Like most businesses, the property technology (proptech) industry has slowed considerably during the COVID-19 pandemic. However, when the economy (not Wall Street, which is often a historically false indicator of overall economic health) returns to an upward trajectory, proptech investors may be in a good position to return to action.
Proptech investor confidence is 5.9 out of 10, down 33% from one year ago, according to the most recent Global Confidence Index, which is released twice yearly in the first quarter and at mid-year. The Index is designed to take the temperature of the global proptech ecosystem and summarize investor and entrepreneur sentiment for the near future. Published by MetaProp, the Index comprises proprietary real estate industry research done in partnership with leading organizations, including the Royal Institution of Chartered Surveyors (RICS) and the Real Estate Board of New York (REBNY).
As for what has dragged down investor sentiment over the past six months, the most cited issues uncovered in the Index are a decrease in deal flow, extreme market volatility, and political uncertainty. Similarly, the Startup Confidence Index is 4.7, down 35% compared to the previous six months.
Should proptech investors continue to be uneasy?
The Index reveals that the pandemic and the corresponding global economic downturn has negatively impacted founders’ expectations of their ability to raise new capital, grow sales, be acquired, go public or have a major liquidity event over the next three years.
Those dampened expectations could affect a number of industries and professions. As my MetaProp co-founder Zach Aarons and I explain in our book, “PropTech 101,” the proptech sector is larger than meets the eye, casting its vision with ever-greater clarity and intensity as the cruel results of the virus on business make technological efficiencies and safety measures all the more vital to survival in the economic and literal sense.
Soured investor sentiment could influence the companies and people building software, platforms, and apps used by real estate professionals, but also brokers, architects, and construction managers, too. It also has the potential to impact other real estate sectors, such as in the construction and financial (Contech and Fintech) spaces.
While the forecast may be challenging for investors and founders alike, there is still cause for optimism. Investors agree that COVID-19 is accelerating the adoption of proptech within the real estate industry and expectations of proptech M&A activity remain strong. In fact, over the past six months, our team has supported many of MetaProp VC’s real estate industry partners with proptech innovation audits and strategy, initiative development, market scans, demos, pilots, and tech deployment, as means to address unprecedented “back-to-work” challenges.
We referred to fintech earlier, because many of the more than 7,000 emerging proptech startups deliver solutions directly intersecting with finance, including P&C, title insurance, payments, and mortgages. My colleague, Jeanne Casey, recently wrote that “The COVID-19 pandemic has changed nearly every facet of our lives. One potential silver lining for the real estate world may be a forced reckoning with the mortgage closing process.”
According to Casey, “Technological advances like e-closings are accelerating this arduous process into the digital age. The U.S. Census Bureau released figures in July showing a rise in homeownership across the country as the pandemic fuels the demand for single-family properties outside of urban areas.” She said that this behavior was further confirmed by the significant spike in mortgage applications seen in the second quarter of 2020.
How proptech will add significant value to the real estate market in the coming years
The $217 trillion real estate market is undergoing an unprecedented period of technological innovation.
Over the next five years, MetaProp estimates that $150 billion of new value will be added to the real estate industry through PropTech innovation. Additionally, we’ll see “Mobility, Flexibility, Accessibility” replacing the cliche, “location, location, location.”
That means that real estate-as-a-service will force landlords to look at their portfolios as an interconnected global village instead of a collection of individually located assets. Most importantly, data technology will become the new alpha — real estate players will no longer be able to rely on information arbitrage or a lack of transparency to achieve outsized returns.
The proptech ecosystem’s strong tailwinds have suddenly turned into gale-force headwinds due to a combination of the COVID-19 health crisis and the stress it places on the global supply chain, a broad real estate market downturn, and a severe global economic slowdown. Other observers with a more optimistic outlook are calling these times, “The Great Disruption,” based on the belief that proptech adoption and acceleration are looking stronger than ever.
Although we are still early in the real estate industry’s technology adoption evolution, we are confident that these unusual and trying times will lead to even more new technologies, investment successes, and business models for our industry. However, it is the speed of proptech adoption that is to be watched closely by investors, entrepreneurs and incumbents alike. As Yogi Berra liked to say, “It gets late out here early.”
This column does not necessarily reflect the opinion of FinLedger’s editorial department and its owners.
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