The Rise of PropTech: What is it and Why Does it Matter?

Matt Dixon
May 31, 2018 · 5 min read

What is PropTech?

Ironically, the youngest vertical of the technology industry is growing rapidly to serve one of the oldest industries: real estate.

Much like FinTech has transformed the financial sector, PropTech (or CREtech for Commercial Real Estate) is the technology that is being used to transform the way we think about and use property. Andrew Braum describes it as “a movement driving a mentality change within the real estate industry and its consumers regarding technology driven innovation in the data assembly, transacting, and design of buildings and cities”.

What are PropTech startups focused on? Why are they needed?

This question may seem obvious (because, honestly, who needs a realtor anymore?)* but I assure you that we are only scratching the surface of the potential of this tech vertical.

*note: I’m being facetious, the brokers I work with are invaluable and some of the smartest people in the industry. Technology empowers, not replaces them.

As a property developer, here is a short list of the inefficiencies I face daily:

  • Need for multiple intermediaries in all transactions (real estate, insurance, banking);
  • Information asymmetry — in markets, in building efficiency, pretty much anywhere in the business;
  • Cumbersome and intensive legal agreements;
  • Inefficient building systems and building programming;
  • Lack of ability to move quickly;

The list goes on and on… the point being that there are a lot of difficulties translating such a physical (and old school) world into the digital realm.

Where do we draw the line between PropTech, Fintech, and other tech startups?

The truth is, there’s a lot of grey area. Who’s to say your building’s Facebook page doesn’t count it as PropTech?

A fun Venn-style infographic shows one idea for the spatial relationship of the industry:

Platforms in PropTech vary as widely as the property industry itself. Major players have been noted disrupting many areas. Some that I’ve been paying attention to are below (but not limited to, honestly there’s thousands):

Where is all the money coming from?

Global investment in PropTech companies grew 63% from 2016 to a staggering $12 billion in 2017. Why so much attention in this vertical?

Historically, the real estate industry has been the hardest to disrupt. Just look at the life cycle of Redfin, a company that set out to change real estate listings, and ended up conforming to the status quo of the business.

The truth is that connecting the highly tactile and visceral industry of real estate to the more disconnected, automated and efficiency based software industry is very hard. It’s taken time for those lack of efficiencies to really become a pain point that a live human could not solve. For example: when you’re making the largest transaction decision of your life, like a home, you generally want to speak to an expert.

But over the last few years, that has changed. Enter: the money. VC and Incubator firms such as Fifth Wall, Aurum, PiLabs and Navitas and MetaProp have been market leaders, gobbling up billions in value of investment in PropTech, likely aiming for an exit to an IPO or, if they’re lucky, to be purchased by the corporation they’re disrupting.

Established companies purchasing their potential disruptors is an old concept, but it’s new to Real Estate. Salim Ismail would be proud. For instance Jones Lang Lasalle (JLL) and Cushman and Wakefield, two major global brokerage firms, have entered into the foray of PropTech to stave off elimination (and likely make a couple bucks doing it). JLL has gone so far as to create a new investment arm, JLL Spark, targeting primarily early stage digital real estate companies set to disrupt each of its service lines.

In Europe, a continent likely ripe for Smart Building retrofits, investment funds have popped up to create opportunities similar to their American counterparts. Proptech Capital is one such group taking charge over there.

Why does it matter?

Many thought leaders (smarter than I) have been puzzling over the death of productivity growth in developed economies, despite better-than-ever access to digitization, machine learning and software process enhancement.

In real estate, it’s like the wild west of technology startups, and productivity enhancement is arguably there for the taking. Although certain disruption is taking place in the industry, other, more established areas of the business will adapt to tech slowly, gauging market demand and iterating to adapt.

It will pay to keep an eye on these companies as they creep into our everyday lives. End user demand will always dictate adoption, so as the tech-savvy demographic becomes more attune to real estate inefficiencies, demand for PropTech will continue to grow.

Matt Dixon

Written by

Development Manager at Omicron. Advocate for Abundant Housing. Property Tech Nerd. Twitter: @dixonsays LinkedIn: www.linkedin.com/in/matthewwdixon

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