Proptech is a term that has become ubiquitous in the real estate tech and investor space. But what does it mean?
There is no single unifying definition for proptech, but here are two definitions that clarify its scope and potential.
According to James Dearsley, co-founder of Unissu and global keynote speaker about the future of real estate:
“Proptech is one small part of a wider digital transformation in the property industry. It considers both the technological and mentality change of the real estate industry, and its consumers to our attitudes, movements and transactions involving both buildings and cities.”
Alex Edds, director of innovation, at JLL UK defines proptech this way:
“On the face of it, proptech is the digitalisation of real estate, but beneath the surface there is so much more to it than that. At its core, proptech addresses fundamental questions of how we experience and extract value from real estate. Proptech is a reflection of the realisation that the consumer experience needs to be at the very heart of real estate. Where the end-user was once forgotten when it came to decision-making, proptech is turning this on its head. Proptech is shifting the balance of power in real estate.”
Essentially, proptech is a broad-based term for innovative, technology-enabled and technology-based solutions focused on transforming the buying, selling, developing, managing and operating of real estate assets. The term encompasses technology solutions for residential real estate, commercial real estate, construction, real estate fintech, smart cities and the built environment. And in some cases, it overlaps with the sharing economy; contech (construction tech), and fintech.
Proptech was coined in Europe, and used commonly across the world. In the US, the real estate tech space is also referred to as CRE tech. CRE tech, an all-encompassing term for all technologies applied to commercial real estate. Proptech and CRETech are similar, but not the same. Proptech is more focused on technology solutions for different phases of the lifecycle of a real estate asset, whereas CRE tech applies to technology solutions for the business of commercial real estate. In the US, these terms are used almost interchangeably.
Four drivers of proptech are: technology, value extraction, user experience and data analytics.
Our futures are digital, and real estate is no exception. Real estate’s transformation from analog to digital is underway. Proptech is driven by the digitization of data, workflows and processes associated with the physical asset.
Real estate is the largest asset class in the world (valued at over $200 trillion globally). It is historically inefficient, and is just in the early stages of tech adoption. Technology and tech-enabled solutions in proptech create efficiency and productivity gains in real estate. This will unlock value, and in some cases create new revenue opportunities for real estate companies.
In the digital age, consumers have become very sophisticated, and their demands and expectations around digital experiences have evolved. Additionally, given that remote work has become the norm during COVID19, and now post-COVID19, there is an even greater need for easy and intuitive user experiences that are accessible and available with just an Internet connection and a modern browser.
Big data is a game changer. Data buried in old Excel sheets is hard to access, process and analyze. Digitized data can be harnessed to gain insights and make data informed decisions. In real estate, billion dollar development projects are painstakingly modeled and analyzed using Excel. Tech enabled platforms easily integrate with Excel, and have easy to use project and portfolio analysis tools.
Proptech is rapidly expanding and evolving in scope and size; and we are currently in the third wave.
To summarize the history of proptech in the US:
The first wave began in the 1980s with the entry of personal computers. Real estate institutions invested in technology for data and market analytics. Software companies developed tools for important functions such as underwriting, accounting, and analyses. These tools were expensive closed-form solutions at the enterprise level. And some of them are strong market players even today including Autodesk, CoStar, ARGUS.
During this time, real estate brokerages developed online portals for residential brokerage; and startups like Zillow and Trulia created online aggregation portfolios for residential real estate too. As consumer confidence in the internet and online transactions grew, more and more users used these portals. Today, they are industry standard platforms.
Technology advancements and changing end user preferences in the last decade have created huge opportunities for transforming real estate. This wave has democratized data, and is critically impacted by advances in information technology and the introduction and the critical mass of smartphones and wifi. Proptech 2.0 seeks to improve the user experience of renting, buying, selling, and building real estate. This wave is buoyed by startups both bootstrapped and funded. Because the residential market globally is much larger than the commercial real estate market, it is not surprising that many startups and investors focused on tech solutions for the residential markets. Now, more and more, startups and investors are focusing on commercial real estate especially Software as a Service (SaaS) business tools for real estate; and more mobile-responsive apps for consumers. This wave can be broken out into three primary verticals: smart real estate (Enertiv), real estate fintech (Built), and the sharing economy (Common, Airbnb).
We are currently in the third wave. This phase is bifurcated. Commercial real estate workflows continue to be inefficient. Digitization and automation levels are still low, and there are many pain points. Some proptech companies are focused on reducing these pain points and increasing digitization and automation; while others are focused more on frontier technologies including VR, blockchain, big data, and IoT. Examples of the former include VTS, Katerra, Enertiv and Compstak; and examples of the latter include VirtualAPT and Matterport.
In the past 25 years, technology has disrupted the way we eat, commute, read, write and communicate. And now it’s disrupting where and how we live, work -- and build.
Proptech entrepreneurs are focused mainly on increased use of technology, efficiency and value extraction, user experience and data analytics. They are focused on rethinking real estate, and overcoming some of the common pain points of traditional real estate: expensive and illiquid assets, fragmented and siloed industry, and manual and tedious workflows.
Real estate players have been hesitant to adopt tech, but the pandemic has forced many to rethink technology. As a result, there is likely to be a shift to digital, with a focus on data and insights. Many proptech companies are focused on creating efficiencies and so COVID-19 could catalyze meaningful tech adoption.
At Builders Patch, we're excited to be on the forefront of the Proptech 3.0 wave. And we're hyper-focused on creating simple, intuitive software to streamline the underwriting and closing process for multifamily and affordable housing projects.