Real Estate Tech Boom has Room to Run
-
bookmark
-
print
- Keywords:
- technology
Favorable tailwinds and macro trends like urbanization, consumer expectations of mobile technology and disintermediation of traditional brokers mean an investment bonanza in real estate technology and software (PropTech) has room to run as the industry continues to catch up to a digital transformation that has already swept through other sectors.
Initially slow to adopt technology relative to industries like healthcare or business services, PropTech is as much as three- to five years behind the broader technology curve, depending on the sub-vertical; for instance about 1/3 of the $13 trillion global real estate investment market is still managed on spreadsheets.
That is an imbalance investors in the industry are working hard to rectify, with Venture Capital and Private Equity dollars pouring into technological solutions focused on finding efficiencies and enhancing user experiences for providers and consumers, in categories ranging from design & construction, sales & brokerage, property management, portfolio & investment management, and vacation rentals.
Disrupting Inefficiencies
Rife with layers and processes that are ripe for automation, real estate is already undergoing rapid disruption. Nowhere has that been more apparent than in the sales & brokerage sub-vertical, where companies are eliminating the need for once-entrenched, lower-value intermediaries. Today’s real estate buyer, seller or renter need not spend hours with a broker to establish search specifications. Instead, they can turn to online marketplaces with an abundance of listings and utilize virtual reality applications to take personal control of their searches including previewing the property remotely.
Venture Capital and Private Equity firms are taking note and investment in PropTech has more than tripled over the last three years. Equity and debt raised in U.S. PropTech venture investment rose 69% y/y in 2019 to $9bn, from $5bn in 2018, reflecting continued momentum for growth companies in the PropTech sector, in both residential and commercial opportunities. According to data from Capital IQ, out of the $9bn raised, about 60% was for the Residential segment and 40% for the Commercial segment, showing that investors can and are choosing to seek growth through different outlets, businesses and use cases. It’s a similar story in mergers and acquisitions (M&A) activity. In 2019, 45% of the 100 material M&A transactions in the U.S. PropTech market occurred in Residential / Mortgage segments and 55% in Commercial, according to data compiled by Pitchbook & 451 Research. Of those deals, 80% were from strategic acquirers and 20% from financial sponsor acquirers.
Investments are also getting bigger and competition for high-quality opportunities is increasing as the number of active strategics and private equity investors in the space jumps; incumbents who initially resisted change now embrace technology adoption and enablement, and have established venture functions to invest in emerging technologies.
Recently, PropTech is seeing some of the most aggressive activity in the property management, investment & portfolio management and data/valuation analytics sub-verticals. Companies in these spaces are for the most part recession-resistant, offering a strong value proposition even in a downturn.
Over the past year, especially public PropTech companies in these three verticals have seen sharp rises in their share price valuations, making them more able and willing to acquire bolt-on acquisitions at richer multiples.
Growth Drivers – Urbanization & Modernization
Growth drivers differ for consumers and providers, but urbanization and modernization of cities is a prevailing theme on both sides as PropTech strives to reduce costs and overheads, and automate to reduce inefficiencies and eliminate low-value functions or processes. As more and more people move to cities on a global scale, developers are building taller and closer. Where before they planned one building at a time, today’s developers and investors think in terms of groups of buildings that are tech-enabled and managed as one unit. Rather than one-off buildings, developers are planning entire neighborhoods with their related services and amenities.
As we get closer and closer to smart cities, property managers must consider societal change, as well as topography and demographics and, increasingly providers, are collecting and analyzing huge inflows of data to optimize processes and make data-driven investment decisions. Consumers are increasingly turning to online marketplaces with a plethora of data and analytics tools to help them make informed buy, sale and rental decisions.
There is more data available in real estate than ever before, and as that continues to rise exponentially there will be increased pressure on the industry to take every opportunity to collect, analyze and learn from data to optimize processes and make data-driven decisions that make the real estate industry more efficient and effective.
Software and technology are increasingly reshaping every aspect of how real estate is developed, procured, managed and utilized. What is clear is that the market for PropTech still has plenty of room to run.
