Authors: Faisal Butt
PropTech is unlocking new investment asset classes that are helping to address key global issues, argues Faisal Butt, chief executive and founder of Pi Labs
Individually, the property and technology sectors are two of the most prolific and in demand industry sectors of the 21st century. Innovation and technology have undoubtedly helped to navigate the unprecedented challenges that we have faced during the Covid-19 global pandemic.
Both sectors have shown remarkable resilience and growth. The UK property sector – multidisciplinary and diverse in nature and sector specialism - generated over £68.1 billion in turnover, thus creating over half a million jobs, during 2020. On a global stage, the UK ranks third for investment into impact tech, with London ranked fourth as a leading city for tech VC investment.
Together, PropTech is unlocking new investment asset classes that are helping to address key global issues, especially in the post-Covid landscape. It is shaping the future of the world in which we live, work and play.
What is PropTech
PropTech can be a new and misunderstood concept to many. The polarised nature of the traditionally rooted property sector and the creative, ‘future-proof’ vision of the tech sector is often widely criticised.
Many thought the internet was just a passing fad. In hindsight, this seems foolish and thoughtless. Fast forward to today, the internet underpins the rapid, unpredictable growth of the tech sector, and how we depend on it in every aspect of our daily lives. However, it is the ‘unknown unknowns’ - risks that typically lead investors to shy away from new technologies. While critics might dismiss the tech start-up world as ‘smoke and mirrors’, opportunities for growth and scaling up business are evidently clear.
The world is changing, and we are becoming more than just digitally savvy. Digitalisation is forming a vital make up in our DNA. Fledgling tech start-ups can rapidly scale and emerge into global platforms seemingly overnight.
While PropTech has intrinsic challenges in that it addresses a traditionally-minded, globally dispersed, and largely analog property industry, it also possesses some of the same attributes of the mainstream tech world that has enthralled audiences worldwide. PropTech is more than a smart meter in your home, or energy-saving lighting in office spaces. It is far more holistic, as the entire value chain of real estate - from acquisition to disposal - is being digitalised, not only in residential, but in all the major ‘food groups’ of real estate, including offices, retail, hotels, logistics, and more.
PropTech is touching both consumers and businesses in equally profound ways. Whether it’s simplifying a property asset or portfolio’s performance for retail investors, such as Wealthi; or creating solutions for ‘generation rent’ with new platforms such as Generation Home opening doors for home ownership - all of these B2C concepts fall into the relatively broad banner of PropTech.
Perhaps the more exciting implications of PropTech are in the B2B space, where traditional real estate businesses are finally allocating budgets to deploy PropTech across their portfolios. On this front, I advise and define a clear message: if you are not already experimenting in PropTech and alternative asset classes - big data, proprietary machine learning models and emerging digital platforms – then you should be.
Technology has played a crucial role in inspiring hybrid and alternative work-life balances. We as a society have proved to ourselves that remote and flexible workforces can work efficiently.
Key learnings from the adoption of technology as a result of the pandemic will remain central to economic – and even personal – growth for generations to come. Yet, we must also recognise the creativity that is unlocked when individuals and teams physically mingle within collaborative spaces.
Many companies – ourselves included – utilised the various lockdowns to revamp spaces with clear aims and focus to encourage teams to work collaboratively. Combined with renewed importance on wellness, workplaces are no longer assessed on desk space numbers. Instead, strategic measurables will be, and should be, gauged on how the space motivates team members, enables learning, encourages inclusion, and develops organisational culture.
Helping businesses and employers transition their employees back to offices, companies such as OfficeApp, OfficeRnD and Hubble are already being widely adopted and incorporated across UK, European, and global businesses.
With collaboration, well-being (both physical and mental), and flexibility all very much front of mind, the platforms seek to transform workplaces into enjoyable learning hubs, that employees – of all ages, demographics and needs – are able to flourish within.
The Future of PropTech
In 2019 the UK Government recognised the impact and importance of PropTech and launched the first expert advisory council – including investors such as myself - dedicated to the digital transformation of the UK property sector. Supporting businesses and leaders in navigating through a constantly changing, fast-paced and challenging landscape, the PropTech council aims to advise ministers on how to support and grow the sector further. The Government taking an interest in this emergent sector bodes well for Proptech and suggests that the UK could emerge as a global hub for PropTech similar to its position as a global FinTech hub.
