We recently analyzed data from Unissu and Pitchbook on PropTech and ConTech to answer these questions.
This article will investigate the technology and investment trends in PropTech and ConTech for commercial and residential real estate, in the context of the “real estate property life cycle”:
If you are a commercial and residential real estate stakeholder, you will learn the state of existing technologies and uncover opportunities for new technologies in terms of property life cycle.
Proptech and contech trends: key findings
Here is a summary of our key findings:
- Analytics and smart real estate are the most crowded market segments. Further investments into these areas should be strongly vetted with a clear path to value and understanding of the technology.
- Real estate modeling is maturing, while real estate FinTech and ConTech are on the rise.
- Trending technologies include prefabrication and modular building for the construction phase, blockchain for the sales/leasing phase, and digital twins for the management phase.
Table of Contents
What are PropTech and ConTech? Digital Transformation and Automation
PropTech and ConTech are surging.
The use of both terms has become very popular but standard definitions for the two have been a somewhat challenging task.
In the same year, the founder of Unissu which is a world-leading PropTech marketplace, defined PropTech as “one small part of the wider digital transformation of the property industry, which describes a movement driving a mentality change with the real estate industry and its consumers regarding technology-driven innovation in the data assembly, transaction, and design of buildings and cities” .
Despite the variation of definition, two things have been agreed:
First, PropTech is different from real estate companies using technologies.
Second, PropTech enables digital transformation of real estate properties and business.
In terms of ConTech, the variation of definition seems to be less.
According to the Construction Industry Institute, a consortium and research center for the capital projects industry, ConTech refers to the “collection of innovative tools, machinery, modifications, software, etc. used during the construction phase of a project that enables advancement in field construction methods, including semi-automated and automated construction equipment” .
A Brief Review of Existing Research
As the result of the lack of a standard definition for PropTech, individuals, companies, and market research reports have approached the topic from different perspectives with different ways of categorization.
These perspectives could be industry verticals, technologies, types of services offered, value-chain functionalities, types of properties or real estate life cycle.
The very recent report “PropTech 2020: The future of real estate” by Said Business School (Oxford) approaches from the perspective of industry verticals with categories of smart buildings, real estate fintech, and shared economy .
The 2019 end-year report by CRETECH separates PropTech from ConTech and classifies the former as private companies in the general field of real estate, in the field of software-as-a-service, hardware-as-a-service, and real estate-as-a-service .
For ConTech, the amount of investment was estimated to be US $4.34 billion for the period of 2009 to the first half of 2018 by Jones Lang LaSalle Incorporated (JLL) .
Another estimation by McKinsey puts the amount to US $10 billion for the period of 2011 to early 2017 . For 2018 it ranges from US $1.5 billion estimated by CRETECH  to $3.1 billion for US-based companies estimated by Techcrunch .
The contribution of this article is a more structured and more granular analysis, which encompasses technologies, life cycle phases, and types of real estate properties, to the level of both categorized segments and individual companies.
Figure 1, Global capital investment in PropTech 2014-2019 (color modified upon CRETECH )
A Real Estate Life Cycle Perspective: Structured and Granular Categorization
This research approaches PropTech and ConTech from the perspective of a real estate life cycle and uses a structured and granular categorization based on technologies and life cycle phases.
The life cycle perspective offers several benefits to the analysis of PropTech and ConTech.
Here they are:
Less ambiguity or disagreement when it comes to the life cycle of a real estate property.
Since construction is a part of the life cycle, the part of the ConTech that is related to real estate properties can be positioned within PropTech.
Life cycle has been increasingly used in technologies related to real estate modelling.
Life cycle would be used in the future for “property passports”, which offer a single immutable repository for all building information.
When combined with the perspective of technologies, the mapping of technological adoption in terms of life cycle provides valuable insights with granular details.
Despite different focuses on the phases of the life cycle by various reports, it is largely agreed that a real estate property generally goes through a number of defined phases (Figure 2).
Figure 2, Life cycle of a real estate property (modified upon ) and investment in the three phases focused by this article (in highlighted boxes).
This research article focuses on three of these phases that happen the most frequently: construction, sales and leasing, management.
Unissu is the world-leading PropTech marketplace and had 7,500+ companies in their database as of the time this article was written. Its database can be searched based on the phase of property life cycle and the type of technology.
