Germany’s Real Estate Industry Needs To Adapt, Even Though It Won’t Die
Germany’s PropTech scene is flourishing, but how long will it take for traditional industry players to enter the fray, if they ever do?
When it comes to digitising industries and processes that have long since relied on paperwork, Germany isn’t necessarily considered a shining beacon as which to follow. But take a closer look at certain sectors, such as Finance, and you start to see some great examples of German companies that are leading this change. Not only in Germany but also across Europe.
We recognise the likes of N26, which is redefining digital banking, Raisin and Deposit Solutions, who are revolutionising the way we save, and Scalable Capital, which has asset managers and their fees in a twist. Each in their own right has successfully disrupted a certain subsection of the finance industry. However, the same can’t be said for other sectors in Germany, notably real estate.
The Stalwarts: Why change a running system?
The German real estate industry is a Goliath and Europe’s largest in 2017 when it attracted €68bn of investment. However, even with so much investment being poured into the sector, it still seemingly drags its feet when it comes to digitisation. It is common knowledge that Excel is still used by asset managers to evaluate property portfolios worth billions, while any landlord dreads receiving their annual Jahresgesamtrechnung.
A recent report published by ING comes close to explaining the wider industry’s apparent disinterest in digitisation, noting that long operational life cycles, high barriers to entry, and an intransparent market are to blame. However, the same report also noted the importance of such change, highlighting four areas whereby digitisation would better serve the industry; rental platforms, sales platforms, administrative management, and smart buildings.
The Innovators: Those in the thick of it
This is not to say that pockets of innovation don’t exist. As a ‘member’ of Germany’s PropTech (Property + Technology for the uninitiated) industry, I know first-hand that this is far from true. There are a plethora of great companies that are successfully digitising processes that have long relied on paperwork, phone calls and mail; EverReal, Vermietet, and Wohnungshelden, to name but a few.
However, broader recognition and the use of PropTech (ignoring portals) currently seems to be one step behind other countries. If we look elsewhere, companies such as Purple Bricks (Australia), Trussle (UK) and WeWork (US) are widely adopted and recognised by both consumers and businesses. Similarly, in Germany, only one PropTech comes to mind in having achieved this; Home.ht — an impressive company that has disrupted the existing rental model, taking a 1% market share in less than two years.
This gap between a great PropTech company, wider industry adoption and broader consumer awareness needs to be bridged, in the same way that FinTech has managed to do so in recent years. As this is achieved, German consumers and businesses will benefit by realising market transparency, experiencing greater efficiency, lowering operational costs, and improving data collection.
The Believers: Accelerators, investors and vocal supporters
Thankfully, there are a number of industry advocates who are changing this. Initiatives and bodies, such as Future:PropTech, GPTI and REIN, are actively lobbying the industry and successfully beginning to bridge the gap between bricks-and-mortar and technology. The industry is definitely sitting up and starting to pay attention, which in turn should trickle down to the larger consumer market over time.
Investors are also doing their fair share, with the likes of Picus Capital, Alexander Samwer’s investment vehicle post-Rocket Internet, Vito ONE, speared on by Viessmann Group’s youthful CEO, and many others are actively investing in Germany’s leading PropTech companies. As noted above, the real estate industry has a long operational life cycle, and these investors are patiently waiting for the undoubtedly large payoff at the end. Unicorn anyone?
Further down the chain, we also see Accelerators doing their fair share. Blackprint Booster is arguably one of Europe’s leading PropTech accelerators, competing directly with the UK’s Pi Labs in promoting and advising younger companies through the nuances of the sector. Blackprint also goes a step further, in that they are active in promoting PropTech via their involvement with the aforementioned initiatives and bodies.
The Winners: What next and who will the fabled ‘Unicorn’ be
Admittedly it’s not all doom and gloom for German real estate, nor for the PropTech companies making notable inroads. Industry players such as Aareal, Techem and Vonovia are aware of the role technology has to play, investing and partnering with those PropTech companies they see best placed to help them transition. However, this realisation needs to trickle down through the rest of the industry, with the end consumer eventually being the one to benefit from what PropTech has to offer.
As for those German PropTech companies which will make it to Unicorn status, your guess is as good as mine. However, there are a handful of favourites, most notably Allthings, Home.ht, which I mentioned earlier, and Medici Living. Personally, now that I am based here, I hope that Germany beats the UK in announcing Europe’s first PropTech Unicorn, which it may just do.
As you might have guessed, this article is somewhat of a plug for us and our startup, Mietwise. Even so, we are two founders going through the (sometimes testing) steps of founding and running a new PropTech company in Germany. As such, we intend to share our experiences and knowledge in the hope that we can help others do the same.
The Mietwise Team,
Jonathan & Storm