Property technology, or PropTech, is changing how buildings are constructed, managed, monitored, financed and marketed. Its role is becoming particularly important as the property sector responds to rising energy costs, environmental regulation and growing demand for more sustainable buildings.
Published in September 2023, this whitepaper explores the development of the PropTech market, the relationship between technology and ESG requirements, and the investment and M&A opportunities emerging across the sector.
The property sector contributes approximately 40% of global greenhouse gas emissions and consumes around 30% of the world’s energy. This makes it an important focus for governments, investors, occupiers and businesses seeking to reduce environmental impact.
Regulators and occupiers were increasingly demanding a transition towards more sustainable property portfolios. Investors also needed to consider how the environmental performance of a building could affect its future rental income and sale value.
Technology provides property owners and managers with new ways to:
PropTech encompasses a broad range of activities, including property finance, construction technology, consumer property platforms, sustainability reporting and building data collection.
Between 2012 and 2020, the PropTech sector raised approximately $78 billion. Annual investment increased considerably over this period, reaching $20.4 billion in 2019 and $24.3 billion in 2021.
In 2023, deal activity was expected to increase by 38% over the following year. Although more difficult macroeconomic conditions had reduced confidence in start-up funding, this was expected to support greater M&A activity.
Feature-rich start-ups could become acquisition targets for established platforms seeking new technology and additional capabilities. Larger businesses with existing customer bases were well positioned to integrate these products and bring them to a wider market.
PropTech businesses were increasingly interacting with financial services, travel, investment and other technology markets. Acquisitions provided established platforms with a way to extend their services and distribution models beyond their original areas of activity.
Airbnb had acquired 27 companies and invested more than $700 million in acquisitions. Its investments extended beyond property technology to include online travel companies, social platforms and food technology businesses.
This demonstrated how an established platform could use acquisitions to expand its services and reach new customers.
M&A activity within property-related financial technology had increased over the preceding three years. Real estate FinTech transactions rose by 167% between 2021 and 2022.
Examples included:
These transactions reflected the growing connection between property, technology and financial services.
Digital investment platforms were introducing new ways for individuals to participate in property ownership.
Following its acquisition by Better.com, London House Exchange provided a platform for direct property investment through a property exchange. The model was designed to improve liquidity within the housing market.
The acquisition of Rhove Finance by reAlpha also supported the development of shared-ownership housing in the United States. These platforms reflected a broader movement towards partial homeownership and property as a shared investment opportunity.
Businesses outside the traditional definition of PropTech were also investing in property technology.
Prologis, a specialist in logistics real estate, had completed five acquisitions and 24 investments. Its activity demonstrated how established property businesses could use acquisitions and investments to build their technology capabilities while developing their ESG credentials.
Over the decade leading up to the whitepaper, PropTech and legislation had become increasingly connected.
New environmental, social and governance requirements encouraged the development of technologies that could improve sustainability, support affordable housing, increase transaction transparency and help organisations demonstrate regulatory compliance.
Pressure to reduce energy consumption and carbon emissions encouraged the development of smart building technology, energy-efficient systems and renewable energy solutions.
Digital property platforms also helped consumers access information relating to Energy Performance Certificates. Zoopla and Rightmove incorporated property and energy information within platforms used by prospective buyers.
The introduction of Feed-in Tariffs in 2010 created further demand for technology capable of monitoring renewable energy generation. Green Energy Options developed solutions that allowed users to monitor the power produced by renewable sources and subsequently expanded its capabilities through the acquisition of Onzo in 2021.
The social aspect of ESG extended PropTech’s role beyond environmental performance.
Technology was being used to address affordable housing, tenant rights, community engagement and access to property ownership. Regulatory changes following the financial crisis also increased scrutiny of mortgage affordability and high-risk lending.
This environment supported the emergence of platforms such as Moneybox and Habito.
Moneybox combined digital savings tools with government-backed homeownership schemes and professional online guidance. Founded in 2016, the company was valued at approximately £107 million at the time of the whitepaper.
Habito was also founded in 2016 as a digital mortgage broker. It had subsequently raised more than $88 million across 11 funding rounds and expanded its content to cover sustainable living and ethical purchasing practices.
