Despite the commercial real estate industry facing tightening yields, enthusiasm and confidence in the PropTech sector have investors flying high.
Investor confidence in the Proptech sector rose to an all-time high of 8.8 out of 10, up from 7.7 a year ago, with 64% of investors indicating they plan on making more investments over the next 12 months, according to Metaprop NYC’s Global Mid-Year 2019 Confidence Index.
The bi-annual sentiment survey designed in collaboration with the Real Estate Board of New York (REBNY) and the Royal Institution of Chartered Surveyors (RICS) found that startups are also mirroring investor confidence levels, with the startup confidence index reaching a record level of 7.3 out of 10, up slightly from 7.0 in 2018.
Nearly half or 48% of PropTech CEOs surveyed indicated that it’s likely their company will be acquired, go public or have a major liquidity event in the next three years- an increase of 28% from one year ago.
According to the report, 70% of startups also indicated that they expect the space to become more competitive as new startups enter the marketplace.
Zak Schwarzman, Partner at MetaProp VC, who leads MetaProp’s venture capital funds and investment in high-growth startups, stated that PropTech firms should focus on delivering a clear and compelling value proposition as a means of differentiating themselves from competitors and new entrants.
Schwarzman suggests that PropTech firms should take the “cognitive load” off of their customers and show them that they understand their business and are uniquely positioned to add value to it with as little friction as possible.
“If you’re a PropTech entrepreneur, you should have an intimate understanding and appreciation of how your customer thinks about their business and budget at the operational and/or asset level. You should be able to very clearly describe, in your customer’s vernaculars: where your solution fits into their life, what aspect of their P&L the solution is addressing, expected ROI and payback period,” Schwarzman said.
As the sector matures, the appetite for real estate firms and professionals to find opportunities through new revenue streams and better utilization/monetization of assets is increasing across a broad range of solutions, says Schwarzman.
“Since MetaProp’s founding, we have intentionally pursued a broad PropTech investment mandate, targeting emerging technologies that will impact every asset type and the entire real estate value chain. As the sector matures, we continue to see compelling innovation activity across this entire spectrum,” Schwarzman said.
While there is still interest in solutions that drive cost savings there’s more of an appetite from the industry for solutions that are “revenue drivers,” said Schwarzman.
“A couple of areas where we have been particularly active of late include sub-sectors like construction technology, timely themes like housing affordability and increasingly pressing components of the stack like robust and flexible data and business intelligence layers,” Schwarzman said.
Another indicator of positive sentiment is that 96% of investors surveyed expect to see the same number of acquisitions or more in the M&A market in the next 12 months. And 80% of startups indicated that raising venture capital funding will either become easier to remain the same in the coming 12 months.
“The pending IPOs’ of WeWork and Airbnb are redefining the upper boundaries of success in the sector,” Schwarzman said.
While Proptech companies have produced modest outcomes compared to the broader tech market in the past- as more venture capital dollars flow into sector and firms like Airbnb, WeWork and others become unicorns -they are redefining boundaries in commercial real estate, Schwarzman added.
“Beyond any one or two companies’ exits, the genie is out of the bottle and both the venture capital and the real estate industries’ interest are here to stay,” Schwarzman said.