Volatility And A Maturing PropTech Industy Underscore MetaProp 2018 Year End Index

MetaProp, the leading early-stage PropTech accelerator and advisory firm, just released the results of its latest Global PropTech Confidence Index. MetaProp produces the Index twice a year in partnership with the Real Estate Board of New York (REBNY) and The Royal Institution of Chartered Surveyors (RICS). The Global PropTech Confidence Index is a unique barometer of the real estate tech market’s health from the perspective of the most active PropTech Investors and startup CEOs and Founders around the world. Over 500 investors and 1600 startups were interviewed, a significant majority of which hailed from the United States and Europe. Startup and investor confidence both remained strong, though investor confidence especially was dampened by geopolitical and economic volatility in 2018. There is also a feeling of greater maturity being reached in the PropTech space. Let’s take a closer look at the key indicators.

The data series in the box to the right shows the index for both investor and startup sentiment since the study started in 2016. While startup levels, albeit lower, have remained in line with what they were in the last three reports, investor sentiment has dropped significantly from 8.7 in mid-year 2018 to 7.7 today. Aaron Block, Managing Partner and co-founder of MetaProp, told me that “Geopolitical and economic volatility have dominated international headlines over the last few months. Unsurprisingly, this uncertainty may be impacting the broader real estate technology investment ecosystem.” For both investors and startups, it is M&A and other liquidity events that are propping up sentiment, as capital raising or funding optimism has definitely been dampened in the second half of 2018.

Despite this contraction in sentiment, there is plenty to be positive about. Notwithstanding the growth in volatility and the scale-back in funding optimism, 60% of PropTech investors surveyed plan on making more investments in 2019 compared to 2018, an all-time high and up from 46% six months ago. This is after a bumper year for investments, which saw the average number of deals per investor grow to 5, compared to 2.7 in 2017. Consolidation is expected in the sector, with 64% of those surveyed stating they believe there will be more M&A activity in 2019 than there was in 2018.

When asked about deal flow, 90% of investors think they will see the same or more pitches this year than last year. They are most interested in smart buildings (35%) which is in line with what I found in a recent predictions piece, followed by space management & usage, and finance & investments (tied at 21%). Further, though there are signs that the sector is maturing and consolidating, it is telling that most investors are still focusing on early stage investments. Pre-seed to Series A take up the lion’s share, with a smaller proportion going to Series B and a fraction of that to later stages. Finally, a warning to startups. Investors feel that PropTech startups are mostly meeting expectations in terms of customer growth – there is still space to wow them!

On the startup side, 27% expect it to be harder to raise venture capital in 2019. Though this may seem discouraging as it up from 17% in Mid-Year 2018, it is still down significantly from 55% a year ago. On a positive note, 32% of Startup CEOs forecast over 5X growth in 2019, up from 24% in the Year-End 2017 Index. As a testament to the themes mentioned earlier, 46% of CEOs said it is either likely or very likely that their company will be acquired, go public or have a major liquidity event, which is nearly double the percentage from Mid-Year 2018. Though startups expect that the ease (or difficulty) to raise venture capital in 2019 will be about the same as in 2018, 69% think their space will be more competitive this year than it was last year.

So, what can we expect for PropTech in 2019? As Global Digital Real Estate Leader at PWC Julia Arlt puts it in the report, “We have seen both big exits and big bankruptcies in 2018 which is a sign of the industry maturing. There will be less room for small startups that are poorly funded or have sub-optimal teams. The next step will be for big regional winners to start competing on a global scale.”

This post first appeared on Forbes.com. To see the original, click here.