Property technology (proptech) venture capital investments dropped significantly — 77 percent annually — during the first quarter of 2023, Commercial Observer reports. The amount of deals remains about the same as it was in 2022, however.
Proptech VC investments totaled $1.69 billion during the first quarter of this year — a major decrease from the $7.44 billion mark reached last year, according to a recent Center for Real Estate Technology & Innovation (CRETI) report.
The proptech funding drop isn’t limited to 2023. The $19.8 billion raised in 2022 was a 38-percent decrease from the year before. Additionally, 2022 was the second-lowest investment year since at least 2018, Commercial Observer reports.
First quarter deal volume in 2023 fell too, but not as much. During that time, 179 deals closed — an average of 14 a week, which is about the same weekly pace as 2022, according to CRETI’s report.
Why less money is being invested on proptech
While proptech has become a vital part of commercial real estate, investors have become more cautious about putting more money into it given the market’s current uncertain status. However, proptech is still an attractive investment opportunity as more CRE property owners are adopting technology, according to CRETI Chair Ashkán Zandieh.
“The proptech industry has showcased its resilience, as investors remain committed to supporting strong companies, resulting in investments surpassing the $1 billion mark,” he said.
Vince Cicciarelli, partner at LPC Ventures, also noted investors have become more cautious given the uncertainty surrounding the market. However, the situation has become more complex than just proptech companies struggling to get funding, according to Cicciarelli.
Some CRE companies are treading carefully, too
VC investors aren’t the only ones who’ve slowed down their pursuit of proptech startups, Commercial Observer reports. CRE owners and operators have also become resistant to deploying newer concepts, Cicciarelli said. All of the hesitancy could help separate the most innovative proptech companies from the pack, however.
“I think now is where the category makers and true gems of proptech will be made, setting the foundation for what the future of proptech and innovation looks like for years to come,” Cicciarelli said.
“As we navigate the present proptech landscape, we are witnessing a shift in investor sentiment, with a focus on prudence in light of broader market uncertainties,” Zandieh said.
Meanwhile, other industry experts are more comfortable moving forward despite the CRETI report’s findings.
“We observed a slowdown in investment activity during the first quarter relative to the same period last year, but we continue to see capital available for outperforming companies in our space,” said Matthew Boras, senior vice president of Manhattan-based RXR Digital Ventures. “Despite expected near-term macro headwinds impacting startups across all industries, we are more excited now than ever by the investment opportunity presented by the trends driving technology adoption across the real estate and construction industries.”