Valley Bank examined the key macro factors shaping proptech on the economic, demographic and market fronts as part of the backdrop to private investment trends in its third annual report on “The Present and Future of Proptech.”
Proptech is any software or program that assists people and businesses in handling real estate tasks.
The report (read it here) was developed in collaboration with Pitchbook, Chris Green, founder and CEO of GreenPoint Partners, and Zak Schwarzman, general partner, MetaProp.
The report said the majority of 2023 industrywide investment in proptech (70%) was in venture capital, with 144 deals closed for a combined value of $2.9 billion. This was a sharp decline from 2022 as the pace of deal making in proptech was impacted by the general slowdown in most other asset classes.
“This decline can be attributed to a number of economic and geopolitical factors,” Valley Bank President Tom Iadanza said. “Rising costs of capital, overall economic unease and fears of geopolitical tension along with changes in supply chains’ speed and cost propelling revisions upward for construction and renovation created a cautious environment. However, proptech investment activity continues to showcase pockets of resilience and represents a critical avenue for the gradual evolution of the global property sector.”
Schwarzman agreed.
“The market correction has sharpened investors’ focus on companies that deliver proven ROI and are built on stable foundations — of which there are plenty,” he said. “While proptech fundraising volumes remain muted, it is clear from the front lines that deal activity began to meaningfully pick up in the latter half of 2023 as a backlog of higher-quality companies reapproached the venture market with urgency to transact.”
Key highlights from the report:
- 2023 saw an uptick in the proportion of transactions around property management and transaction solutions, while aggregate deal values also were proportionally concentrated in those same proptech segments. This focus suggests that firms were prioritizing cost-saving and revenue-boosting implementations to costly, lengthy digital processes via automation. Physical property management, deployment of energy-saving devices and analytics packages also were prioritized.
- Although primarily concentrated in venture capital, private investment remains key to accelerating proptech innovation, while the activities of other investment firms or nontraditional asset managers also speak to the maturation of the sector.
- Corporate venture arms and corporations themselves pulled back only in terms of the number of deals in which they participated — not the size of the deals themselves. They joined in 22 financings for a combined $2.1 billion in deal value, the bulk of all VC invested in 2023. That total was the lowest since 2017, yet the aggregate deal value was the second-highest annual figure on record.
- The need to continually develop and implement tools such as artificial intelligence in service of sustainability and efficiency still exists and will drive deal-making — particularly on the VC side as firms balance caution with sufficient investment in proptech’s gradual spread across multiple aspects of the property sector.
- Regulations compelling greener construction will prompt a consistent level of funding for more radical innovations in materials and techniques, especially via digitalization.
Methodology behind the research: Estimates of market sizes and private investment activity within the proptech space differ widely due to a variety of factors, such technology and types of real estate markets. This report views proptech through a much more rigorous lens, using the Pitchbook platform to construct five distinct segments: asset utilization; finance and investments; construction, maintenance and renovation; property management; and transaction solutions. You can find more information under the methodology page in the report.
