January 24, 2023
After nearly two years of uncertainty set in motion by the pandemic, many industries are still trying to recover from setbacks they experienced in 2020. For young companies and start-ups tied to an industry like commercial real estate, post-pandemic attempts to improve inflation and accommodate a new work from home model have created new challenges to overcome in 2021 and 2022.
In light of today’s commercial real estate market, The Commercial Observer recently posed an interesting question: what does the future hold for the PropTech industry? With the recent increase in interest rates and tightened credit markets, the commercial real estate industry is experiencing yet another shift and it appears those ripples are fanning out into related technology sectors, like PropTech.
Post-Pandemic Investment in PropTech
In 2021, the PropTech industry reported nearly $32 billion in private investment—up 28% from 2020 when access to capital took a steep and sudden downturn. This uptick was a welcome change as it allowed nascent companies in an emerging industry to find their footing again after an unprecedented year. However, restored access to capital also inspired some PropTech players to take on an aggressive approach to their growth strategy, spurring a wave of consolidations and acquisitions.
Fast forward to 2022, investment in PropTech experienced a 38% decrease over the year 2021, which many experts consider a “rebound and record” year for the industry. Despite these ups and downs, PropTech has been on a steady climb since 2010, growing 160x in the last decade, according to Venture Capital Journal. But where does the industry go from here?
Entrepreneurs like Austin Lo, founder and CEO of Peek, Heather Widman, a partner at Building Ventures, and Prophia’s own Cameron Steele spoke with Phillip Russo about what’s coming next for the commercial real estate technology sector.
Companies Seek to Consolidate
Prior to the investment decreases in 2022, 2021 saw some major M&A deals occur across the industry, like Atlus’s acquisition of real estate data firm Reonomy, and JLL’s acquisition of Skyline AI. While both of these acquisitions shed light on a growing need for the adoption of new technology and AI in the real estate industry, it also reveals an industry-wide acquisition trend in which larger, legacy giants and PropTech companies are quickly, and aggressively, acquiring smaller new players in the field.
Many experts believe acquisitions and mergers will continue to change the number of players and value of companies in the PropTech field. Prophia co-founder Cameron Steele predicts:
“Access to capital is probably not going to get easier near term. It’s going to force companies to think differently about their prospects, which I think will drive more M&A activity. Incumbents with resources have the ability to scale up and they will probably look to do more of that. Among startups, there’s going to be more [as well]. We’ve been approached by two different companies that are interested in partnering through an acquisition or merger just in the last several months, which is a little unusual, but not totally unusual.”
In addition to consolidation, the number of PropTech companies has also grown exponentially in recent years, narrowing the field. In 2011 approximately 117 PropTech companies raised $1.1 billion in VC funding. This number grew to over 900 companies in 2018. As new technology startups with newer innovations enter the market, consolidation and acquisitions will continue to occur throughout the industry.
CRE Technology Adoption
Prophia is one major player in CRE technology, seeking to expedite the lease abstraction and due diligence processes. The AI-powered software brings automation, intelligence, and real-time data to the commercial real estate industry, allowing industry leaders to access and analyze key drivers of their investments and manage their portfolios more effectively. The accessibility of lease data also makes Prophia a powerful technology solution for external teams involved in every step of the acquisition process, streamlining due diligence.
To learn more about the 2023 PropTech outlook, read the entire story by Philip Russo on Commercial Observer, here.