Questions and answers on the coronavirus
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Now that “phase two” is well underway for most countries globally, we are all consumed by a two-part preoccupation: when will things go back to normal, and what exactly will be “normal” in a post-coronavirus world? In the first article of this two-part miniseries, we took a look at what the future might hold for the construction industry. Today, we address what could be next for proptech after Covid-19. Will the pandemic stimulate significant change in the industry, or will we bounce back to the way things were before it struck us?
I enlisted the help of some familiar names in the global proptech VC landscape, who have already shared their views with us in the past. They are Pi Labs founder Faisal Butt, Concrete VC founder Taylor Wescoatt, MetaProp cofounder Zach Aarons, RET Ventures partner John Helm, JLL Spark APAC lead Anuj Nangpal, and Taronga Group cofounder Jonathan Hannam.
What effect has the Covid-19 pandemic had on the proptech investment landscape?
As with every sector, in the short term, the Covid-19 pandemic has caused the proptech investment market to slow down and investors to exercise caution towards their portfolios and towards new deals. Startups that rely on traffic in the built environment to demonstrate value, or indeed those supporting industries such as hospitality and retail, have suffered.
However, as noted by both Wescoatt and Aarons, the startups that simplify processes by reducing the need for face to face interactions or digitizing physical processes have had the opportunity to shine. Corporates are showing an increased interest in technology which allows them to work “normally” despite the pandemic. According to Hannam, “decision making processes that involve making tenants or customers feel safe have become a priority and in many cases, the internal hurdles that were preventing innovation have been removed, as key decision-makers realize the rules have changed.”
Despite this, investor sentiment will inevitably be more cautious in the short-term. According to Butt, it may take up to six months for the fundraising markets to reopen fully, which will penalize startups with weaker balance sheets. Also, investors are currently prioritizing their existing portfolio companies over making new investments, as confirmed by Helm who shared that “since the outbreak, we have devoted a greater amount of time to working directly with our portfolio companies to help them navigate this crisis.”
Any business that VCs choose to invest in today needs to “make sense” in the current environment and also show sufficient resilience to survive the next 12 to 18-month period. As Nangpal put it, “one would like to treat the situation with caution, but also try and isolate some mid-long term trends and therefore opportunities.”
How do you think it has affected and will affect real estate and proptech?
Wescoatt explained this nicely by citing an old proverb: “Make hay while the sun shines, but sharpen your tools while it’s raining.” In short, when looking at a mid to long-term perspective, proptech can but benefit from the systemic shock caused by the pandemic, despite real estate having taken a huge hit.
In real estate, the already beleaguered retail sector has been the hardest hit, with shops closed and discretional spending rerouted online. There is a silver lining though since the logistics sector has been the major beneficiary of this change in habits, as noted by Hannam.
Entire books will be written about the coronavirus-driven commercial real estate shift and the “new normal” for offices – in one fell swoop, we were all forced into smart working and for many, things will never be the same again. As firms adapt to allowing for more remote work as a permanent fixture of the way things are done, office requirements will change, with larger areas for individuals to work in and less fixed desks. In the end, as Butt puts it, “remote working won’t spell the end of the office, given that 87 percent of global corporations view real estate as a key strategic asset rather than just a place for people to go do their jobs. Not all jobs can be done remotely, and many firms will still favor the social and collaborative benefits which are fostered through in-person working relationships.”
As real estate firms seek ways to emerge from the Covid-19 downturn, they will realize that the transition back to normality will require a greater use of technology and different ways of thinking. In Nangpal’s view, it will be a balancing act for proptech companies between their immediate revenue needs and the long-term opportunity, as once the market picks up again there will be a substantial technological shift in real estate.
According to Hannam, “much like the financial sector coming out of the GFC, the large institutions who adapt to technology, shift to digital, and become more agile will be the winners in the future. The battleground has shifted from bricks and mortar to data and insights which will be enabled by an ecosystem of property-focused technology companies.” Helms seconded this, adding that since many proptech platforms generate revenue for landlords and/or create efficiencies that improve their users’ bottom line, those groups could prove even more valuable in the current climate.
Has it made you change your views on which are the most promising types of tech and sectors for the future?
In short, the answer is no. After all, VCs take long-term strategic views on the future and though the current crisis has brought additional elements to their consideration it hasn’t changed the fundamentals. All agree that it will act as an accelerant for the proptech ecosystem in general, and some types of tech will have an additional boost.
The VCs concurred that, in the immediate future, technologies that reduce the need for human contact will be the clear winner, be they gesture-based building controls, platforms that eliminate the need for any human contact in real estate transactions, or technology that enables safety and social distancing on construction sites.
In the long term, they will continue to focus on the winning solutions that make the real estate process more efficient and a better experience for its users. One case worth noting is that related to sustainability agendas. Though in the present day they have very much lost the market’s attention as we focus on the crisis at hand, Nangpal reckons that tech innovation in this space with bounce back strongly in the mid to long term.
Do you think Covid-19 related change is here to stay, or is it just going to be a temporary blip in our timelines?
None of the VCs I spoke with believe the virus’ impact will be permanent, but they do have a range of views on how lasting its effects will be. On the one hand, Wescoatt believes it will be a blip on our timelines while on the other, Hannam thinks that the longer-term prevention of the spread of infectious disease is likely to have a lasting impact on the entire real estate ecosystem for many years to come. He used the example of thermal cameras in Asian airports post-SARS (which have remained in use ever since) and reckons that the tech-based Covid-19 management systems used in places like Shanghai are here to stay.
Helm is somewhere in the middle, as he believes the virus will be disruptive for longer than people appreciate. He shared that “as a society, we will have to adapt to new forms of daily life and business and we will see more rapid adoption of many technologies… but these changes were coming anyway – they will just arrive sooner. In the long term, we remain bullish about technology adoption in real estate.
Butt and Aarons second this, with the latter stating that “Covid-19 has accelerated a lot of the changes within the real estate world that were happening anyway; the digital genie is now completely out of the bottle” and the former confirming his belief that it will create a tailwind for proptech.
In sum, though it has had and will continue to have devastating effects on the economy and real estate in the short term, the crisis at hand may prove to be the catalyst for booming tech adoption once the worst is over. Proptech’s future might be brighter than we think!