PropTech in Europe: Four trends and (still) no Unicorn

How PropTech and digitalisation are changing the European real estate sector – during the coronavirus pandemic and beyond  

Market-specific digital solutions are on the rise in a wide variety of economic sectors - for a good reason. They not only create new dimensions for customer interaction, but they also optimise the use of resources and data processing on the provider side. This digital transformation also takes place in the real estate sector. 

The real estate market has long been viewed as a traditional and analogue sector that relies on direct customer contact. However, particularly over the past two years, a wide variety of start-ups have entered the European markets, providing new digital access to the full range of phases involved in real estate transactions and management. 

The consequences of this shift to digital platforms are potentially far-reaching. “PropTech can change the way consumers and companies think and behave over the long term, especially by integrating innovative technologies in new business models,” explains Sachio Hirosawa, Managing Director for PriceHubble Japan. In this case, the term “PropTech” includes a wide variety of digital solutions. 

What is PropTech?

PropTech, or property technology, refers to the development of digital offerings for the entire real estate life cycle. The PropTech overview provided by BUILTWORLD and PwC European PropTech Map 2020, for example, has the following five categories: 

• Invest & Finance / Research & Valuate
• Building Operations
• Asset Management
• Markets 
• Smart City Solutions 

From online tours with virtual reality to building information modelling (BIM), PropTech can be integrated in and used to optimise a wide variety of real estate investment and utilisation phases. In addition to established companies, as business partners, the beneficiaries are the end consumers themselves. 

PropTech can be included in a network of existing tech solutions, particularly FinTechs in the financial sector, LegalTechs for preparing and managing contracts and ConTechs, found in the construction industry. The focus here is often complementary or even overlapping. 

“The greatest overlap is with the FinTech sector, because it has such a close relationship to real estate,” explains Sachio Hirosawa. “It’s also an open secret that the FinTech industry is several years ahead of the real estate market. This is especially interesting for investors, because it can be used to better understand and predict developments in the PropTech space.”

PropTechs in European real estate markets  

In contrast to the USA, the global market leader, PropTechs in Europe face more challenges. Because of the segmentation into countries, the thinking and planning processes are more complex: separate legal systems, different languages and cultures and varying standards for the real estate market must be taken into account. 

“Despite the significant differences among the individual US states, the US market is largely uniform. By contrast, European real estate markets are by their very nature fragmented,” says Sachio Hirosawa. But he also sees significant potential as well. “European PropTech companies are already well-tested in localisation. This competency can be transferred to expansions in other international markets, such as in Asia, for example.”

There are also major differences in terms of funding, which is up to 34 times higher in the USA – a key factor for the long-term growth of start-ups, especially if the goal is to grow into a unicorn with a market value of over USD 1 billion. For this reason, substantial efforts are underway by PropTech companies to move to the USA. Initiatives like the German PropTech Initiative or the European Commission’s ESCALAR funding programme have therefore made it their goal to support the expanding PropTech sector not only in terms of growth, but also to keep it in Europe over the long term. 

Why are there no PropTech unicorns in Europe?

On the whole, the PropTech scene in Europe got off to a somewhat later start than the pioneers in the USA, and the aforementioned characteristics of the European markets may play a role, too. If, despite fragmentation, market penetration is increased further, business models focus on scalability and disruption, and sufficient funding is provided, there is a good chance that a PropTech unicorn will be able to develop in Europe as well. 

Investments in European PropTech grew by an average of 45% annually from 2014 to 2019 – a strong indicator for the future. Investors in the UK and Germany are the most active, but there is keen interest in PropTech in smaller markets, too, like the Scandinavian countries.

A glance at the future is also promising. Some trends that have already been identified will play a key role in shaping future developments.

Four PropTech trends in Europe  

In their 2020 Real Estate Innovations Overview, KPMG identified new key areas for innovation: digitising processes, flexible workspaces, healthy workplace and home, innovative construction, the Internet of Things, new ways of funding, platforms to connect, sustainable innovations and, last but not least, virtual reality and 3D mapping. On the basis of these and other observations and analyses, these four main trends for the PropTech scene in Europe became apparent.