By using Unissu, a recent report by Said Business School (Oxford) has identified six clusters of technologies related to Modelling, ConTech, Analytics, Real Estate FinTech, Business Processes and Smart Real Estate , which will be discussed below for analysis.
Pitchbook is a financial data and software company with nearly 3 million entities as of the time this article was written, out of which 5,000+ are related to PropTech and ConTech.
One of the research methodologies we apply is Gartner Hype Cycle.
With a single curve, it shows the maturity and adoption of technologies and applications, and how a technology or application will evolve a business problem solution over time . (Note that Hype Cycle refers to the stage of a technology in terms of maturity and adoption, which should not be confused with real estate life cycle).
We first provide an overview of technological adoption and maturity in the three phases of the real estate life cycle. We then look into each of the three phases in depth to identify current state and predict future trends of PropTech and ConTech.
Note that our research excludes shared economy companies such as Airbnb and WeWork.
Airbnb is an online marketplace for short-term tenancy management and a commission-based broker.
WeWork is a real estate company itself which leases office spaces. Their technological relevance to PropTech is lower than the PropTech startups covered here; however, shared economy companies have global reach and impact and merit further study in their own right.
Overview with a Heatmap of Technologies and Life Cycle Phases
In terms of the number of companies, a heatmap (Figure 3) shows the following technology-life cycle segments are crowded with more than 200 companies:
Building information modelling (BIM) and workflow management in construction of commercial properties;
Augmented reality (AR) / virtual reality (VR), big data and data analytics in sales or leasing of residential and commercial properties;
Data analytics in management of retail, residential and commercial properties;
Big data, workflow management and smart city in management of commercial properties;
Internet of things (IoT) and smart building in management of residential and commercial properties;
Smart home in management of residential properties;
Figure 3, Heatmap of global company numbers in terms of real estate life cycle and technologies to show the crowdedness of identified segments (7,512 companies covered). Datasource: Unissu.
Overall, the cluster of business processes has been widely adopted by the phases of construction and management; analytics has been widely adopted by sales/leasing and management; and smart real estate has been widely adopted by the phase of management.
The heatmap also provides an overview of the maturity and adaptation of the various types of technologies.
The maturity of some of the technologies within the clusters of analytics, business processes and smart real estate.
In contrast, the cluster of ConTech is in the early stage for the construction phase, and modelling is still early for the management phase. Real Estate FinTech is developing for the sales/leasing phase.
These findings add insights from the perspective of life cycle to a previous research, which also used the metric of the number of companies but analyzed the betweenness centrality of a network of technology relevance without considering the life cycle (Figure 4).
Figure 4, Clusters of technology maturity using the Gartner Hype Cycle, based on normalized betweenness centrality of the number of companies (adopted from Said Business School, University of Oxford ). Refer to Figure 3 for definitions of clusters of technologies.
Construction Phase: Prefabrication and Modular Building Gaining Traction
The construction phase of the life cycle means the majority of work is completed on site and the design vision is turned into physical assets .
Among the six clusters of technologies, most companies focus on modelling (specifically BIM) and business processes (specially workflow management). The adoption of analytics for construction is under development, while ConTech, real estate FinTech and smart real estate have just begun to gain traction in the past five years.
Besides BIM and workflow management, other technologies expected to shape the construction of properties include artificial intelligence, AR/VR, drones, robots, computer-aided design (CAD), prefabrication, and modular building.
Among the trending technologies, prefabrication and modular building have gained popularity.
A number of startups have emerged in the USA, the UK and continental Europe, such as Plant Prefab, Apex Airspace, Finch Buildings, Greenkub, Blokable, Ilke Homes, and to name a few. Funding for these companies has been rising in recent years with capital investments at the scale of tens of millions of US dollars each year.
Figure 5, Modular building is a type of ConTech gaining pace in PropTech. Left, Blokable delivered its first unit as a part of a housing project in the suburb of Seattle in mid 2018 (photo courtesy: Blokable). Right, Apex Airspace’s rooftop modules are 80-90% complete whilst in the factory off-site and can be installed in a matter of days (photo courtesy: Apex Airspace).
For example, one of the startups focusing on these technologies, Blokable, has raised nearly US $40 million.
