Realtors, time to wake up!

The real estate market is showing strong continuing growth and with it, investments in real estate tech have increased steadily these recent years. Venture capitalists have been pouring money into real estate tech, focusing mostly on startups trying to disrupt the residential real estate market. SoftBank’s nearly $100 billion strong Vision Fund has been leading the way with smaller deals, like Belgian realtor tool developer SweepBright’s recent €2,3 million funding, in their wake.

Softbank startups

5 scaleups that are seriously disrupting the real estate market

The graph by CB Insights shows that the total sum of investments in 2018 has already superseded that of 2017 by half a billion dollar and has grown nearly eightfold since 2013, without showing signs of slowing down. It’s worth noting that these numbers don’t even include WeWork, that raised almost $6 billion last year alone.

real estate financing

So what is real estate tech (or proptech, if you like) exactly? According to Tearsheet, it can be defined as “a set of cross-industry technologies changing the way we research, rent, buy, and manage property.” Pretty straightforward, right? So why is it becoming such a hot topic amongst venture capital funds and real estate incumbents, who are getting in on the action through funds such as Fifth Wall, MetaProp NYC & Navitas Capital?

Real estate value

I already gave away one of the most important reasons at the very beginning of this post, namely the sheer size and favorable economics of the real estate market. The housing market alone in the U.S. is valued at a cumulative $31,8 trillion — in Belgium the total value of privately-owned real estate amounts to about €1,4 trillion. On top of that, as seen on this graph by bank ING, the yearly growth of house prices in Belgium (grey bars) has continued to stay positive versus inflation (orange bars) in recent years and is expected to stay positive, with an expected yearly growth of 3,4 percent of prices (houses and apartments) in 2018, as estimated by Standard & Poor’s.

The housing market alone in the U.S. is valued at a cumulative $31,8 trillion  

Secondly, as Hunter Perry, senior manager of strategic growth at Compass, puts it; “modern technology has a knack for consolidating and collapsing industries without a single leader.” The real estate industry is hugely fragmented, illustrated by the total number of realtors in Belgium that recently reached an all-time high of over 10.000. Moreover, the average age of a realtor is 46 years, most agencies employ less than 3 realtors and have a hard time finding tech-savvy talent. This creates an ideal environment for a strong tech-driven player to emerge that takes a large part of the market by offering a superior service.

The fragmentation of the real estate industry, combined with low digital adoption rates by realtors, create an ideal environment for a strong tech-driven player to emerge that takes a large part of the market by offering a superior service. 

real estate search

Which brings me to my last point — the gap between consumers’ digital expectations and the current quality level of solutions offered by incumbent real estate brands. Research by Nationwide Mortgages in the U.S. uncovered how consumers are generally becoming more tech-savvy, as more millennials hit the market looking for properties. It’s worth noting that 58 percent of millennials actually found their home on a mobile device. Eventually, consumers that have grown up with efficient, transparent and speedy digital solutions to manage most things in their life, will demand the same when researching, buying, renting or managing properties, even if research shows us that the number of real estate transactions that happened purely online only amounts to roughly 10 percent today. The millennials are coming of age, buying homes, and 74 percent of them want help understanding the purchasing process so there is definitely a need for good real estate solutions and guidance — the question is who will capture their attention with an unburdening, slick and digital-first solution.

58 percent of millennials in the U.S. found their home on a mobile device

Conclusion

We’ve been seeing initiatives trying to disrupt the real estate market ever since the launch of marketplaces nearly 20 years ago. Today, investments are focused on data- and tech-enabled services like Compass, iBuying platforms like Opendoor and space arbitrage businesses (e.g. WeWork, offering physical spaces for a shorter duration than previously possible). These investments are driven by the size of the market, the fragmentation of the market and the disconnect between consumers’ digital expectations and the current quality level of solutions offered by incumbent real estate brands.

The next frontier will be to use data generated from smart buildings to optimize & automate property management, to further analyze the ever-expanding sets of big data to better match supply & demand, to come up with ingenious solutions to enable new ways of co-living and to build ecosystems that regroup every imaginable service regarding one’s physical property.

What a time to be alive.

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About Charles Decree

Charles

Charles helps our clients with understanding the impact of future digital breakthroughs on their business.