PropTech platforms can provide greater transparency across property data, financial transactions and regulatory compliance.
Government measures were being introduced to streamline property registration, reduce fraud and improve governance. Blockchain technology also offered a potential method of maintaining secure property records.
The Grenfell Tower fire created further focus on building safety and fire regulation. Metrikus developed technology that monitors the safety, security and environmental conditions within buildings. By 2020, the company had raised $6.7 million across two funding rounds.
Minimum Energy Efficiency Standards also supported the growth of businesses such as InventoryBase, whose inspection and inventory software helped landlords and property managers manage operations and legal compliance.
Government-backed platforms, including the EPC Register, provided a way to collect and organise property information while supporting the monitoring and enforcement of new requirements.
Data analytics and artificial intelligence were becoming increasingly important to sustainable urban development.
PropTech platforms could provide urban planners with evidence relating to infrastructure, transport and zoning. This information could support more sustainable city planning and improve resilience to climate change.
The UK Future Homes Standard also encouraged the construction of properties using sustainable materials, building methods and renewable energy.
Businesses operating in this area included:
At the time of publication, Buildots had an estimated value of $60 million.
The sustainability of a property portfolio was becoming increasingly important to asset managers, investors and funders.
Occupier preference for more sustainable buildings could reduce demand and rental values for less efficient properties. This could ultimately result in capital losses when those assets were sold.
Property owners therefore needed reliable information to understand environmental performance, identify improvements and demonstrate progress to investors and lenders. Demand for specialist ESG data, software and consultancy was rising as a result.
Several businesses had developed platforms that combined property data with sustainability reporting and advice.
EVORA Global combined ESG consultancy with its SIERA software platform, helping real estate organisations put sustainability strategies into practice.
In 2022, Polestar CF brought EVORA Global to market. The strength of its strategic advice, technology and international client base enabled its shareholders to secure a partial exit.
The transaction also brought investment from Bridges Private Equity and MSCI to support the company’s continued expansion.
US-based Measurabl provided ESG data collection software capable of producing investment-grade sustainability reports and identifying opportunities for improvement.
Founded in 2013, Measurabl had secured $93 million across eight funding rounds. Its latest funding valued the business at approximately $200 million against revenue of less than $10 million.
Other businesses operating in this market included France-based Deepki and the Netherlands-based benchmarking platform GRESB.
These examples reflected strong investor demand for assets capable of supporting the transition to net zero and improving the sustainability of property portfolios.
Despite economic pressure within the wider property market, the September 2023 outlook anticipated further financing and M&A activity.
Investors were seeking to create value within existing businesses by acquiring software assets that could add new capabilities and strategic direction. Regulation was also supporting market development as organisations adapted to new standards and changing customer expectations.
The property market had yet to adopt fully the efficiency available from the most advanced technology. This left further opportunities for PropTech businesses capable of helping customers manage data, improve building performance and demonstrate sustainability.
The themes within the whitepaper point to several characteristics that could make a PropTech business relevant to investors or strategic acquirers:
For specialist PropTech companies, investment or acquisition could provide access to wider customer bases, additional capital and the resources needed to develop their technology.
PropTech refers to technology used within the property sector. It includes property finance, construction technology, consumer property platforms, sustainability reporting, building monitoring and property data collection.
Buildings account for a significant proportion of global energy use and greenhouse gas emissions. Regulation, rising energy costs and demand from occupiers and investors have increased the need to measure and improve property performance.
PropTech can monitor energy consumption, collect environmental data, support regulatory compliance and identify opportunities to improve building performance.
Less sustainable properties may experience lower occupier demand and reduced rental values. This can affect the value of the asset when it is sold.
Established businesses were using acquisitions to add software, enter new markets, broaden their services and gain access to new customer groups. More difficult funding conditions for start-ups were also expected to create consolidation opportunities.
Areas highlighted included property FinTech, digital investment platforms, smart buildings, construction technology, energy management, ESG reporting and sustainability data.
PropTech platforms can collect and organise property information, document compliance and help governments, landlords and property managers monitor requirements such as energy-efficiency and building-safety standards.
ESG software helps investors and asset managers understand the sustainability of property portfolios, produce reports and identify opportunities for improvement. This information can also support compliance with funding requirements and net-zero strategies.