This Seattle-based startup offers an integrated development platform from designing, planning, financing and permitting to almost-complete manufacturing, delivery, on-site construction and ongoing operational support. It delivered its first unit to a project in the suburb of Seattle in mid 2018 (Figure 5 left) .
Another startup, Apex Airspace has raised over US $12 million with a valuation of nearly US $30 million. The London-based startup engages in offering property and airspace development services by using modular construction methods to design rooftop properties to exact specifications, which are built in an offsite factory and installed through high access equipment enabling corporates, tenants and landlords to enhance each building’s façade and property values with minimal disruption to neighbors. Its modules are 80-90% completed in the factory off-site and can be installed in just a matter of days (Figure 5 right) .
The cluster of ConTech, which includes technologies such as prefabrication, modular building, 3D-printing and materials science, is one of the fastest growing clusters in PropTech for the construction phase and in its early stage of maturity.
Figure 6 left shows the total capital investment and deal count from 23 companies as a part (~50% coverage) of this segment. The total capital investment of these companies has grown from around US $1 million in 2014 and 2015, when data became available, to over US $32 million in 2019.
Note that this plot shows a similar trend to that in Figure 4, which is based on the metric of the number of companies.
Figure 6, Total capital invested and deal count in terms of real estate life cycle and technologies over time. Left, ConTech technology cluster in construction of residential real estate from 23 companies. Right, blockchain in sales/lease of residential real estate from 29 companies. Datasource: Unissu, Pitchbook.
Sales/Leasing Phase: Blockchain on the Rise
The sales/leasing phase of the life cycle usually involves financial transactions of the ownership or the rights of the usage of properties. Depending on their business model, real estate owners may develop and/or own real estate and that may temper for how long and under what circumstances they hold assets .
This is a phase where technological clusters of analytics, modelling, real estate FinTech and business processes are relevant and all playing a very active role. Most companies focus on technologies such as 3D modelling, AR/VR, artificial intelligence, big data, data analytics, crowdfunding, customer relationship management (CRM), and workflow management.
Blockchain is one of the trending technologies in real estate FinTech for the sales/leasing phase. Around 100 companies are currently using this technology. Some of the startups that have raised US $10 million or more include I-House, ShelterZoom, Imbrex, Rentberry, Coinplug, and Realblocks. They are either from East Asia or the US.
I-House is probably the biggest in this group, in terms of total capital investment raised (US $30 million). The Hong-Kong based startup provides a global blockchain real estate cloud platform intended to integrate global real estate markets with the blockchain mechanism.
The company’s smart contract technology permits large amounts of real estate to be split and distributed to financial institutions, giving them the opportunity to invest small amounts of capital.
When the asset is issued, the registered user can buy, sell and enjoy the rent profit and also allows users to see and lease real estate assets uploaded on the platform, enabling users to invest a small amount of money in real estate split by the smart contract.
Another startup, ShelterZoom, has raised over US $26 million of capital investment. The New York-based startup develops a real estate marketplace platform that leverages blockchain technology to improve data security, collaboration, and transaction processes in order to encourage interaction with buyers and sellers, thereby providing brokers and agents a transparent sales environment for a more efficient and paperless transaction. Overall, the application of blockchain technology for the sales/leasing phase of the life cycle has been increasing.
Figure 6 right shows the total capital investment and deal count from 29 companies as a part (~40% coverage) of this segment.
The total capital investment of these companies has grown from US $3 million in 2014 to US $33 million in 2018 and US $24 million in 2019. In addition, the deal count has increased from two in 2014 to 14 in 2019. Again this plot is consistent with the real estate FinTech trend shown in Figure 4, which is based on the metric of the number of companies.
Management Phase: IoT Mature, Digital Twins Maturing
Property management includes occupancy preparation, asset maintenance and tenancy management .
Compared to the phases of construction and sales/leasing, more types of technologies have been used in the phase of management.
Hundreds of companies are working on solutions using artificial intelligence, big data, data analytics, CRM, workflow management, internet of things, smart city, smart building, and/or smart homes. All these technologies belong to clusters of analytics, business processes and smart real estate, which are the three most mature clusters in PropTech, according to the Gartner Hype Cycle in Figure 4.
Figure 7, Total capital invested and deal count in terms of real estate life cycle and technologies over time. Left, IoT in management of residential real estate from 143 companies. Right, digital twins in management of retail, residential and commercial real estate from 13 companies. Datasource: Unissu, Pitchbook.
