What Is PropTech?
Like many in my industry segment, I’ve heard the term ‘the fourth revolution’ thrown around on and off throughout the last decade. It refers to our most recent industrial transformation—the global shift toward using digital technology for almost everything.
Think of the massive step forward that happened as a result of humans learning how to automate their farming. Digital tools, and the power they bring, are accelerating those kinds of leaps across every industry, and they have been over the course of the last few decades. Real estate, both as an asset class and as an industry segment, has been no exception.
Enter ‘PropTech,’ a term that has risen to fame to describe ‘property technology.’ By way of definition, the idea of PropTech is simple; it describes the digital transformation that’s taking place within the property industry. In practice, though, and especially in investing, the significance of the PropTech movement can’t be understated. As an industry developing in real-time and proliferating as we speak, it’s one that’s worth understanding in full.
The Proliferation of PropTech
In its simplest form, property technology is simply the visible effect of the digital transformation taking place within the real estate industry. So far, this has been concentrated in three main segments.
Smart Buildings
First, smart buildings are showing up everywhere with new, automated solutions to the problems that spatial configuration, building use, and commercial and residential infrastructure have always had. Technology platforms in the smart building space can aid the operation and management of space and building performance, allowing owners, landlords, and investors to better manage their assets, and to do so from a distance.
Financial Technology
The second segment in which property technology is proliferating intersects with another well-known contraction, ‘FinTech.’ FinTech, or financial technology, has taken the financial world by storm in a similar way. But the intersection of real estate and FinTech is another area in which property technology is becoming important. These technology-based platforms can assist, support, and make the trading of assets be understood as PropTech solutions. Though they rely heavily on the advancements within the FinTech sphere, the application toward that technology qualifies as PropTech, and it’s becoming one of the most fast moving spheres within the sector because it’s solving the kinds of problems that were holding investors back.
Other Digital Tools and Platforms
The third and final segment of PropTech is the shared economy, the category of digital tools and tech-based platforms that make using real estate space easier. This sector supports occupier markets, making it easier for residential or commercial tenants to navigate their space, and facilitating more direct and hassle-free interactions for sellers.
In addition to these three main segments, more solutions are evolving in new areas, including legal technologies, transport technologies, and construction technologies, all of which are impacting real estate. But the bulk of PropTech opportunities are coming in the aforementioned three silos, and the opportunities are proliferating at an incredible rate; we are, without a doubt, at the beginning of a new and important industry.
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The Path to Prosperity
Of all the industries that embrace, seek, and breed rapid change, real estate isn’t traditionally an ‘early adopter.’ The importance of real estate in our day to day lives, and the general illiquidity of the assets within the sector, gives good reason for new solutions to be approached with caution. But at the end of the 20th century, with the rise of new data and enhanced computing power, the industry started to change.
PropTech 2.0—the more recent development that’s taken place since around 2008—has brought the second wave of change to the market. Now, the developments that have taken place in other sectors, including cloud computing, broadband, and the Internet of Things, are being integrated across the industry, quickly changing its path. As a result, the industry saw exponential growth from 2008 until around 2015, and despite a brief fall, the rapid development has resumed in 2018 with the number of new PropTech firms returning to the 2008 level. In the post-pandemic landscape, I have every expectation that PropTech will be one of the fastest and most promising paths to portfolio prosperity, especially as the demonstrated strength of different real estate niches generates more investor interest and resources.
Property Technology Across a Portfolio
One of the incredible benefits available to investors who are interested in the PropTech space is the capacity to test a new-to-market solution across one’s personal portfolio. Rather than rely on due diligence and second-hand data, property technology solutions can be applied to existing properties to experience the return on investment first hand. To this end, monitoring NOI (Net Operating Income) is always most effective—that will give the realest sense for how overall expenses change as a result of a PropTech investment.
It’s those tests and portfolio-wide applications that have given me the confidence and power of belief to invest in the PropTech companies I’ve partnered with so far. In general, I think real estate investors are incredibly well positioned to both see and understand the new solutions that are coming to market. With a comprehensive understanding of the sector, a stomach for change, and a readiness to move, post-COVID real estate investors who look out for PropTech progress could witness and receive some of the best market gains.