enough with some of the world’s biggest companies relying on the most basic of office software. “We are talking about hundreds of millions of euros [being exchanged]…” she said, “but the main tools they use are Excel spreadsheets.”
Housing affordability crisis
As well as the pandemic, the housing affordability crisis is also put forward as a catalyst for this change. With the pandemic ushering in low-interest rates and accommodating fiscal policy, the problem worsened, inflating the price of assets. This has driven younger and lower-income dwellers to adapt to new living arrangements like “co-living,” or “shared living.” Proptech has been busy innovating in this space too with tech offering ways to log maintenance issues with apps and organise communal activities.
Proptech is also heavily involved in the construction of new homes to tackle this crisis. Germany, for instance, has recently passed regulations to build 400,000 flats each year, 25% more than before. Anja Rath continues, “you are going to need new technologies and solutions to manage to build on time and on budget, which are big problems in the construction industry.”
B2B and B2C models
Thus far, proptech has focused primarily on offering Business to Business (B2B) solutions. The report explains that this is now changing, with Business to Customer (B2C) solutions now rolling out such as digital mortgages and crowd-funded property investment.
B2B solutions have been making good headway for a while. B2B software targets the pain points of property ownership and management including the difficulties in permissions involved in land-buying and new developments. London-based LandTech, for example, provides price data on off-market property development opportunities, including the likelihood of securing planning permission and estimated building costs.
With proptech involved, B2B solutions benefit residents as much as owners, providing the tools for quick and efficient resolutions for maintenance issues and the automation of routine processes for tenants.
The report also details some of the B2C solutions that proptech has made available, such as Purplebricks, the online estate agent that leverages technology to streamline the buying and selling experience. Other examples include Generation Home, a modern mortgage lending platform that allows for ad-hoc contributions from non-applicants. Advertising itself primarily through Instagram, the company received hundreds of millions of pounds in applications in just a couple of weeks.
For people already on the property ladder, proptech is also offering novel B2C solutions. ManoMano, for example, is a DIY and renovation marketplace bolstered by the home improvement trend seen over the pandemic.
Owners are also making good use of platforms such as Airbnb, with companies like HostnFly using complex algorithms to constantly evaluate rent prices effectively. Or, the Tel Aviv-based company, Guesty, which has so far raised over $110 million in investments and allows the management of bookings, calendar syncing, and the day-to-day management of short-term rental properties.
Regulatory trends also look good for proptech with ESG measures like carbon neutrality lending more towards technological solutions and new constructions than the aging existing stock of assets.
Obstacles to proptech
The growing pains for proptech relate primarily to encouraging an extremely large industry to change tack. With the real estate sector notoriously resistant to change, this is still proving a pain point.
Figures by the procurement platform, Unissu, claim that despite the massive influx of venture funding, 10% of proptechs remain inactive. While there are many success stories in proptech, there are also some failures. In 2018, Emoov, the hybrid estate agency group went into administration just eight months after receiving a company valuation of £125 million. In the UK, companies like Movebubble which raised over £3 million to disrupt the private rental sector in London and Manchester went quiet. And, in the US, companies like Katerra and Social Construct shut down operations despite significant backing.
Sifted Intelligence’s report cites another report to explain this. The European PropTech Association has identified three main barriers to growth for proptech in Europe going forward:
Laws and regulations: inconsistent regulation can create a lot of difficulty for certain kinds of proptech solutions, especially when it comes to financing.
Internal problems regarding scaling and organisation: traditionally, the US scoops up a lot of Europe’s biggest startups and 44% of its scaleups where venture capital funding is 34 times higher.
Unready markets and clients: being able to offer services internationally is not always successful for proptech services. Huge differences in mortgage arrangements, for example, make catering to markets and clients difficult.
Despite these issues, the trend towards ESG considerations means proptech will be essential to providing the necessary regulatory data. Solutions such as fractional ownership using blockchain technology will make it easier for people to get on the property ladder in some form. A need for a faster, more connected, and transparent real estate sector is also cited as a trump card for proptech.
While there are challenges ahead, proptech’s future is looking brighter than ever. With the pandemic proving a turbulent time for real estate, proptech rose to the challenge and has come out ready to digitalise the industry. As interest rate rises make the market somewhat tougher for homeowners, these periods are historically good for investment-focused startups as capital flees volatile stocks and speculation to safe asset classes.
The tightening of environmental regulations is also an opportunity for proptech to shine. With Europe’s existing stock of building stock in need of a sustainability overhaul, there will be a need for innovative materials, processes, data, sensors, and analytics. These technologies are also needed to build faster, with younger generations becoming increasingly priced out of ownership and an aging population making new housing models necessary.
Of particular note is the inroads proptech is making for blockchain, AI, and open banking. The report suggests these areas of interest may see considerable growth.
With so much activity within the proptech sector, there is no reason why European proptech startups can’t go global.
Proptech Ireland is leading and facilitating transformation of the property and construction industries by connecting innovators with industry organisations and investors (angel and VC). For real estate companies to be successful, innovation is now a critical competency. Proptech Ireland consultants take on the role of in-house digital transformation and ESG strategists, advising on tech suitability, procurement, and ROI calculations – from vision to operational veracity. www.prop-tech.ie