The Landscape of Commercial Real Estate Startups
Who will come out ahead?
A 17 year old Pakistani immigrates to London and starts a job of delivering supplies to new restaurants serving a growing South Asian population. He expands it into a business and, fifty years later, sells his mini empire because his son would rather do something else than helm the family business. He puts his money in a trust invested mostly in real estate, ensuring that his children and generations beyond will never have to worry about money.
Versions of this story are shared by a new class of millionaires, many of whom were immigrants or found opportunity in an emerging economy. Real estate was a culturally acceptable and stable path for posterity.
The real estate market appears to be making a shift, opening up a new kind of opportunity. A flattening yield curve is prompting a greater emphasis on technology and adaptation. Deloitte’s forecasting report states clearly: “Agility is the key to winning in the digital era.”
What is the next billion dollar real estate opportunity?
Rather than pour over data to understand the trends, I worked backwards studying the positioning of emerging real estate startups with demonstrated traction.
For a market that presents substantial upside by integrating technology, the range of options is very limited. It’s clear the industry has been slow to innovate, most of which has come at the heels of massive interest in co-working and WeWork.
From my research of companies I found real estate startups appeared to correlate and could be grouped into a series of subcategories:
- Marketplace startups bring together both parties, primarily serving the needs of buyers and investors with vetted properties and information presented in a clear and structured format
- Analytics startups offer commercial and residential data with actionable insights for decision-making
- Commercial Utilization startups offer technology and concierge services to match new tenants desiring flexibility through underutilized commercial office space
- Retail Utilization startups primarily serves pop-up space for short-term retail businesses
- Apartment Hotel startups offer short-term housing like Airbnb with an emphasis on a branded and trusting experience
The future will be utilized
It’s inevitable that the commercial market will eventually confront declining demand, especially if all the cries for an impending recession come true. When that happens, arbitrage and flexible terms will be the only way to maintain occupancy.
So while marketplaces are interesting ventures, a shift in demand will likely have a negative impact on their growth potential. On the other hand, technology-driven commercial utilization has the potential for making a similar impact that Uber and Airbnb had for their respective markets.
Real estate, however, is a different beast and it’s not clear that a derivative approach works when the needs and terms are quite different. Yet, what is apparent is that a technology platform with a strong brand and accessible to a vast user base has a huge opportunity to consolidate a global inventory.
WeWork’s brand and seemingly endless supply of capital should be in the right position to ramp up data analytics and grow their new HQ by WeWork into dominant force. I’m doubtful as they’re too invested in a limited co-working model and distracted with all kinds of social experiments.
Consolidate or fight
There are four companies focused on real estate commercial utilization that share a mix of competing and complementary interests. With all the money being thrown into old and new ventures, it’s hard to determine whether the end result will involve consolidation or an expensive fight.
For now, it appears Knotel with $160M in funding is taking an aggressive stance expanding rapidly to define the agile real estate market.
Trending Real Estate Startups
Below is a list of real estate startups I examined that are generating traction, according to Crunchbase.
Compass (2012) — Residential marketplace
Roofstock (2015) — Single-family rental marketplace
Ten-X Commercial (1990) — Streamlining sales of commercial real estate
42floors (2013) — Commercial real estate marketplace (acquired by Knotel in 2018)
PeerStreet (2013) — Real estate crowdfunding
Cadre (2014) — Vetted commercial real estate investment opportunities
SquareFoot (2011) — Commercial space as a service
Knotel (2015) — Agile commercial real estate
Breather (2012) — Private workspace as a service
Convene (2009) — Co-working with landlord technology services
Workspace Property Trust (2015) — Full service commercial real estate trust with $1.3B in funding
Bilaal Ahmed ran a startup for way too long. At Sumeria Partners, he advises companies while walking the line between chaos and beauty.