Venture capitalist (VC) interest in real estate property technology (or PropTech) has grown significantly over the past five years. According to PitchBook data, the number of VC investments in real estate technology start-ups and early-stage companies more than doubled between 2013 and 2017. The value invested in PropTech deals nearly quadrupled over the same time period – from $523 million in 2013 to just shy of $2 billion in 2017. CB Insights estimates that approximately $5 billion has been invested in PropTech in the past two years.
The growing excitement in the sector creates opportunities, but it also has potential downsides. The fervour on the funding side can improve the chances of quality products being brought to market, but the sudden competition among VCs can lead to money chasing and weaker ideas that don’t merit the same time and support.
Supply of funding and PropTech ideas are being driven by demand from all sides of the real estate industry searching for technology that increases investor returns, improves operational efficiencies and creates better spaces for people to work, shop and live. Interested commercial real estate (CRE) stakeholders include:
- Developers looking to crowdfund new projects
- Investors seeking efficiencies in management, maintenance and staffing
- Occupiers driving space utilization that is more efficient and makes work more effective
- Employees demanding a modern workplace experience that optimizes comfort and ease
- Retailers attracting customers into a physical store in a world increasingly propelled by eCommerce
PropTech and the University
So much of the present and future world of work is driven by the technology sector and start-ups that are additive and disruptive. Accordingly, university-affiliated incubators have been developed over the past decade to create ecosystems that link scholarship, business and innovation. Examples of technology incubators include:
- DMZ at Ryerson University (Toronto, Canada)
- New Venture Institute at Flinders University (Adelaide, Australia)
- Tsinghua x-lab at Tsinghua University (Beijing, China)
- PoliHub at Polytechnic University of Milan (Milan, Italy)
- StartX at Stanford University (Stanford, CA.)
Similar-styled incubators with a specific focus on CRE technology are starting to pop up around the world as well. For example, a CRE innovation program has begun at Columbia University (New York City) involving researchers and students at Columbia partnering with companies with a stake in CRE developments from the wider PropTech ecosystem. Stanford University (Stanford, CA) also has a research consortium exploring CRE technology needs.
1871 is an example of another model that connects the university, early-stage start-ups and industry-specific incubators. 1871 brings together Chicago entrepreneurs from 400 high-growth digital start-ups with more than 100 education, community and corporate partners – including Cushman & Wakefield – to create a community that includes programming, events, inclusion efforts and other activities and initiatives that enrich the member experience and establish roots throughout the Chicago business and technology community.
PropTech And CRE Firms
Cushman & Wakefield believes it is critical for leaders in the CRE industry to be involved with both incubators that are purely focused on PropTech as well more general technology accelerators. A diversity of partnerships has allowed Cushman & Wakefield to access tremendous opportunities to find innovation in other industries that will apply to our clients and their real estate needs.
As CRE owners and investors are getting more involved with PropTech investments, different models of engagement have emerged and real estate firms have chosen different strategies. In some cases, firms have attempted to develop PropTech solutions in-house from scratch. In other cases, already-developed technologies have been purchased outright. Increasingly, real estate firms are looking to invest in PropTech funds to obtain access to early-stage PropTech companies. For example, Cushman & Wakefield has recently invested in PropTech funds created by MetaProp and other VC firms.
While building solutions in-house or purchasing tech companies outright provides control of the technology, both strategies have downsides. Access to outside ideas and third-party financial investment can be limited. Additionally, the opportunity to engage with broader customer and user bases in a way that spurs innovation can be stunted.
A broad strategy that includes both in-house development and investment in outside companies maximizes the opportunity to find and build upon great ideas no matter where they come from. By placing diverse bets with early-stage PropTech companies, later-stage technology investments and thought leaders in both CRE and technology, firms can position themselves to capitalize on PropTech developments and anticipate impactful trends as they start.
Cushman & Wakefield’s distinct approach is integrating PropTech investments and partnerships with our business and client needs, not adding independent bolt-ons. We believe in partnerships and an open innovation system that includes universities, VCs, our teams and our clients. We can accomplish more by working with multiple $100 million funds than by managing our own, since no CRE company is built to be an expert VC firm.
A recent example of this strategy at work is Cushman & Wakefield’s partnership with Bowery Valuation, which was generated through the firm’s relationship with MetaProp. Looking to serve clients in a better way, Cushman & Wakefield integrated Bowery’s comprehensive appraisal platform into their valuation teams’ operations. The partnership resulted in reduction of manual processes, increased data accuracy and shorter delivery times, all of which give valuation professionals more time and energy to provide improved service to clients.
Technology is rapidly impacting the real estate industry. It’s changing how investors, occupiers and service providers do their work, serve their customers and develop strategic business plans. Firms should focus on the following when developing strategies and implementing PropTech solutions:
Leveraging technologies that help sales teams better connect with their colleagues and clients in a dynamic fashion. This includes 3D visualization, interactive displays, sales enablement and artificial intelligence.
Using technology tools that support strong decision-making through the use of data and analytics.
Identifying opportunities to collaborate with other organizations that are focused on relevant technology solutions. This can include working with existing data companies, incubators, accelerators or visualization tools.
This article originally appeared in the The Edge, Volume One, under the headline “PropTech 2.0”.