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After Proptech’s Monster 2021, Stage Set For Huge Adoption, Investment In 2022

Real estate technology’s banner 2021, which has seen a record-setting $9.5B invested in the sector through mid-November, came from a confluence of an increased demand for data analytics, the belief that more efficient offices or energy systems could tempt workers back to the office, and the desire save money while bolstering sustainability bona fides.

Construction site workflow is one area of proptech investment expected to boom in 2022.

In 2022, the trends that drove investor interest in proptech figure to only increase, leading to more firms making investments in new technology. The next year will be defined, a group of tech analysts told Bisnow, by startups and other firms applying technology to solve some of commercial real estate's most pressing dilemmas: How can construction run faster and smoother? How can building become more sustainable? And perhaps above all, how can offices be run more efficiently and effectively, especially in the wake of pandemic-era disruptions to the workplace?  

For many CRE firms, proptech has become ubiquitous after the 2020 inflection point. Roughly 8,000 companies offer tech-based solutions for the built environment, according to a 2021 JLL study about the global real estate technology marketplace, a 300% increase in the last decade, a sign of the “maturation of the proptech startup landscape,” said JLL Spark Managing Partner Raj Singh, who manages the firm’s in-house tech investment arm.

Singh expects a year of bigger mergers, acquisitions and IPOs, as well as a “significant surge” in new startups at the intersection of proptech and AI, robotics or 5G, suggesting both a race to incorporate new technologies and a desire to provide the scale and scope necessary to solve problems for the largest commercial clients. 

“I’m more bullish than ever,” said proptech investor Clelia Warburg Peters. “We’re at a point where there’s more venture dollars than ever in the space, entrepreneurs have more business acumen, and we’ve reached a tipping point in terms of adoption by the industry.” 

In 2021, venture-backed construction startups raised around $3.8B, with property management firms close behind with $3.6B, according to Crunchbase. Construction tech startup Procore's IPO raised over $635M as investors drove the initial share price up more than $15 in the first day of trading, Crunchbase reported.

“In sustainability, and in construction technology generally, a wave of new companies seeking to combine design, off-site construction and new materials are on the horizon,” Singh said. “We’re paying close attention, as these will be key areas for investment in the new year.”

Peters agreed that construction will be a big focus. While the development of construction technology lags the proptech world by five years, she said, there are a lot of engaged, specialist investors in the space focused on startups that streamline the process, a valuable pitch during a time of supply chain problems and labor issues. 

Unraveling the complexity of construction sites requires investment in workflow, and a number of firms have focused on new process and tracking tools, including OpenSpace, Onsite IQ and StructionSite, which offer variations on the idea of real-time site monitoring. Peters said other technologies will likely be folded into these types of tools, including drone monitoring of worksites, as well as fintech tools that help organize payments between vendors, seeking to improve what she calls the “Russian doll-style collaboration between different entities” on typical jobs.

Fifth Wall partner Dan Wenhold said a big investment focus in the coming year will be spatial analytics, firms and products like Density or VergeSense that offer clients detailed analysis of who is using the office and how spaces are actually being used. There’s increased pressure to right-size offices, get the most effectiveness with potentially shrinking budgets, and to measure the ROI of real estate. Wenhold believes firms in this category will only grow post-pandemic. 

“Owners are looking at this for lobbies and common areas, and tenants are looking at this and care about how their office should look coming out of the pandemic,” Wenhold said.

Sustainability, not surprisingly given the changes in regulations and awareness of climate change, will also be an area of growth, Peters said. Pressure coming from the pending onset of regulations, such as Local Law 97 in New York City and BERDO in Boston, which will mandate emissions reductions for large buildings beginning in 2024, has created “a scramble” for owners looking for solutions. Firms like Measurabl — which tracks environmental performance and raised a $50M funding round in September — will continue to be magnets for capital, as will those focused on energy and HVAC monitoring for buildings.

There’s so much interest in monitoring and tracking tools, Peters said, that “the availability of capital has outpaced the number of exceptional ideas.”

While it’s not typically considered part of institutional investment, single-family rental markets are being seen as a significant sector of proptech investment. Wenhold said his venture firm is zeroing in on tech that helps owners manage larger and larger single-family rental portfolios because of the billions of institutional capital flowing into the sector. And companies like Lessen (a Fifth Wall portfolio firm that closed a $170M Series B round this week) and Mynd helping investors find and manage their properties. 

“Removing the complexities for asset owners and capital allocators is really interesting in this highly offline and fragmented industry,” he said.

“This will be a big trend in a lot of different ways, both from an institutional investor and venture angle, and also has meaningful implications demographically and what our country looks like in terms of how and where people live,” Peters said.