Ryan Mahoney (Dubai, UAE) is the owner of CenCorp, a conglomerate of real estate-related businesses, as well as serving as CEO of Better Homes. This article looks at the impact of COVID-19 on proptech, exploring the sector’s subsequent recovery.
COVID-19 affected virtually every aspect of the real estate industry, and proptech or ‘property technology’ was no exception. As economies adjust to this new post-COVID world, it appears that both commercial and residential segments are seeing renewed interest from venture capitalists.
By the end of the second quarter of 2021, venture capital deal activity in commercial real estate had reached $2.6 billion, putting the sector on track to make 2021 the second-most valuable for venture activity, according to PitchBook.
Meanwhile, residential real estate proptech had already reached an annual record, attracting $6.2 billion in funding. Whereas in previous years, the most talked-about proptech companies operated in the commercial real estate market, 2021 marked a shift, with more venture capitalists focussing on start-ups in the hotter residential sector.
Frank Rotman is a co-founder and partner of QED Investors. He suggested that with so many interesting trends in the residential space, it was hard not to pay attention. Real estate industry experts suggest that the shift is largely attributable to the current housing shortage in the United States, combined with a large millennial population reaching an age when many people start to think about buying their own home. Additionally, with consumers increasingly moving away from traditional ways of buying and selling property, significant opportunities have opened up for real estate-focused start-up companies.
Lisa Wu of Northwest Venture Partners suggests that capturing single-digit percentages of these markets could culminate in truly big business. Northwest Venture Partners recently co-led a $150 million Series C funding round for Flyhomes, as well as leading a $136 million Series B funding round for Homeward. Both Flyhomes and Homeward provide platforms for buyers to purchase homes with all-cash offers.
Given that demand for housing is anticipated to outpace supply for years to come, the future of residential real estate is regarded by many venture capitalists as easier to predict. Meanwhile, the post-COVID landscape of commercial real estate remains something of an unknown quantity. Frank Rotman explains that proptech investors need to understand the markets extraordinarily well in terms of “calling the right future”, pointing out that mall locations in suburbia are very different from office buildings in Manhattan.
With question marks lingering over the commercial real estate sector, some market trends have started to surge. E-commerce, for example, is experiencing massive growth, which in turn is triggering a surge in demand for logistics and warehousing tech.
The pandemic undeniably had an impact on the real estate industry, causing hotel occupancy rates to decrease, offices to stand empty, and construction to be halted for many months. Simultaneously, demand for residential property intensified, as people sought out more space to work and study.
Zach Aarons is general partner and co-founder of MetaProp, a venture capital firm that predominantly focusses on early-stage real estate tech start-ups. He explains that MetaProp, which recently closed a $100 million third fund, has a thesis that logistics and retail are essentially merging as an asset class.
While the residential market is certainly outpacing the commercial real estate segment at this point, Aaron contends that the latter is likely to see more tech disruptions in the future. While acknowledging that commercial transactions are much more complex, Zach Aarons contents that, eventually, they too will be digitized.