This was published 7 years ago
Reasons why tech disruption is good for real estate
By Luke Dixon
Investors looking for opportunities in commercial real estate typically go one of two routes. Direct – buying a physical asset, renting it out and managing it as part of a broader portfolio. Or indirect, which up until now has been through equities in listed real estate investment trusts (REITs), managed funds and a range of other financial products.
However, with the emergence of real estate technology companies such as VTS, AirBnb and WeWork, investors may have another entry point for getting exposure to commercial real estate.
Martin Place, Sydney, is home to a number of fin-tech businessesCredit: Peter Bennetts
Leading venture capital monitoring company CrunchBase recently released a report into the biggest players in commercial real estate technology. The report analyses 53 companies, covering the full spectrum of real estate services from leasing, sales, management, portals and research/data platforms.
CrunchBase's analysis of capital flows into the real estate technology space shows that venture capital firms are looking for globally scaleable opportunities, with strong product offerings that have the potential to dominate their vertical. And so far, the volume of investment dollars chasing opportunities is growing, rapidly.
Following the immediate aftermath of the GFC, when investors sought safer havens for investment such as government bonds, venture capital interest in real estate technology was low. However, since 2012 when commercial property pricing began to rise and tenant demand picked up, investment in real estate technology followed suit.
From 2011-2015, CrunchBase analysis shows that investor capital in real estate tech has grown 10-fold, rising from $US186 million in calendar 2011 to $US1.7 billion in calendar 2015.
Colliers Research found three positive implications for Commercial real estate investment, due to the rise of property tech.
These are innovation, driven by real estate technology will enhance the overall efficiency, and transparency of the sector; enhancing the performance over time, enabling better overall returns and providing an attractive new channel for capital investment in a real estate associated product, with global scaleability
The opportunities and upside for growth are significant, however like all investments, careful scrutiny of the model is critical to ensuring that their business strategy is linked to a vertical with clear pain points, that are being addressed by a profitable, and scaleable product or service.
The funding levels for real estate tech, whilst growing strongly, are still a comparative drop in the ocean compared to the global investment in direct property, which according to Real Capital Analytics was $US364 billion in 2015.
Whether real estate technology will ever match the global allocations to direct property and equities remains to be seen. However, if the same 10 fold growth rate of investment were to occur over the next five years, almost $US20 billion would be be allocated to real estate technology.
Watch this space over the coming months ahead. The rising volume of investment into real estate technology will build momentum to accelerate innovation in the sector. The services we know today, will be completely transformed over the coming years.
The rapid pace of technological change has had a dramatic impact on many traditional investment sectors, and real estate will be no exception.