Real estate tech investment has accelerated in the last few years, reflecting the commercial real estate industry’s growing faith in the power of PropTech, and its potential for scalable success. In the US, home to the world’s largest real estate tech investment scene, investment in PropTech was up 69% in 2019 year-on-year to $9.0 bn, according to global investment bank GCA.
Significant M&A activity last year driven by economies of scale and the emergence of more established PropTech platforms has still left plenty of space for further real estate technology deals in 2020. GCA reports that 96% of investors expect either an increase or the same amount of M&A activity in the next twelve months. 2019 also saw real estate tech investment shift up a gear with the biggest ever dedicated fund launches in its history. What’s in store for 2020? We’ve rounded up four key trends which look likely to expand exponentially this year.
Investors will increasingly pool resources
In July of last year, real estate tech investor Fifth Wall closed its second PropTech fund at $503m – more than double the size of its initial fund, which hit $212m in May 2017. In addition to local investors including CBRE, Cushman & Wakefield and Equity Residential, Fifth Wall attracted investors from France, Spain, the United Kingdom, Japan and Singapore, bringing the firm’s total assets under management to over $1bn.
Fifth Wall may be unique as the world’s largest PropTech investor, but its ability to pool investment capital in emerging technologies is a key sign of the times. “As the real estate and technology industries increasingly converge, Fifth Wall has become central to that convergence, fostering a level of strategic collaboration that has never before characterised the real estate industry,” explains Brendan Wallace, co-founder & managing partner at Fifth Wall. “Fifth Wall sees powerful network effects in our unique fund model as it becomes a centralised platform for the world’s largest real estate companies to share insights and access new technologies to enhance their businesses.”
Indeed, the investors participating in fund II represent a roll-call of global real estate’s top players, including Gecina, Merlin, British Land, Segro, Mitsubishi Estate, CBRE, Hines, Starwood Capital and Related Companies. These firms are increasingly seeing the value in collaborating on real estate tech investment rather than racing individually to the top.
Real estate tech investment will go global
While North America has been leading in the real estate tech investment stakes, the PropTech investment market in Europe has risen exponentially in recent years. According to Pitchbook, there are around 3,220 PropTech startups in Europe today, which saw some $2 bn of venture capital invested across almost 250 deals in 2019 – a big increase on the $28m invested in just nine deals in 2009.
Major fund-raising deals in Europe last year included $100m for UK modular homes manufacturer Tophat from Goldman Sachs, while Tikehau Capital lead on a $81m raise for Italian co-living enterprise, DoveVivo. French home insurance start-up Luko and German PropTech broker received $22m and $55m in early stage series A and series C funding respectively.
While London is the European hub for real estate tech investment, France, Germany Luxembourg and Spain are also key markets. On top of that, countries including the Netherlands, Sweden, Switzerland and Finland have all incubated at least 100 real estate tech companies to date.
A/O PropTech, a new European venture capital fund, announced a €250m raise of “permanent capital” at the start of February, with real estate tech investment deals to date including London-based Bricklane, hotel intelligence start-up Fornova and property management platform Plentific.
Beyond Europe, Israel, dubbed “the start-up nation”, is also hot-housing many talented real estate tech companies, particularly in Tel Aviv, which are increasingly catching the eyes of investors.
The maturing sector will present more granular opportunities
While the PropTech world still generates a start-up buzz, real estate tech solutions are increasingly cementing their role at the heart of the property industry. “At its core, PropTech addresses fundamental questions of how we experience and extract value from real estate,” explains Alex Edds, director of innovation at JLL UK.
This “shift to core” reality is helping PropTech firms broaden their reach, creating more options in turn for venture capital. Funds such as New York-based investment company Corigin, for example, have upped their focus on construction technology or ConTech in recent times. “ConTech is in its infancy compared to PropTech, but is a giant monster now breaking out to be its own category,” says Ryan Freedman, Corigin CEO.
PropTech’s other cousins, FinTech and InsurTech, are also expanding the playing field. The top funds see potential for the launch of even more granular solutions. Zach Aarons, co-founder of MetaProp, recently told TechCrunch that he hoped to see more start-ups emerging in the material sciences sector.
“Innovations like steel, bricks, timber, glass and reinforced concrete are hardly new, and they are still the predominant building materials of today. There have been minor advances like cross-laminated timber; however, we are looking for fundamentally new materials to bring into the building trades,” he says.
Green real estate tech investment will take centre stage
Venture capital increasingly recognises that PropTech is a significant ally in the sustainability race. In January, Fifth Wall launched a Carbon Impact fund, a new $200m venture fund to accelerate the decarbonisation of the industry through innovative solutions.
Fifth Wall co-founder Wallace says: “This is not just about saving money anymore. It is imperative that the entire real estate sector accepts responsibility for being the single biggest contributor to the climate change crisis. Australia is on fire, Brazil was on fire, and people are dying. If this is not your number one priority as a real estate owner, you have got your priorities wrong.”
Across the globe, the drive for companies to hit net-zero emissions by 2050 is further coalescing real estate tech investment around green solutions. Australia’s Taronga Ventures, a real estate tech investment firm, has a business model focusing on start-ups in energy, sustainability, safety and wellness with its RealTechx Growth Programme. Similar, dedicated funds are likely to follow in 2020 as further climate change propels sustainability to the top of the agenda.
