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🏘️ What's next for Proptech in the age of hybrid work?
Tech opportunities in residential and commercial real estate
Good evening Upscalers’ followers.
Time to bring you the 21st edition of our weekly newsletter. This week, we’ll talk about what’s next for Proptech in the age of hybrid work 🏘️.
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🏘️ What's next for Proptech in the age of hybrid work?
Today, real estate is facing significant challenges — from growing concerns over the environmental impact of the sector, to the housing affordability crisis, to changing behaviors related to how we work and live.
With these, the real estate industry (which has long been considered as one of the last vestiges for innovation) is forced to evolve.
In the few following lines, I will give my thoughts on some of the opportunities arising for technology companies to reshape this centuries-old industry and help it respond to changing times.
More specifically, I will focus on opportunities related to the rise of remote and hybrid work.
Here we go ⬇️
1. Let’s start with the basics
There are many ways to define Proptech. The easiest way I found is to adopt a customer-centric approach, and understand it as a “set of cross-industry technologies, that are changing the way we search, rent or buy and manage property” — Proptech Capital.
As such, startups in Proptech offer services and products accross 3 categories which refer to the different steps in the commercial or residential real estate customer journey, both for real estate professionals and customers. These 3 categories are:
Search 🔎 — any activity related to searching for real estate (e.g. brokerage services, marketplaces matching buyers and sellers, data and analytics, virtual viewing, etc).
Supervise 👀 — day-to-day activities of real estate professionals (e.g., space-as-a service, smart buildings etc.)
Sell 💰 — any activity related to selling real estate (iBuyer solutions, Hybrid agents, Insurance and closing…)
Below is a map of some of the most renowned world startups falling into each category.
As you can see, Proptech overlaps with dozens of other tech subsectors such as: Fintech, Contech (construction tech), Legaltech, Climate Tech…
Proptech is a very short word to cover a very wide area — Steve Barnett
2. Proptech state of funding
The appeal for Proptech is clear:
On the one hand, property is the world’s biggest asset class, with the global managed real estate investment market worth $10.5Tn in 2020, up from $9.6Tn in 2019.
On the other hand, real estate suffers from a lack of digitisation to date (still unexplicably relying on spreadsheets and email to do business).
There you get both a huge problem (lack of digitisation) and an opportunity for tech startups to thrive. No wonder why VC investment in Proptech has been experiencing strong and continuous growth from 2014 to 2019.
As we already mentioned, Proptech is a vast category. Within Proptech, construction tech and property management are historically two standount areas of investment.
What’s worth mentioning is that Proptech have not only withstood the pandemic, but been invigorated by it. According to Dealroom, 2021 was a record year in Europe in terms of VC investments in Proptech and 2022 is so far keeping up.
The pancemic has triggered a number of social, cultural and behavioural shifts which are now completely reshaping the Proptech opportunity. One of the most obvious being the normalisation of remote and distributed work accross society, and the subsequent questioning of the office space model.
3. Opportunities in residential
There is little doubt that remote (or hybrid) work solutions will be part of our future as workers in a significant way. There are a number of surveys out there showing that people want hybrid work solutions to be offered on the long run, and that this is becoming critical for companies to retain and attract the best talents. That’s why we invested in Flexa Careers 😉
Before Covid, we produced superstar cities filled with skyscraper offices and residential buildings. But the pandemic created a new world, where people who once thrived in these urban areas are likely to relocate in suburbs, smaller cities and rural areas looking for a better quality of life.
Real estate experts say it is very likely that we will see ongoing high housing demand in the suburbs and small cities, for single-family home sales and rentals, in the coming years.
With the significant increase in demand for suburban-style housing, coupled with evolving buyer profiles (e.g., tech-savvy millennials, and soon gen zers), I believe that we can be extremely postitive about the future of Fintechs and SaaS products that are focused on accelerating the digitization of the home buying, selling and renting processes in suburban areas. What happened in the US, with marketplaces such as Opendoor, Cover and Compass growing into monster valuations and accelerating at lightning speed in recent year is likely to happen also in Europe. The major barrier to this being country specific regulation in Europe, which prevents European players to grow at similar pace to their American counterparts.
The necessity for digitization will also be powered by meaningful growth of people wanting to rent assets rather than own them according to experts. With increasing work flexibility, we are moving into a world where people who could previous afford to aren’t going to live in homes they own for signficant periods of their life, because they can move more easily. This could also fuel the continuous growth of the home sharing model as introduced by Airbnb and accelerated by the pandemic.
With the acceleration of digitization should also come a myriad of opportunities for companies focusing on improving suburban living in such areas as: construction (e.g., modular homebuilding), access (e.g., affordable housing) and lifestyle (e.g., community building, digital amenities).
On top of that, and despite huge blows provoked by the rise of e-commerce and lockdowns, investors are surprisingly optimistic about the revival of neighborhood retail, especially in the form of third-spaces — not home, not a formal office environment, but spaces providing social and physical (Apple-store like) retail experiences.
(I know it has little to do with Tech, but I found the trend worthy of a mention 🙃).
4. The office space dilemma
Despite employees relocation in suburban and distant areas, it seems very unlikely to me that we will see the complete demise of the office model.
More flexible work arrangements are likely to prevail, where companies adopt a “hub-and-spoke” model with a smaller HQ in a major city, and offer more far-flung workplaces to their employees in suburban areas and smaller cities.
With this model, the reduction in office space in big cities is likely to be gradual. But the related question is: what happens to the excess of office space?
I believe there is an opportunity for startups willing to turn offices into residential buildings, especially for remote workers. Future can be bright for startups exploring flexible living solutions (e.g., co-living, microunits), allowing remote workers to spend time across diffferent cities with a fully managed, affordable and safe rental option for short-to-mid term urban living. Co-living or microunits might be attractive conversion options, allowing companies and workers to thrive with new hybrid work models.
Beyond that, with reduced demand for office space, the game is likely to change for office renters. They will no longer be in a position of power, and will have to adopt a more customer centric approach. They will need to shift from simply providing space to companies, to providing a multichannel work exprience. Here, there is an opportunity for startups to build softwares and hardware for managing employees as they travel between various office locations.
There are many other trends in the Proptech industry which we didn’t even mention here.
Let’s keep them for another edition 😉
Thanks again for reading guys
See you next week 👋