Our research has identified over 550 companies working on IoT applications for the management of residential properties, the largest number in any categorized segment (Figure 3).
This may be a result of a relatively low technological barrier to enter the segment, given the easy access to existing devices already in the network or a large number of low-cost devices to be added to the network.
By taking a more detailed look at capital investment data from 143 companies (or ~25% coverage) in this segment, we see that the deal count increased from two in 2006 to 85 in 2016, then declined over the next years (Figure 7 left).
The deal count peaked in 2016 for IoT for the management phase, which is closely aligned with the Gartner Hype Cycle for smart real estate based on the number of companies starting to decline in 2015 (Figure 4). The total capital invested grew from US $25.7 million in 2006 to the peak of US $2.35 billion in 2018 for these 143 companies.
The departure between capital invested and deal count is attributed to a handful of large capital activities in 2018 and 2019, such as the US $2 billion acquisition of Accruent by Fortive, the US $750 million private placement to Essential Utilities from Canada Pension Plan Investment Board, and the US $680 million merge between Control4 and SnapAV.
Overall, the evidence shows the maturity of the IoT technology for the management phase.
Other technologies have emerged for the management phase of the life cycle, such as those in the cluster of modelling and real estate FinTech.
A technology of particular interest is digital twins, where 32 companies are working for the management phase across retail, residential and commercial properties. Notable startups include: Ayla Networks, HELIX RE, Cityzenith, and Enertiv. These companies are all based in Silicon Valley, Chicago or New York City.
For example, Ayla Networks is a startup that provides an end-to-end platform to help manufacturers and service providers turn home controls, lighting and other everyday products into intelligent devices that can collect information.
These devices can be managed remotely to perform tasks automatically on behalf of consumers and businesses. This enables manufacturers to support connected devices without having to build out their backend management infrastructure from scratch. As of the date of this publication, it has raised US $141 million.
HELIX RE is an Alphabet spin-out with a total investment of US $39.5 million (as of the date of publication). Its goal is to harness data of buildings and create digital equivalents of entire buildings, enabling clients to make any building more safe, efficient and profitable. Its solution aims at increasing the value of the built world by creating the foundation for collecting and understanding data quickly, easily and affordably.
The total capital invested in 13 of the startups (~41% coverage) working with digital twins for the management phase increased from US $4 million in 2011 to over US $66 million in 2017 (Figure 7 right). The deal count increased from one in 2011 to eight in 2017. The year of 2017 marks the investment peak of digital twins for management, which corresponds to the peak year of 2015 in the Gartner Hype Cycle for modeling based on the number of companies (Figure 4).
Overall, the application of digital twins technology for the management of real estate properties has just passed its peak and is moving towards maturity.
Conclusions and Trends Prediction
Among a dozen research reports and many more research articles, this introductory guide offers a more structured and more granular analysis from the perspective of the real estate life cycle.
By covering 7,500+ PropTech companies, 35 technologies, 6 technological clusters, 3 life cycle phases, 3 types of real estate properties for over 10 years, we wish to deliver the following conclusions:
The three most crowded segments of PropTech activities are analytics for residential real estate sales/leasing, analytics for commercial real estate management, and smart real estate for residential and commercial property management. For investors who are seeking near-term returns, these segments have relatively low risk and may be suitable for investment. Before making investment decisions in a particular startup, we recommend careful consideration with quantitative measures such as the stage of the startup, maturity and technical performance of products, financial fundamentals, as compared to peers in the same segment.
In terms of the Gartner Hype Cycle, analytics is entering a stage of steady growth, smart real estate and business processes are falling towards the valley, modelling has just passed the peak, and real estate FinTech and ConTech are en route towards the peak.
Some of the trending technologies are prefabrication and modular building for the construction phase, blockchain for the sales/leasing phase, and digital twins for the management phase. They are suitable for investors who are seeking high-risk long-term returns or to become the leader in these segments.
At Runway, our corporate innovation consulting team specializes in helping global organizations navigate disruptive trends, identify growth opportunities, and leverage relationships with startups to fuel their growth and achieve long-term success. Click this link to learn more about how we can help you.
April 9, 2020
Written by Liyu Wang, Ph.D.
Senior Innovation Researcher, Runway Innovation Hub
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