PropTech Theoretical overview

Digitalisation has reached the Real Estate industry and the PropTech sector has long outgrown its infancy. “Technology and tech-driven changes call into question the role of Real Estate as an asset class with predictable cashflow and inherent value. The value of assets is increasingly dependent on their operators. The operators of the future will differentiate themselves through technology and focus on the needs of specific customers. The battle to preserve and enhance the value of commercial Real Estate will be a key priority for investors over the next two decades. Innovation is at the core of this battle.” [1] The idea that you can “sit” on something that is bond like, that can generate stable returns and protects you against inflation is more and more questionable.

PropTech is not an IT topic, it is a core strategic question facing every company in the Real Estate industry right now. It is not an operational issue to be pushed down the line to IT department and external solution providers. Companies that can adapt now will emerge as the winners and gain a significant competitive advantage.

Why is this relevant? Firstly, because we are already experiencing paradigm shift and the way work is done has significantly changed. This shift has already happened in retail where Amazon and the like have been making a significant dent in the retail brick and mortar business model. “Companies that do not ask them self what is next, get left behind.”[2] It is easy to get snug in your comfort zone, a lot of big companies have done so and got left behind. There is an excellent talk on this subject.

James Whittaker on What is next

It is general knowledge that car manufacturers gain majority of revenue from spare parts and service rather than from selling their own core products. IT software companies flee to Software as a Service and Cloud computing business models. There is lesson to be learned from the music industry ignoring its challengers. Overly self-confident, it was unable to address the changes affecting music consumption. Nowadays Spotify, Deezer or YouTube control music delivery across the globe. Similar story with Kodak and digital photography. The risk is very real and potentially affects many sectors. Similarly, there is a paradigm shift in the Real Estate and new business models are needed. “At heart, these new business models will all be based around the emerging notion of Space as a Service”[3] and PropTech is going to play leading role in enabling that service.

Don’t just take my word on it, Guy Grainger, EMEA CEO at JLL has interesting things to say about PropTech: ”It’s big, people shouldn’t underestimate how big and how influential PropTech is, so I think it will be impactful and those that will succeed will create new structural change for the industry”.  Stephen Walker, Deputy Head of Asset Management, Aberdeen Standard Investments was speaking about the evolution of Real Estate and questioning how things can be done more efficiently and how to embrace technology to provide a better service to customers.

Although there is no single universally accepted definition, one of the most widely shared is forged by James Dearsley“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” For a somewhat condensed opinion Vincent Lecamus offers the following definition: “It’s a collective term used to define start-ups offering technologically innovative products or new business models for the real estate markets.”

Looking deeper into the PropTech is both a simple and complex thing to do when you consider different ways in which start-ups are using technological innovations to disrupt the Real Estate industry. For understanding of what PropTech consists of and its segmentation, it might be worthwhile going through the report PropTech 3.0: the future of real estate written by professor Andrew Baum and published by University of Oxford Research in May 2017.

PropTech verticals and horizontals

The report attempts to categorise PropTech businesses into three verticals:

  • Real Estate Fintech;
  • Shared Economy; and
  • Smart Real Estate

Which are driven by three horizontals:

  • Information;
  • Transactions/mrketplace; and
  • Management/control.

PropTech Consult has published an interesting review of Professor Andrew Baum’s PropTech 3.0 report available here. Given there is no strict definition of what PropTech is there are also no strict borders of what it consists of. IMMO2.PRO offers following:

IMMO2.PRO PropTech Market

In order not to get left behind big international Real Estate consultants have either individually started investing in PropTech or joined forces with established start-up accelerators.

Colliers Proptech Accelerator Powered by Techstars focuses on solving problems across the property & commercial real estate industry.
JLL launches JLL Spark with Silicon Valley veterans.
CBRE with Europe’s leading PropTech VC, Pi Labs Accelerator, forms strategic relationship.

With many property companies now well aware that PropTech should be an essential part of their own digitalisation strategy, the time has come to think ahead and take the next step. Opportunities and risks maintain a balance in Real Estate as everyware else and like any business decision, it requires entrepreneurial courage and a large tolerance for error.

[1] Dror Poleg

[2] James Whittaker

[3] Antony Slumbers

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