1) Virtualisation and digitalisation of processes

The shift of management and sales processes to virtual and digital platforms not only takes account of changed consumer behaviour, but also offers enormous potential to optimise and conserve resources. Among other things, this includes e-signatures, a trend that is taking hold in many countries and which makes it possible to sign contracts easily on a terminal device. Another aspect is the automation of building management tasks, such as online payments and accounting as well as the digital processing of repair requests and maintenance planning. However, because of the coronavirus pandemic the trend that has grown the most is digital tours of properties. 

Providers like Nodalview that specialise in this area make it easy for brokers to enter properties, including photos and videos, on virtual platforms. The key element here is a smartphone app. Customers also have the option of purchasing more suitable photographic equipment, if necessary. 

Offerings that span different sectors, such as Meero, are also used in the real estate market. This French start-up, which reached the coveted unicorn status in just three years, finds photographers on a project basis and uses artificial intelligence to automatically optimise and retouch the resulting images. 

Increasing digitalisation is affecting not only back-end processes – it is occurring on the customer side as well. 

2) Digitalisation of daily work and lifestyles

Routine tasks and everyday work is primarily taking place on digital platforms in ever increasing areas. This is reflected in a unique way in the real estate world by the HqOS app. Like smart home technology, this app focuses on the digital networking and management of office and other commercial properties. 

Marketed as a “tenant experience operating system”, HqOS makes it possible to design smart spaces that expand the customer experience as a tenant and user of real estate to include a digital dimension. For owners, it offers additional capacities for data analysis and tenant management that make developing and implementing a letting strategy easier. 

3) Real estate crowdinvesting

On the investment side, a concept that has already seen significant success in many other sectors is now catching on in the real estate world: crowdfunding, or rather crowdinvesting. By enabling even smaller investment amounts, it taps an entirely new group of mostly young investors, who were previously deterred by the higher barriers to entry of traditional real estate investments.

The start-up IMMO Capital, for example, works with portfolios of residential real estate in high-quality European markets, like London and Hamburg. By focusing on individual residential units, like individual condominiums, instead of entire apartment blocks, the investment management company is also able to cultivate a part of the real estate market that is often neglected by large investors.

4) Data-based and AI-supported solutions

One aspect that connects the many different stakeholders in the real estate market is the need for reliable market data and analyses. These are now more accessible and meaningful than ever thanks to innovations in data collection and processing – provided they are used correctly. 

This is precisely where PriceHubble comes into play. Originally from Switzerland, the B2B real estate consultancy is now active in a large number of European markets and in Japan. It provides real estate agents with digital tools for successful brokerage activities, helps financial and insurance providers to supplement their core competencies and makes work easier for real estate investors and managers. 

PriceHubble applications use data analysis based on artificial intelligence (AI) to do this. Based on algorithms and real estate data from a wide range of reliable sources, it can determine the current and precise market and rental prices for any property. This creates a reliable basis for any type of decision and measure related to real estate.

In the wake of these trends, the automation of repetitive and administrative tasks will become increasingly important. For example, with the Property Tracker feature, PriceHubble makes it possible to automatically send valuation updates to the real estate owners among end customers. “PriceHubble thus provides support over the entire life cycle of a property,” says Sachio Hirosawa. 

Conclusion and outlook

Not only “Real PropTech” is defining, expanding and changing the digital level of the real estate market. For example, while blockchain wasn’t developed specifically for the real estate market, experts are holding their breath to see what impact this new technology will have on real estate transactions in the foreseeable future. 

However, PropTech promises to make a decisive contribution to changing interactions in the real estate market. It will be interesting to see what long-term effects the coronavirus crisis has on real estate markets and their processes, as it showed the need for digitalisation with particular urgency. Real estate companies may try to return to traditional processes after the pandemic is finally over. But other markets show that digitalisation is difficult to slow down and even more difficult to undo. 

For this reason, all stakeholders in the real estate market are responsible for accepting digitalisation as a challenge. The targeted use of PropTech and a proactive response to emerging trends will not only enable success, but also offer greater opportunities for development – after all, Europe is still waiting for its first PropTech unicorn.