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If proptech funding grows in 2021, what industry segment stands to grow most?

If proptech funding grows in 2021, what industry segment stands to grow most?

Technology focused on residential transactions, the return to work and streamlining real estate inefficiencies is poised to grow, according to members of Protocol's Braintrust.

Good afternoon! This week, we asked the experts to think about about the future of technology in real estate. The last several months have produced a flurry of market action around proptech, and we wanted to know where the biggest growth areas still were within the space. Questions or comments? Send us a note at braintrust@protocol.com

Clelia Warburg Peters

Venture Partner at Bain Capital Ventures & President at Warburg Realty

I am extremely bullish on proptech funding continuing to grow in 2021 and for the decade to come — there is still so much inefficiency in the way we build, transact around and manage the built world, it feels like certainty about increased PropTech funding is not a question of "if" but "how."

With that said, I expect the most clearly visible trend in proptech funding in 2021 will be innovation in and around the residential transaction. Coming on the heels of a banner year for residential real estate sales in the U.S. (and for the stock of publicly-traded companies in and around residential real estate), we have already seen Doma announce an intention to go public through a de-SPAC, and anticipate that both Compass and Better will have successful public market debuts. In the private market, both Side and Pacaso achieved unicorn status in March. I anticipate that we will continue to see a number of highly valued deals in this space — which was already one of the most advanced areas of real estate funding since it is largely consumer-facing (and therefore more obvious to industry outsiders).

But there are a number of other significant trends brewing in the overall proptech space, even if they are not generating splashy headlines. Of particular interest to me is the growing ecosystem around construction tech — the emergence of the "three-legged stool" of incumbent industry engagement, sophisticated capital and strong entrepreneurs mean this sector is poised for significant growth.

Mihir Shah

Co-CEO at JLL Technologies

Proptech represents the next wave of innovation in the real estate industry, and is positioned for continued growth in 2021. The COVID-19 pandemic has increased urgency for proptech solutions that can tackle our most pressing, prominent issues — return to work, hybrid and flexible workplaces, sustainability and health and wellness — and investments will follow suit.

Technology will be instrumental in building the infrastructure to navigate a safe and efficient return to offices. Proptech startups most likely to succeed — and thus receive investment — will provide technologies that increase workplace safety, simplify virtual communication and improve employee experience.

For instance, JLL's global venture fund, JLL Spark, has invested in more than 20 early to mid-stage proptech startups, including approximately 10 since the beginning of the pandemic. Examples from the JLL Spark portfolio include Saltmine, a digital workplace platform for office space design and optimization; VergeSense, a sensor-based workplace analytics platform to better understand how employees use office space; and HqO, an end-to-end operating system powering tenant experience. These proptech startups offer innovative solutions that, among their use cases, help ensure a safer return to offices.

Businesses and their physical office spaces will change due to the pandemic, reinventing themselves to be more resilient, flexible, collaborative and digital. Proptech will be critical to adapting to changing needs as we continue to navigate this crisis and future ways of working.

David Eisenberg

Founder & Managing Partner at Zigg Capital

In 2020, the world entered a deflationary macroeconomic environment, but the costs of real estate ownership inflated. In 2021, expenditures associated with managing real estate in a post-COVID context will rise significantly with respect to competition for tenants, safety and service delivery. Depleted municipal budgets are likely to yield increased property and corporate taxes, exacerbating the costs of ownership. Elevated unemployment and lower labor costs are insufficient to offset requisite strategy and expenditure shifts, heightening the importance of technology. Based on the first quarter alone, we expect proptech funding to grow substantially in 2021 and that it will resume or exceed its pre-COVID growth annualized growth rate of 20%.

The proptech industry segment that stands to grow the most in this environment are technologies employed in enabling digitally native work in real estate. Companies such as Matterport, Snapdocs, Spruce and OpenSpace all more than doubled last year and have continued to grow into 2021 at a blistering speed.

The winners in proptech in 2021 will often have the quality of helping the real estate industry do more with less, automating out inefficiencies, increasing transaction speeds and attacking profit pools historically captured by traditional service providers. It's an exciting time to be focused on the category and we are grateful to be entering this year having just closed our second fund.

Ian Wong

Co-founder and Chief Technology Officer at Opendoor

Over the last several years, proptech has emerged as a disruptive force with countless companies vying to modernize various aspects of the home transaction, from house-hunting and selling to closing and financing. And this year, I believe there is tremendous growth potential for increased investment in adjacent services.

With five million transactions per year in the U.S., and only 1% conducted online, there's a massive opportunity for integrated, online services in the real estate experience. Consumers want the ease and convenience of buying and selling homes in a seamless, digitized all-in-one experience, just like they do in ride-hailing, ecommerce and other sectors that have gone digital and on-demand. In fact, a recent survey we conducted found across generations 75% of people want digital tools when buying a home and 71% would consider selling to an iBuyer.

By integrating services into the core real estate experience — like home renovations, home repairs, maintenance, customization, insurance, moving, loan products, etc. — customers will benefit both from lower costs and less hassle with the ability to buy, sell and finance homes in a radically simpler way.

Casey Berman

Managing Director and General Partner at Camber Creek

The changes taking place in where and how people live — that is, residential real estate — are immediate, acute and gaining momentum. We see this in our portfolio companies.

For example, Latch provides access solutions for multifamily buildings. The pandemic forced some property owners to create ad hoc fixes for how people gather within the building and controlling entry while offsite. Because many want these capabilities built into their properties, Latch's devices are now in one in every 10 new multifamily buildings. Another of our companies, Funnel, lets multifamily building owners track the status of every unit, from the pre-lease stage to post-rental repairs, all in one place — and offer fully virtual tours.

But an even bigger change may be the many solutions that will allow people to operate and invest in single-family real estate at a massive scale. Darwin Homes solves the property management challenge, and Curbio undertakes home renovations pre-listing so that buyers can sell at a higher premium. Basically, you will see much more sophisticated operations in every part of the residential real estate market.

John Helm

Partner at RET Ventures

Single-family rental (SFR) properties, in general, are poised to prosper in the coming years because of societal trends. As working from home becomes more common, millions of people have become untethered to cities, and suburbs are seeing a wave of migration. Suburban home-buying markets have become hot, and we expect the suburban trend to impact SFR positively in the years ahead.

Perhaps even more significant than rising demand is the nature of SFR portfolios and the central role technology plays in operating them. Many SFR managers oversee properties dotted across a large metropolis and featuring many unique layouts, and these properties are harder to manage than a multifamily building. Part of the reason that SFR first attracted institutional attention about a decade ago was that the nascent technology tools on the market finally made operating this sort of portfolio possible. Smart home tools like SmartRent and others enable self-touring, operations and maintenance at these properties, which at last made SFR a viable asset class. As proptech investment grows, the SFR space, which is so dependent on efficiencies generated by technology, is poised to benefit significantly.

It's also worth mentioning that, at least within the residential markets, a rising tide really does lift all boats. Historically, the SFR space has been an incubator of sorts, and successful SFR tech has in some instances been adapted for multifamily. While the multifamily sector will benefit greatly from its own purpose-built tech, it has the added benefit of also reaping the rewards of SFR technology.

See who's who in the Protocol Braintrust and browse every previous edition by category here (Updated April 1, 2021).
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