Property technology (proptech) founders, investors and real estate companies alike agree that technological innovation is critical to the future of the industry, but they have all struggled to remain enthusiastic about the sector given the financial strain that can come with it, Commercial Observer reports. MetaProp recently released its Mid-Year 2022 Confidence Index, which gathers insights from proptech startup founders and investors through a series of questions. The result was an investor confidence index of 5.8 (out of 10), its lowest ever rating and a severe drop from the 9.3 mark it hit just six months ago. Meanwhile, the startup confidence index didn’t fare much better—4.2 out of 10, also an all-time low compared to a record-setting 8.3 a year ago.
“The tech market has been atrocious,” said Aaron Block, co-founder and managing partner at MetaProp. “The proptech market has been impacted, as anyone would have imagined. The good news and silver lining is that commercial traction and fundamentals remain strong. But there’s no sugarcoating the fact that the broader tech market has adversely impacted proptech at this slice of time.”
Investors’ proptech market outlook
When asked for their view on the proptech market over the next year, 62 percent of investors said they expect to make the same amount of proptech investments during the next 12 months, Commercial Observer reports. The previous index saw 71 percent of respondents say they planned to make more investments.
Meanwhile, 35 percent of investors who responded said they were interested in investing in multi-family-related startups, which is a record high for that category. Only 10 percent, another record low, said they were interested in putting money into startups that impact the office CRE industry, likely due to the rise in remote work.
“The turmoil in the public tech markets has officially arrived in the venture capital markets,” Liza Benson, partner at Moderne Ventures, a proptech venture capital firm, said in the MetaProp survey. “The days of 50x revenue multiples and pre-emptive deals have ended. We are seeing many companies that took valuations based on forward multiples come back to market with convertible notes at significant discounts and down rounds.
“While the real estate tech space is still in its infancy, the pressure on valuations will create market dislocation that will slow down the pace of deals at least until 2023.”
CEOs, startup founders also in a pessimistic state
More than 70 percent of startup founders said they think it will be more difficult to raise capital—a 27 percent increase from six months, ago, Commercial Observer reports. Meanwhile 52 percent of the CEOs who responded said without additional capital they have less than 12 months of operating funds.
It’s also believed that there will be fewer new entrants in the proptech market. Fifty-five percent of founders anticipate that their sector will be as or less competitive in the coming year versus the past 12 months. That’s 21 percent more respondents who share that sentiment from six months ago.
“Whether or not the velocity of (merger and acquisitions) in the single-family rental (SFR) space changes, the market environment will put pressure on SFR management firms to adopt technologies and products that drive up revenue per unit and reduce operating cost per unit, making more room for SaaS products that either reduce operational overhead or enable new services to be offered to residents and to the asset owners,” property management software startup Latchel CEO Ethan Lieber said in the survey.
“SFR and multifamily operators have a nice tailwind helping them as rent prices are increasing at breakneck speed and the average wealth of renters is increasing too,” Lieber added. “This means property management operators can leverage new resident services to drive up revenue per unit with little friction, allowing proptech companies that target resident services to expand more quickly with higher adoption rates.”