This public private collaboration should hopefully lead to the unlocking more data about planning, real estate transactions, and more - and data is ultimately the fuel underpinning the future growth of the Proptech sector, as new start-ups emerge to analyse this data and solve the industry pressure points and challenges.
Sustainability is also a critical growth driver of Proptech - it has rapidly grown to become top of the agenda for many businesses operating in real estate. Real estate is one of the largest contributors to global warming, representing around 41% of global energy usage and 20% of global carbon emissions. As we set out on our journey to net-zero carbon to achieve a cleaner and greener world, the industry will need to turn to technologies that support ESG priorities.
This autumn, industry and business leaders alongside government officials, will look to the UK’s COP 26 to iron out the successor of the Paris Agreement and to discuss solutions and set environmental targets. Further to this, and setting aside a £375m Government fund, for ‘game changing’ UK tech firms, Chancellor Rishi Sunak has already addressed a clear focus and attention on “clean technology”.
PropTech continues to evolve and innovate, driven by a range of factors, including the pandemic induced adoption of technology, the government’s push for raising the bar on sustainability, and rise of millennials in the real estate sector. This goes beyond trying to achieve net-zero in our buildings. As increasingly more capital flows into PropTech, data backed PropTech solutions – focusing on sustainability - and healthy buildings will form a core component of industries around the world.
Examples of real life PropTech solutions are all around us, quietly changing the world for the better. Start-ups, such as Qflow – a platform helping construction sites manage environmental risk and impact - and indoor environmental quality platform, 720, are helping landlords Grosvenor and L&G deliver ‘healthier’ buildings for the long term.
Furthermore, the construction industry – the real estate sector's supply chain - is responsible for 38% of all CO2 emissions. ‘ConTech’ is an area of PropTech that will flourish in the future, and ‘semantic digital twins’ - a live real-time version of what is being built on site - such as 3D AI construction analytics startup Contilio, are already providing digital solutions to tackle environmental issues, reducing cost and delays to projects while also tackling the global problem of materials wastage on sites.
A core focus is often placed on the ‘E’ in ESG. However, as policymakers put pressure on real estate owners and investors, innovation and technology we should equally be focused on the ‘S’ and ‘G’.
Through research reports property influencers will look to technology to effectively measure wellbeing, community, and productivity, which will remain hugely important going forward.
What’s Next for PropTech?
In search of the next PropTech unicorn, venture capital companies around the world will greatly increase their investment allocations for the next capital-hungry and ambitious entrepreneurs keen to capitalise in a fast-paced, growing and accelerated digitisation of the real estate sector. At Pi Labs, we already have plans underway to almost double our portfolio to 100 companies by 2025.
In its deep dive analysis of PropTech 2020 – the year of the pandemic – Unissu recognised that PropTech funding is and has been “going up and up” at an “almost unstoppable growth”. Such overly optimistic statements are cause for a pause and reflection. There is no doubt that the sector will face its fair share of challenges. Big questions remain unanswered. How quickly will the property firms’ climate pledges translate into real action on the ground, in terms of investments into climate-mitigating technologies? Will the industry’s woefully inadequate R&D budget grow in order for real estate firm’s to have financing to trial and deploy cutting-edge technologies? Will investments in PropTech yield a tangible economic advantage, enabling, for example, a landlord to charge a ‘premium’ rent?
None of these challenges are insurmountable, and early signs show that the sector is in fact heading in the right direction. Property firms are taking concrete action on deploying ‘green’ technologies, R&D budgets are increasing, and technology is starting to provide a clear strategic differential between the early adopters and the laggards. Thus, we remain confident that the trajectory for the next decade is generally an upwards one, as the world’s most valuable industry - real estate - undergoes a long-awaited digital transformation.
Let this piece offer a juncture for traditionalists to pause and reflect on what action they are going to take to adapt their businesses to the inevitable changes that are on the horizon.
Faisal Butt, is Chief Executive and Founder of Pi Labs