CRE Is Still Hungry for Proptech, but Tastes Are More Refined

Proptech investment fell dramatically from $32 billion in 2021 to $19.8 billion in 2022, according to data from the Center for Real Estate Technology and Innovation. Technology in real estate isn’t any less important than it was two years ago. It is probably more important. But this is a different market, and the proptech business has matured. Investors and users are more results-driven, and they are prioritizing certain types of applications and services above others.

“Given the economic climate, there has been a focus on solutions that have real ROI, operational efficiency at the property level and streamlining workflows,” said Christopher Yip, partner & managing director at RET Ventures, a proptech investment company specializing in multifamily real estate.

Another sign of maturity is less duplication among startups. Previously, if one startup was successful, many others would follow with the same type of application, noted Nikki Greenberg, founder & chief innovation officer of Real Estate of the Future.

Changing priorities and sentiments

Data from MetaProp’s year-end-2022 Global Proptech Confidence Index shows that investor confidence ranks at a 5.4 out of 10, a nearly twofold decrease from 2021’s all-time high of 9.3. Startup confidence, though slightly elevated from mid-year 2022, is at 4.4 out of 10.

The cooling sentiments, however, seem to represent increased caution and selectivity rather than an outright desire to reduce the scope and scale of investment. That’s because MetaProp also found that 45 percent of respondents anticipate making the same number of business ventures, and 26 percent of those respondents foresee net increases in their portfolio sizes.

“The appetite (for investment) is a bit reduced from where it was, but it’s less about what proptech is and more about where proptech is in the market,” said Raj Singh, managing partner at JLL Spark, JLL’s proptech-focused venture capital arm.

For Singh, a winning proptech investment strategy for real estate companies should be oriented toward proven results that align with a given company’s goals as opposed to the flashiest new technologies. “The attitude has shifted to ‘show me what you’ve done’ as opposed to telling me what you are going to do,” he said.

The data dominates

The desire for the most accurate and accessible data has helped buoy investor sentiments, according to Greenberg. Commercial real estate companies are using data to analyze and optimize everything from investment strategy to financial performance of properties to climate-based risk reduction.

Any use of data in any investment or operational capacity needs to clear two key hurdles, according to Ohad Porat, chief investment officer at Faropoint, an industrial real estate investment firm.

“The first level is aggregating the data and funneling it in the right way, and the second is (knowing) which analytics to apply to leverage technology,” Porat said.

Faropoint is developing its own proprietary technologies for pipeline management and AI-powered analytics tools to determine rental rate and rental growth. With the data, the firm can produce “superior analytics,” which Porat sees as the key differentiator in commercial real estate. “Many industries are applying big data and analytics and the companies that do it better are prevailing at the end,” he explained.

How new data capabilities are merged with a firm’s given proptech operations and analytics platforms is key, however. “(It’s) not a matter of simply introducing new features, but one of looking left and right and making sure that it is getting integrated with existing systems, APIs and other coordination,” Porat said.

Data analytics have been at the center of CBRE’s major tech investments. “We are very passionate about the potential for data and technology in our business,” Dave told Commercial Property Executive. “

Last year, CBRE made a $100 million investment in VTS, a property management and technology platform the firm had been investing in since 2016. It also purchased E2C, an AI and data-based facilities management platform the firm was already using as well.

Dave described the investments as “strategic partnerships” in products that the company uses and had previously invested in. “We don’t think of ourselves as venture capital (investors),” Dave explained.

Connectivity, Productivity and Sustainability

The pandemic brought a hyper focus on how commercial space is (and is not) used and operated, particularly office space. Therefore, there has been increased attention on technologies that enhance efficiency and tenant engagement and track how tenants use space.

“We believe the workplace experience goes far beyond being able to unlock doors and reserve amenities,” opined Mikki Ward, senior vice president of technology and innovation at EQ Office.

Thus, the firm has turned to streamlining the tools tenants use for connectivity and their workplace experiences, striving to reduce the number of applications it uses for such tasks.

“Tenants can feel overwhelmed utilizing different apps and technologies to manage day-to-day needs,” Ward said.

One such investment is a partnership with cove, a tenant experience and engagement application that provides traditional property management, tenant experience and coworking services.

Equally important to an optimal, efficient use of space is the way in which it is interacted with in the first place. As smart buildings and smart offices become ever-more prevalent, operators have taken to making work within them reflect these trends.

“The physical workplace is becoming more digitally integrated, and it’s important, as landlords, to provide tools that activate smart offices for tenants,” Ward said.

EQ Office has adopted a secure network service provided through essensys, a platform that allows tenants to work at any space within a property.

Office work is also a focus for JLL Spark, and the firm has taken a data-driven approach to its investments. Questions that governed JLL Spark’s investment approach to technologies in this space include: “What’s the future looking like?”, “How much space will we actually need?” and “How should that space be configured?”

Spark has an entire set of investments dedicated to the future of work. Investments include Avo, an employee and client recognition platform, and HqO, a tenant-centered building amenity access platform. An equal amount of attention has been paid to proptech that helps real estate professionals achieve sustainability goals.

“We believe that more efficient and sustainable buildings are more in demand from tenants and, thus, more valuable,” Ward told Commercial Property Executive. “So, investment in climate technology will continue to grow.”

JLL Spark has invested in emissions trackers such as Ecolibrium, alongside Infogrid, a data-driven, automated building performance monitoring platform, in anticipation of further decarbonization policies as well as companies’ net-zero goals. “As an industry, we know that we have a huge target that we need to meet, and it’s become very real for owners and occupiers,” he said.

Read the May 2023 issue of CPE.