MAGAZINE Europe trails US and Asia in proptech stakes

The message at the inaugural Mipim Proptech Europe fair which was held in Paris in late June was clear: the  traditional European real estate industry must do more to embrace the wave of technological innovation that is currently sweeping the market. The US and Asia are currently in the vanguard of the proptech revolution, making them more competitive than European markets.
Another clear trend to come out of the Paris meeting – attended by a stream of decision-makers from property, technology and venture capital firms – was that proptech is being viewed less and less as a disruption of a traditional industry seeking to adhere to old-style business practices and increasingly as crucial for entrepreneurial companies which want to gain a competitive advantage.
Judging from the attendance figures for Mipim Proptech, the interest in innovation from the traditionally conservative real estate sector appears to be growing. The two-day event attracted around 1,500 participants from 47 countries and more than 100 speakers who discussed the current state of play in the proptech market and debated its future potential.
Tanguy Quero, regional director and head of EMEA Digital at JLL, said during one of the panel discussions that his firm will invest more in proptech initiatives going forward, with the aim of integrating these into the broader organisation at a later stage.

Mobilising capital
A key talking point was how more investment funds can be mobilised in Europe. Although investment in proptech is growing fast, that money is going primarily to American and Asian firms. Similarly, the new proptech funds being launched are mainly targeting the US or Asia. Traditional real estate companies like the internationally active property services firms are also looking to those regions. CBRE recently announced that it had invested in a proptech fund managed by MetaProp, a New York-based firm providing venture capital to proptech start-ups. And in early June JLL launched JLL Spark Global Venture Fund, which plans to invest up to $100 mln (€86 mln) in companies focused on leveraging technology to improve everything from real estate development and management to leasing and investing.
The US and Asian dominance is reflected in a ranking showing how much investment capital has been raised by propech firms in recent years. US firms such as WeWork, Airbnb, Katerra and Houzz have raised several hundred million dollars?, as have Chinese companies such as Lianja and Mofang. European proptech firms feature far lower down the rankings, according to the ranking by Frenchmen Robin Ravaton and Vincent Pavanello. A French government-backed initiative is now seeking to go some way towards redressing this imbalance. Real Estech, a platform for innovative real estate companies, plans to launch a $60 mln venture capital fund this summer - Real Estech Ventures - that will focus specifically on European start-ups.
The presence in Paris of more than 150 international investors - including Aareal Bank, Aberdeen Standard Investments, AEW, Allianz Real Estate, APG, Australian Super, AXA IMRA, Bouwinvest, ING, Ivanhoé Cambridge, La Francaise, NREP, Patrizia and PGGM – underscore the increased awareness of, and interest in, proptech.
Speaking on a panel about the new role of property companies and how they can anticipate and implement change, Chris Grigg, CEO of British Land, said the real estate industry had always trained people to be conservative in their attitudes towards changing the system. That was now a thing of the past, he said. ‘Disruptive technologies will speed up the movement of things in the industry.’
Delegates also heard how data and data analysis are crucial for decision-making processes. And that the need for transparency is paramount. ‘The more we automate things, the more we need people to understand how these processes work. We need to ask the right questions and try to explain the value of data to the market. If we don’t do that as an industry, we will fall years behind,’ said Delphine Grison, executive director of marketing and business intelligence at CBRE France. To illustrate the pace of change in the market, a live demonstration of a real estate transaction via blockchain was conducted by HBS Research to a packed auditorium.

Higher asset values thanks to proptech
Digitalisation is still in its infancy in the real estate sector, but new technological applications will provide an impulse for innovation, according to a study carried out by ING in the run-up to Mipim Proptech Europe. In contrast to other sectors, investment in research and development has historically not been high. This is due to a number of factors: the long life of a real estate asset, meaning that old technologies are replaced only slowly by new ones; the capital-intensive nature of the property market, which makes it difficult to enter for start-ups; and market intransparency – each asset is different and there is relatively little publicly available information. All this means there is less direct competition and this dampens the urgency to innovate.
The ING study found that proptech can ultimately increase the value of real estate, thanks to the use of big data and increased energy performance and sustainability.  Tenants are more likely to pay higher rents for better quality buildings whose utilisation is more efficient and whose energy costs are lower. And because they are more attractive for occupiers, smart buildings furthermore reduce the risk of vacancy. At the same time, use of big data can help landlords, tenants and buyers determine the value of buildings more easily and reduce investor risk.
All in all, occupiers appear set to benefit most from new proptech applications. A smart building can be regulated more in line with tenant requirements and enables occupancy rates to be better managed. The rise of (digital) lease platforms means lease lengths are shortening and transaction costs are coming down. As a result, the traditional role of the broker is under pressure. ‘To meet the changing market demand and to fully utilise the opportunities offered by proptech, real estate investors will increasingly behave like entrepreneurs,’ says ING senior sector banker Jan van der Doelen. ‘They will look at more aspects than just the value of an asset, duration of the lease and credit-worthiness of the tenant.’ The new-style property entrepreneur will have a business model that creates added value and ensures sustained demand for ‘space as a service’.