Manthan Choksey
Manthan is a Director in the Technology & Business Services group and is responsible for covering Real Estate Technology (PropTech), Data Center & Cloud Services. Prior to joining BMO in 2017, he spent 7 years at Barclays where he was focused across the TMT sectors. Manthan has over 10 years of investment banking experience, leading a wide variety of M&A transactions and equity and debt finan…
View Full Profile
Favorable tailwinds and macro trends like urbanization, consumer expectations of mobile technology and disintermediation of traditional brokers mean an investment bonanza in real estate technology and software (PropTech) has room to run as the industry continues to catch up to a digital transformation that has already swept through other sectors.
Initially slow to adopt technology relative to industries like healthcare or business services, PropTech is as much as three- to five years behind the broader technology curve, depending on the sub-vertical; for instance about 1/3 of the $13 trillion global real estate investment market is still managed on spreadsheets.
That is an imbalance investors in the industry are working hard to rectify, with Venture Capital and Private Equity dollars pouring into technological solutions focused on finding efficiencies and enhancing user experiences for providers and consumers, in categories ranging from design & construction, sales & brokerage, property management, portfolio & investment management, and vacation rentals.
Disrupting Inefficiencies
Rife with layers and processes that are ripe for automation, real estate is already undergoing rapid disruption. Nowhere has that been more apparent than in the sales & brokerage sub-vertical, where companies are eliminating the need for once-entrenched, lower-value intermediaries. Today’s real estate buyer, seller or renter need not spend hours with a broker to establish search specifications. Instead, they can turn to online marketplaces with an abundance of listings and utilize virtual reality applications to take personal control of their searches including previewing the property remotely.
Venture Capital and Private Equity firms are taking note and investment in PropTech has more than tripled over the last three years. Equity and debt raised in U.S. PropTech venture investment rose 69% y/y in 2019 to $9bn, from $5bn in 2018, reflecting continued momentum for growth companies in the PropTech sector, in both residential and commercial opportunities. According to data from Capital IQ, out of the $9bn raised, about 60% was for the Residential segment and 40% for the Commercial segment, showing that investors can and are choosing to seek growth through different outlets, businesses and use cases. It’s a similar story in mergers and acquisitions (M&A) activity. In 2019, 45% of the 100 material M&A transactions in the U.S. PropTech market occurred in Residential / Mortgage segments and 55% in Commercial, according to data compiled by Pitchbook & 451 Research. Of those deals, 80% were from strategic acquirers and 20% from financial sponsor acquirers.
Investments are also getting bigger and competition for high-quality opportunities is increasing as the number of active strategics and private equity investors in the space jumps; incumbents who initially resisted change now embrace technology adoption and enablement, and have established venture functions to invest in emerging technologies.
Recently, PropTech is seeing some of the most aggressive activity in the property management, investment & portfolio management and data/valuation analytics sub-verticals. Companies in these spaces are for the most part recession-resistant, offering a strong value proposition even in a downturn.
Over the past year, especially public PropTech companies in these three verticals have seen sharp rises in their share price valuations, making them more able and willing to acquire bolt-on acquisitions at richer multiples.
Growth Drivers – Urbanization & Modernization
Growth drivers differ for consumers and providers, but urbanization and modernization of cities is a prevailing theme on both sides as PropTech strives to reduce costs and overheads, and automate to reduce inefficiencies and eliminate low-value functions or processes. As more and more people move to cities on a global scale, developers are building taller and closer. Where before they planned one building at a time, today’s developers and investors think in terms of groups of buildings that are tech-enabled and managed as one unit. Rather than one-off buildings, developers are planning entire neighborhoods with their related services and amenities.
As we get closer and closer to smart cities, property managers must consider societal change, as well as topography and demographics and, increasingly providers, are collecting and analyzing huge inflows of data to optimize processes and make data-driven investment decisions. Consumers are increasingly turning to online marketplaces with a plethora of data and analytics tools to help them make informed buy, sale and rental decisions.
There is more data available in real estate than ever before, and as that continues to rise exponentially there will be increased pressure on the industry to take every opportunity to collect, analyze and learn from data to optimize processes and make data-driven decisions that make the real estate industry more efficient and effective.
Software and technology are increasingly reshaping every aspect of how real estate is developed, procured, managed and utilized. What is clear is that the market for PropTech still has plenty of room to run.
