The perceived status of property technology’s (proptech) impact on the commercial real estate industry has seen several shifts over the course of 2022. Earlier this year, a record-setting $4 billion was invested in proptech. More recently however, a MetaProp survey revealed that enthusiasm for proptech, and investing in it, has begun to wane a bit. The recent roller coaster ride makes it difficult to determine if how proptech will fare, but it might be too early to tell anyway, according to CREtech CEO Michael Beckerman.
“We’re in the ‘second inning’ of proptech adoption by CRE,” Beckerman said during a recent interview with Connect Media CEO Daniel Ceniceros.
Additionally, Beckerman noted that proptech’s success or shortcomings are being measured incorrectly. Rather than looking at how much money has been invested in the sector, the industry should be looking at how much end users have adopted proptech since it entered the CRE arena.
“Too much is made about how many venture dollars are going into the space, Beckerman said. “That’s not the right barometer. And the truth is, (proptech adoption) is still slow and it’s still hard.”
Statistics back up Beckerman’s claim that the CRE has been slow to adopt proptech compared to other industries. Despite being the largest industry on Earth based on GDP, CRE invests the least in research and development innovation, according to Beckerman. Other industries invest 5 to 10 percent in tech, versus CRE, which is less than 1 percent.
“Historically (CRE) is under investing in technology,” Beckerman said. “They don’t have the infrastructure in terms of talent and resources. There are also 10,000 startups and most of them are in silos and not integrating, which is a new trend we’re seeing. So, it’s hard for real estate companies to adopt a lot of these new solutions.”
Necessity could push CRE to embrace proptech a little more, however. Beckerman noted that more companies are looking for solutions for issues like supply chain shortages, inflation and interest rate increase. Technology often can help solve these issues given its ability to increase operating efficiency and lower costs.
“I’m still incredibly bullish on the marketplace,” Beckerman said. “It’s still a challenge for a lot of the tech companies to get adoption, but I remind people that this is the newest, biggest tech sector in the world.”
Company integration could play a key role in proptech adoption
A newer trend within the proptech sector is startups taking the initiative to consolidate themselves. For example, companies that provide building access to data on space utilization and tenant experience have found more success in getting acquired by larger CRE firms.
“A lot of these startups are now sort of working together,” Beckerman said. “And now you’re seeing them in (mergers and acquisitions)—the VTS’ of the world, JLL Technologies and many others are buying the disparate solutions and trying to integrate them.
Beckerman noted the big winner in these proptech mergers are the landlords, CRE owners and asset managers because they now have a true single-pointed solution.
Fundraising status for proptech companies
Although Beckerman noted that investments wasn’t the correct measuring stick of proptech’s success, he and Ceniceros did broach the topic. Beckerman admitted it’s been more difficult to raise money today than it was in the past five or six years. Venture capitalists are still looking for investment opportunities, they’re just being more selective about where they’re putting their money.
“There’s still a tremendous amount of ‘dry powder’; venture firms still have a lot of capital,” Beckerman said. “They are all raising money; they’re just being more cautious about where and how they’re deploying their capital, which is probably a good thing because if we talked six months ago, I would tell you it’s a little bit of a frenzy right now whether I don’t sense the discipline on the due diligence and a lot of the venture firms were, sort of trampling over each other to get into the front pole position on investing.
“This sort of momentary sort of pause is good; it’s up creating some more discipline and the ecosystem which I think will lead to less failures.”
Click here to listen to the entire interview between Daniel Ceniceros and Michael Beckerman.