Many within the industry, from both technology and real estate backgrounds, have said that 2016-17 was a turning point; when the realisation of the efficiencies and productivity gains from technology became widespread. Put simply, the attitude towards proptech shifted from disruption to acceptance, writes Eden Dwek, KPMG manager for tech growth
This wasn’t the first time technology had percolated the sector – it has played a role throughout the building lifecycle for decades – however the digital disruption that had transformed disparate industries from transport to financial services was now infiltrating real estate. At the same time, the concept of co-working and space-as-a-service was gaining traction.
While this was playing out, we ran the first global PropTech survey to understand the industry’s attitudes to digital transformation and technology adoption. It was clear that the industry was aware of the effects digital and technological change would have (the case among 92% of respondents), however there was a lag in how organisations were reacting, with more than three-quarters (76%) saying they didn’t have an enterprise-wide digital strategy.
A year on, the technology landscape has changed – more and more proptechs are raising equity rounds in the hundreds of millions globally and increasing their penetration in both the back- and front-office functions of the biggest real estate companies in the world.
In line with this, fewer respondents (67%) have no clear digital and technology innovation vision and strategy, with this distribution being more stark for the Americas and ASPAC (77% and 79% respectively), as opposed to EMEA (57%).
Over this time we have also seen innovation and digital transformation roles evolve from a “20% project” off the side of a desk, to new hires who report directly into the board on how technology change can have a meaningful effect on business as usual.
No strategy necessary
It is reassuring that the industry is catching up, however there are still a number of organisations (10%) that feel they don’t need a digital and technology innovation strategy – a not insignificant number. Time will tell whether they hold their ground, or fall behind as their peers steam ahead.
When these strategies are formalised, it is vital they are part of a holistic business transformation programme that looks at every part of the organisation.
The rise of technology has led to certain value propositions being eroded and senior leadership teams need to critically assess what their value proposition will look like in three, five and 10 years’ time.
Only then should they should look for the technologies that will enable these new business and operating models. A good model we have seen is to consider the effect that technological disruption will have on an organisation’s buildings and business model, and customers’ businesses.
Growing the ecosystem
A year for a start-up is often considered a long time. The US scooter-sharing start-up Bird went from being founded to a $1bn valuation in only 15 months – but the same cannot be said for larger organisations, and technological innovation for these companies is likely to be slower.
That said, movement is generally in the right direction, and the proportion of companies that consider themselves to be technologically immature has declined.
There is also a strong view that collaborating with existing suppliers is the preferred route for developing digital and technology innovation capabilities. Interestingly, the Americas are the most open to collaborating with new suppliers and this could be the reason that new US proptech companies experience quicker traction among customers compared with those elsewhere.
Only one-third of organisations surveyed had plans to invest in proptech start-ups and this will likely foster a more collaborative market among tech and real estate, with venture capital continuing to fund the majority of growth, and start-ups being able to operate in an open ecosystem of clients without worrying about conflicts.
We have seen a number of the agents and global developers develop their own start-up accelerators and/or invest as LPs in proptech funds.
If we want to maintain this open and collaborative atmosphere, it will be important for these portfolio companies to work with whoever they want, without their investors being able to veto client lists.
The B2B model is plagued with the dangers of long sales cycles, particularly with products designed to sell high volumes at lower prices. Sales cycles are driven in part by organisational agility and procurement processes, but also by the solution’s place within a workflow.
A tool that replaces a whole workflow might quickly show that it is superior to the current solution, but may take longer to implement – equally, a point-solution might be quick to implement, but take longer to convince clients of the benefit.
However, for many it can take a number of months to get to the right buyer or stakeholder within an organisation, as they navigate the complex organisational structure spanning multiple business units.
In a number of cases, senior leaders will identify young, digital natives to drive innovation at a grassroots level.
This can be very effective, but far too often start-ups get blocked by the “muddled middle” – the layer of management who don’t understand the risks of not adopting technology, and believe their current operating model will be relevant in perpetuity.
Navigating and breaking through the muddled middle is often the biggest delay for sales cycles, and larger organisations need to foster an innovative culture to help tackle this.
Traction is a key metric for growing tech companies, and it is hard to gain the initial momentum if lengthy sales cycles prevent you from getting validation and initial feedback to iterate the product.
A third of PropTech respondents felt that average sales cycles ranged between one and three months, with another third saying three to six months. While this is promising, organisations need to get better at isolating new products from critical system under a “sandbox” approach.
This allows new products to be tested under a light-touch governance model, but in a safe and responsible manner. This will lead to a higher quality of feedback for start-ups, and more companies solving the problems that industry wants to solve.
What next?
When asked what the industry can do to increase engagement between traditional property companies and newer technology companies, two-thirds of respondents talked about an increase in collaboration, communication and openness between property and proptech companies.
Some even suggested an exchange of staff between the two, to see how the “other side” works.
There is a responsibility on both sides to work together to achieve the solutions that will thrive – real estate companies must better articulate their issues in order for appropriate solutions to be developed, and tech needs to be translated into a language that makes sense to real estate professionals.
As we look to the year ahead, it is clear that while there remains a gap between real estate and technology, there is an appetite from both sides to bridge it.