What to Read Next.
North American Investment Strategy: 2021 Market Outlook
Brian Belski | December 16, 2020 | Economic Insights
While 2020 has been a challenging year, it’s also highlighted our resilience and determination. Those qualities were evident in the U.S. stock …
Continue Reading>More Insights
Tell us three simple things to
customize your experience.
Commercial
Commercial
-
Who We Are
-
Industry Expertise
- Agribusiness & Protein
- Agriculture
- Dealer Finance
- Commercial Real Estate
- Correspondent Banking
- Educational Institutions
- Engineering & Construction
- Food & Beverage
- Franchise Finance
- Futures & Securities
- Governments
- Healthcare
- Manufacturing
- Metals
- Not-for-Profit Organizations
- Private Equity Sponsors
- Professional Services
- Retail & Wholesale Distribution
- Specialty Finance
- Trucking
- Dental Practices
- Fuel Services & Convenience
- Logistics, Rail and Shipping
- Technology Banking
- Wine & Spirits
- Religious Institution Banking
- We Can Help
-
Our Bankers
- Our Podcasts
Contact Us
Banking products are subject to approval and are provided in the United States by BMO Bank N.A. Member FDIC. BMO Commercial Bank is a trade name used in the United States by BMO Bank N.A. Member FDIC. BMO Sponsor Finance is a trade name used by BMO Financial Corp. and its affiliates.
Please note important disclosures for content produced by BMO Capital Markets. BMO Capital Markets Regulatory | BMOCMC Fixed Income Commentary Disclosure | BMOCMC FICC Macro Strategy Commentary Disclosure | Research Disclosure Statements.
BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Bank N.A. (member FDIC), Bank of Montreal Europe p.l.c., and Bank of Montreal (China) Co. Ltd, the institutional broker dealer business of BMO Capital Markets Corp. (Member FINRA and SIPC) and the agency broker dealer business of Clearpool Execution Services, LLC (Member FINRA and SIPC) in the U.S. , and the institutional broker dealer businesses of BMO Nesbitt Burns Inc. (Member Canadian Investment Regulatory Organization and Member Canadian Investor Protection Fund) in Canada and Asia, Bank of Montreal Europe p.l.c. (authorised and regulated by the Central Bank of Ireland) in Europe and BMO Capital Markets Limited (authorised and regulated by the Financial Conduct Authority) in the UK and Australia and carbon credit origination, sustainability advisory services and environmental solutions provided by Bank of Montreal, BMO Radicle Inc., and Carbon Farmers Australia Pty Ltd. (ACN 136 799 221 AFSL 430135) in Australia.
The material contained in articles posted on this website is intended as a general market commentary. The opinions, estimates and projections, if any, contained in these articles are those of the authors and may differ from those of other BMO Commercial Bank employees and affiliates. BMO Commercial Bank endeavors to ensure that the contents have been compiled or derived from sources that it believes to be reliable and which it believes contain information and opinions which are accurate and complete. However, the authors and BMO Commercial Bank take no responsibility for any errors or omissions and do not guarantee their accuracy or completeness. These articles are for informational purposes only.
This information is not intended to be tax or legal advice. This information cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer. This information is being used to support the promotion or marketing of the planning strategies discussed herein. BMO Bank N.A. and its affiliates do not provide legal or tax advice to clients. You should review your particular circumstances with your independent legal and tax advisors.
Third party web sites may have privacy and security policies different from BMO. Links to other web sites do not imply the endorsement or approval of such web sites. Please review the privacy and security policies of web sites reached through links from BMO web sites.
Notice to Customers
To help the government fight the funding of terrorism and money laundering activities, federal law (USA Patriot Act (Title III of Pub. L. 107 56 (signed into law October 26, 2001)) requires all financial organizations to obtain, verify and record information that identifies each person who opens an account. When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask you to provide a copy of your driver's license or other identifying documents. For each business or entity that opens an account, we will ask for your name, address and other information that will allow us to identify the entity. We may also ask you to provide a copy of your certificate of incorporation (or similar document) or other identifying documents. The information you provide in this form may be used to perform a credit check and verify your identity by using internal sources and third-party vendors. If the requested information is not provided within 30 calendar days, the account will be subject to closure.