This is a question we are often asked at The Proptech Connection (The PTC).
The answer is simple, but also complex. Simply, it’s a catch-all term that describes technology that impacts space. The complex answer is that it's constantly changing, reflective of the nature of real estate.
Globally, the demarcation of traditional real estate sectors is being eroded. COVID accelerated this: homes being used as offices, the hotelization of offices through offerings in amenity-centric assets and the tentative steps into a digital world; just three such examples illustrating this.
This has meant that the number of technologies applicable to real estate has increased. The Proptech concept thus encompasses tech categorizations like Contech, Fintech, Mobility, ClimateTech, SMART buildings, Generative AI, and numerous other terms. Thus, Proptech is an ever-expanding and evolving term.
Macro in brief
The Proptech ecosystem is a complex tapestry of technological capability and geographical dispersion. What is clear is that each region has a different focus or strength. For example, Europe has the highest percentage of companies focusing on ESG and CRE, much driven by generous funding opportunities from the EU. Israel has a very rich start-up ecosystem, and much of their Proptech is cyber- or construction-focused. India has a Proptech ecosystem, with excellent software capability, focusing on residential.
We at the PTC have identified about 18,000 companies, up from about 15,000 companies in 2019. This number we forecast will continue to increase, driven by companies seeking tech to leverage their foundational digital projects, and the speed at which new technologies are being developed, giving rise to new opportunities.
There has certainly been a walkback in capital markets for VC investment within tech, alongside Proptech. Notwithstanding, the Proptech market is still very buoyant with many active venture funds and the rise of a new wave of CVCs, bolstered by significant funds and wider mandates for the leading global solutions. There are also many PE funds, generalist VC funds, and a significant number of family offices who – although perhaps being more selective – are still very active.
We think the pools of capital will remain deep, despite the high-profile challenges faced by companies such as WeWork and Katerra. Plus, unclear economic conditions, due to the stage of adoption we are in within real estate. Many expensive lessons have been learnt, and what is clear, is that many investors have shifted methods to account for examples such as those companies mentioned.
General construction: ConTech has been the consistent leader from an emerging tech, tech adoption, and investment perspective. There are several reasons for this: short sales cycles, compared to long-lead CRE products, make the “path to cash” much quicker and heighten the chance of young techs being able to self-sustain. Also, construction globally, is still very labour intensive and many of the more advanced economies are suffering the same issues; higher costs of labour and materials.
There are also several megaprojects driving this adoption; in the Middle East, one of the Megacities is planning to build 700 thousand houses in the next three to five years. In APAC, there are five million per year, moving to urbanized areas in Southeast Asia. These require quality stock, at scale. Overlay the global affordability crises and ESG commitments, there is a clear demand for technologies that can deliver high-quality stock, on time, and efficiently.
Data storage: There are more than 8 million data centres globally; 16 times the number from 2012. The data generated by the world has grown 60 times in the past decade. Unabated economic digitization worldwide has stoked a strong demand for tech-enabled, environmentally friendly data centres that address the problem of ineffective data storage. This will continue to require tech, particularly as the impact on local power generation is impacted by the rising number of data centres, and the large carbon footprint that more data produces. For example, one Large Language Model (LLM) training run for a ChatGPT rival, was calculated as emitting the same C02 as 25 flights from Boston to LA. This is a factor which will become more prevalent.
Digitally enabled transactions: The convergence of FinTech and Proptech is another area ripe to leverage technology for disruption, focusing on expediating the finance and real estate transaction process. With over 180 manual touchpoints from site listing to settlement, the opportunity in this vertical, for example, is vast.
In regions such as LATAM, the consolidation and structuring of key data sets has enabled the rise of a burgeoning stream of techs servicing, particularly in residential, with the added benefit of leveraging lessons from similar entities in more developed markets.
Data interoperability: The emergence of IoT middleware, which addresses the problem of fragmented data and diverse systems, is a key vertical we are seeing many focus on. Delivering data standardization and being device agnostic, it improves operational efficiency and enables data-driven decision-making, across portfolios. This focus has seen many of the large, traditional electronics companies, starting to engage the best-performing techs in this space.
Where do we go from here?
The built environment is at the beginning of its tech adoption journey. Much work has been put into building data frameworks and bringing internal tech systems up to date. We are now seeing many companies leverage this investment, to enable their portfolios or how they develop, to meet the ever-evolving needs of their customers. As such, the number of tech offerings will grow as well as the demand for tech as asset usage continues to evolve.
Rising demand for housing and infrastructural improvements is attracting investments, seeking new horizons to participate in the development narrative of APAC. Additionally, since the Regional Comprehensive Economic Partnership (RCEP) was signed last year, covering the largest free trade area in the world, APAC is fast becoming the epicentre for Proptech.
Finally, although economic markers may be unclear, capital markets continue to show their resilience. Good opportunities are still thriving and sought after. The key will be having a partner who is able to help benchmark or source deals to frame and support an investor's thesis.
The Proptech Connection is the leading, independent advisor for real estate companies and investors seeking to source global technology solutions. Our specialty is helping Technology Buyers (Real Estate and Construction companies) and investors benchmark and access the leading technologies globally. We use our global position to give insights into macro trends and support strategies for adoption or deployment. Our ability to give global insights into what is happening is unique, with live market intelligence and an extensive network and platform for operating within the global proptech real estate market ecosystem.