Skip navigation
digital city rendering Peshkova/iStock/Getty Images

Established Proptech Players Continued to Amass Funds in the Second Quarter

Private equity investments in proptech firms increased in dollar volume during the period, but deal count was down almost 40 percent.

Private equity funding of proptech firms continues to be down year-over-year, in spite of an uptick in deal volume in the second quarter, according to recent data. Interest in online leasing tools has driven much of the sector’s activity in recent months.

U.S. venture equity funding of proptech firms year-to-date through August totaled $2.7 billion, down 47 percent compared to the same period in 2019. The decline was influenced mostly by the drop in volume during the first quarter. Second quarter proptech funding totaled $1.6 billion, up 19 percent year-over-year, according to a report by Keefe, Bruyette & Wood Inc., an investment banking firm headquartered in New York City. The second quarter deal count was down 39 percent year-over-year, but median deal size increased by 200 percent compared to 2019.

Around 55 percent of total global proptech funding during the first three quarters of 2020 went toward companies specializing in leasing and purchase-sale transactions products, 39 percent of funding went to proptech focusing on property development and management and six percent to financing and investment tools, says Dharmesh Ajmera, Deloitte partner and leader of the firm’s U.S. proptech practice. In the U.S., around 68 percent of total funding went toward leasing and purchase-sale transactions products, 22 percent went to property development and management proptech tools and 10 percent to financing and investment tools.

“Proptech companies that focus on online leasing and the iBuying space are likely to continue to receive the bulk of the funding, both globally and in the U.S., followed by property development and management,” says Ajmera. “In the first three quarters of 2020, a large proportion of funding was directed toward co-sharing spaces, signifying continued investor confidence. There is also a significant uptick in the iBuying space as workers migrate from the city to suburbs, looking for more space and home offices, creating a bit of a boom in iBuying space for companies in that segment.”

Capital is also flowing towards technologies that facilitate a safe return to the office, virtual interaction, and distributed working, says Doug Jamieson, corporate managing director at real estate services firm Savills. That includes everything from virtual tours to fully digital transaction management. For example, products that allow prospective users to enter a property and tour only units the leasing staff has pre-authorized “is a very hot area right now because owners out of necessity are having to deploy these technologies,” says John Helm, partner with RET Ventures, an early stage venture fund focused on building real estate technologies for the multifamily sector.

Online leasing technology has also “really picked up in demand because it allows people to continue business as usual in this environment,” says Helm. These products allow prospective tenants to complete the leasing process digitally, which remains a fairly new process in the commercial real estate industry.

“As recently as February, doing things the same way as 20 years ago was still lucrative in many parts of the business,” says Jamieson. “In 2021, we will start to see a clear divide between those who successfully adjust to the times, including through adoption of proptech, and those that are left behind. That creates a massive opportunity for investment in 2021.”

The uptick in proptech investment deal volume in the second quarter was driven by a number of very large funding rounds completed by established proptech companies, according to Helm. “When something bad happens, some of the big companies are able to raise money to basically beef up their balance sheets and survive a downturn, so that was essentially what we saw in the second quarter,” he says. “I doubt we’ll see as much of that in the third quarter. I would expect it to smooth out a little and be back to a normal environment of more deals, but not as many as these big growth equity rounds that we saw in the second quarter.”

Around 61 percent of commercial real estate companies have by now adapted at least one proptech solution, but only 28 percent have incorporated multiple proptech products into their practices, according to a recent report by Ernst & Young on tech adoption in the industry. Deloitte forecasts that total funding for U.S. proptech companies will likely increase to a range of $10.9 billion to $17.2 billion in 2021, with tools focusing on property development and management being the most popular.

“The initial shock to the system [from COVID-19] caused a pause in decision-making across the entire economy,” says Jamieson. “But that has passed, and people are confident that we are on the path to a new normal in which proptech will play a larger role than ever before.”

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.