Expert Group Logistics & Manufacturing

THEMA ARTIKEL Innovation is combination — by Prof. Rudy Aernoudt

PROPTECH WILL ROCK THE REAL ESTATE WORLD

Proptech? Never heard about it.Well, this is definitely going to change. Just like fintech, proptech is an acronym describing a movement whereby new technologies lead to new opportunities for the ‘property’ sector. Let’s dig into this new phenomenon, today relatively marginal, but with a huge potential to become mainstream and with a certainty that it will rock the real estate world.

Schumpeter defined innovation as combination. Proptech is an example as it combines real estate with new technologies such as artificial intelligence, virtual reality, internet of things, big data and blockchain. The technology can span software (property portals), hardware (such as the sensor business), materials (such as the solar bricks replacing the solar panels) or manufacturing (such as the 3 D printing). The combination makes the real estate smarter. Hence, we could speak about smart estate. We can distinguish five subcategories of propTech: Invest & Finance, Design & Build, Market & Transact, Manage & Operate and Live & Work. Besides the technological issue, proptech is often based on the collaborative economy. Use is more important than ownership and the community prevails over the individual. Why should I own a car if I can use one at any time? Why should I buy a bike, even an electric bike, when I can rent one on any street corner? By the same philosophy, why should I own real estate when I can simply use it? Why should I pay for real estate when I don’t use it? Empty offices rarely used become increasingly a cost that can be avoided.

For the giants of the real estate business who think that proptech is only a gadget for starters, let me again refer to Schumpeter. Innovation, he claims, is a process of creative destruction. Creation of the new goes along with destruction of existing models. So, the question for the real estate sector is not if (or if not) to get involved in the proptech scene, but when and how; as a leader or as a follower. In the latter case, it may even be as part of a survival strategy.

Big business

Today proptech is already big business: the investment to be deployed in proptech worldwide, before 2025 is estimated at 165 billion dollars. As proptech is at the crossroads of digital and green, they might be one of the biggest beneficiaries of Europe’s’ Green Deal. Some of the proptech companies have already become unicorns, meaning that they are valued at more than one billion dollars. Let’s have a look at some major examples:

Lijaina is a Chinese brokerage service founded on cloud-based big-data analytics and artificial intelligence. It also applies virtual reality and augmented reality. This completely alters the business model. While a classical real estate agency collects data and provides it to customers, charging money for each closed deal (generally 3%), Lianjia uses a selling room whereby the owner/seller - when entrusting its property - receives the promise of a sale within a certain period of time. If Lianjia fails to deliver the sale within that period, it returns the property to the seller along with the payment of liquidated damages. Created in 2001, Lianjia controls 40 per cent of transactions in the rent and sale market across China and is estimated at 8 billion.

WeWork, a platform offering workspace solutions based on shared office space, started in

2010 and was valued at 47 billion dollars being the number one proptech company. Besides the combination of technology and real estate, Wework surfs on the wave of collaborative economy inviting participating enterprises to build a community. It grew fast, very fast, even too fast. When the IPO was announced, all hell broke loose. A steady stream of rapid-fi re headlines detailed the CEO’s self-dealing, mismanagement and bizarre behaviour. The 47 billion evaporated, the CEO got sacked and the company is fi ghting to survive by going back to their core business i.e. workspace solutions. Welcome to the new world of entrepreneurial fi nance where the value of a company is estimated as a multiple of the burnrate. In the meantime, a new CEO was appointed pursuing strategies to make themselves profi table.

What Wework does ‘for professionals’, can easily be extended to the private sphere. In fact, the well-known, C2C application AirBNB uses a similar approach. It is based on the principle that house owners do not, at any time, use all the space they have and are willing to allow third parties to use it - albeit without becoming a hotel or guest house. Again, the mentality change coupled with perspectives offered by technology led to the creation of AirBNB that is now evaluated at almost 30 billion dollars.

Proptech start-ups are booming

76% of the proptech unicorns are US based, 24% are China based. Europe is lagging behind. But the proptech business has arrived on the old continent. In 2019 the European PropTech Association (see box) was created as a European Alliance of

THEMA ARTIKEL

Proptech combines realestate with new technology

THEMA ARTIKEL 23 National PropTech associations. Its mission is to harmonize the fragmented European PropTech market, to strengthen the European PropTech economy and to identify obstacles for its further growth. According to their data, 3200 start-ups are active in the European proptech world today of which roughly 2700 are in the early stage and 500 in the growth stage. Their average Compound annual growth rate is estimated at 42%. So, things move fast, very fast.

Don’t miss the boat

Proptech is now where fintech was seven years ago. The real estate business is still under-digitalized. But new technologies, environmental awareness, changes in consumer behaviour and the need for cost optimization will ensure that proptech will boom. Real estate owners should pay attention as proptech will shake up the real estate industry and will completely alter the business model. Enablers, not owners will make money. So, investors should focus as this is an enormous, still heavily untapped, market opportunity.

Rudy Aernoudt is een Belgisch professor, schrijver, columnist, filosoof en econoom.

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