Real estate is the largest asset class in the world, upholding a higher valuation than the entire equities and fixed income markets combined. With real estate market conditions flourishing consistently since the end of the Great Recession, tech entrepreneurs have recognized a necessity for innovation and modernization. Technology has a storied history of sector disruption, and real estate tech is living up to the reputation. Private equity & venture capital operators in particular have played a large part in fuelling growth and evolution through amplified investment in this booming tech vertical.
What Is Real Estate Tech?
Real estate tech, known by many as ‘proptech,’ comes in various names, shapes and sizes. The technology is broadly defined as the design of information technology and software solutions intended to improve efficiencies in the real estate market. From virtual home tours and smart 3D construction modelling, to property management software and data analysis tools, real estate tech has done its part to infiltrate every corner of the industry.
Investment over the Years
Private equity & venture capital investment in real estate tech has posted a record run over the past 4.5 years, as seen in the chart below, with 905 deals valued at an aggregate $30bn. Unicorn and tech-advanced shared workspace provider WeWork Companies Inc. has been a large beneficiary of this private capital investment, commanding a staggering $47bn valuation following recent funding rounds from industry giants such as Softbank and Hony Capital.
That being said, venture capitalists and private equity professionals have not always been keen on investing in real estate and the surrounding technology. A mere 60 private equity-backed transactions took place in 2010, amounting to just $2.0bn in aggregate value. Fast-forward to 2016 and the global real estate tech market peaked, with 222 deals worth an aggregate $8.5bn. This was more than double the figures from three years prior. Climbing investment activity paired with consistent new entrants into the ecosystem shows good signs for the next phase of real estate technology. Looking ahead, 2019 is on pace to exceed last year’s healthy total deal value figures, with $3.7bn already recorded thus far. However, only 58 deals have been completed year to date.
Consumers and Construction
Technology is influencing every aspect of the real estate market. With advanced mobile applications and online platforms, companies are transforming the way consumers and prospective tenants research, rent and purchase properties. Online real estate marketplace provider Opendoor is a prime example of this; the company recently raised $300mn in a Series E round led by General Atlantic alongside a consortium of venture capital investors.
But real estate tech is not only improving the user experience. In the construction segment, groundbreaking technological advancements are reducing costs as more and more construction professionals are encouraged to embrace the digital world. Augmenting construction sites with robotics has reduced the need for the manual handling of materials. Smart sensors are being installed in advanced buildings to analyze existing systems (lighting, energy, HVAC) and monitor spacing decisions to optimize efficiencies. A leader in this space is Katerra Inc., a California-headquartered unicorn, offering a one-stop shop for the design, sourcing and logistics of construction projects. In January of last year, the firm inked a $865mn Series D round from a number of venture capital investors.
The Next Generation
Having proved its worth, the amalgamation of real estate and technology is here to stay. Private equity & venture capital’s continued appetite and steady funding has paved the way for the next generation of real estate tech startups. Operators will need to continue to innovate in order to reach full modernization, but they are not alone in this: Fintech, blockchain, home-robotics, virtual reality, cloud computing and big data will supplement the advancement, reformation and future development of the commercial and residential real estate sectors as they assist in the modernization of the real estate industry.
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