Venture funding into proptech skyrocketed in 2021 with over $32 billion in funding, much of which went into solving for the return to the office, tenant experience and data and analytics. Looking at venture capitalists’ timelines, it will likely be another three to five years before these funded companies mature.
As the co-founder and CEO of a proptech company focused on data and analytics, I believe proptech has a bright future, but the industry is nascent.
There is a gap between commercial real estate firms’ intents and their actions.
While most commercial real estate (CRE) executives want to adopt more technology, few have: Ernst & Young found that 60% of CRE executives reported that competing priorities for time and investment opportunities have prevented them from achieving their tech vision. Only 28% of executives had adopted more than one solution as of 2020.
Clearly, CRE investors want more automation, smoother processes and the best data available, but the desire to close more deals today prevents them from spending time assessing how to build their tech stack. If today is not the right time, when is the right time?
While the industry mindset is slowly shifting, the if-it-isn’t-broken-don’t-fix-it culture prevails, especially with CRE veterans. Thus far, it seems that a lot of technology adoption has occurred within institutional firms. To remain at the top and due to a lack of a solution in the market, those firms often build their own tech with their own engineering teams. In fact, commercial real estate technology startups seeking engineers are competing for talent with the largest tech firms; this is something I have certainly noticed over the last few quarters.
Within a few years, I think the CRE middle market will realize time has run out and building a solid tech stack can’t be put off any longer. When tech adoption is not internal, it can be driven from the outside. Market forces can fast-track the adoption of technology, as exemplified in the single-family residential space (SFR), where competition and necessity of scale have forced SFR investors to build technologies. For example, there are algorithms that identify the best SFR opportunities in a market solely using data. As other asset types become increasingly institutionalized and competitive, investors will need to gear up for strong competition.
How can CRE firms start bridging the gap?
We can probably all agree that being forced to adopt technology to remain competitive is not a great way to get started. So how should CRE firms address the question of building a solid tech stack starting today? The answer will vary slightly depending on the size of the firm.
1. Begin with automation.
The place to start is automation. While this can be more important for firms with a smaller team, everyone should automate daily tasks to save time and prevent errors. One example is adopting a single communication and sharing platform for the company, and another could be deploying tools across verticals to allow anyone in a company to see what everyone else is working on, share progress and track completion. Look for ways to automate your daily tasks.
2. Focus on customer relationship management.
Another segment ripe for automation is real estate customer relationship management (CRM). While CRMs have been used extensively by the brokerage industry, CRE firms could universally benefit from using CRMs for organizing contacts, automating outreach, generating content at scale and organizing documents. It can be common for CRE investors to use internal servers where Excel spreadsheets get lost or purchase orders get duplicated.
3. Consider using data and analytics technology.
One of the most promising segments of technology is in data and analytics. As founder in this area, I’ve also found it is the segment with the least implementation. These solutions allow CRE investors to leverage data to gain unique insights, thereby making better investments and operating decisions. This segment of technology is newer in that a lot more real estate data has been made available over the last half-decade, and computing power has equally improved, making now a good time to invest in data. The data and analytics segment offers platforms to share information across investment and asset management teams to ensure a single source of truth.
Real estate business leaders should remember some best practices when adopting data and analytics solutions. Always start with a free trial. The end-user must be the one testing it. If the technology is for deal analysis, the investment team should test it. If the technology is for asset managers, the asset management team should test it.
Further, you get what you pay for. Real estate technology solutions are difficult to build because of the quality of data and complexity of the built environment. Cheaper solutions are rarely the best ones. It is preferable to work with fewer providers of higher quality than a large amount of cheaper providers.
Lastly, use each solution for what it is best at. A data analysis firm adding a CRM as a service might not be the best CRM option. A multifamily data platform that just added office coverage might not have the best office data. Unlike other industries, I’ve found it is very unlikely that one company masters all asset types and all geographies; make sure you work with the best-in-class for the asset type and geographies you need.
Start small and work your way up.
All in all, CRE firms that do not know where to begin should start small, focusing on automation before working their way up to more complex data solutions. Regardless of the providers selected for the job, firms must concentrate on the ease of integrating the new solutions with existing ones to avoid disruption and discontinuity.
Over the next five years, I predict the CRE industry will catch up with the last twenty years of technology, which means technology adoption will happen fast. That’s great, but only if it is done well and does not interrupt the vital deal-making.