2020 was a catalyst for drastically shifting how we value technology in our personal and professional lives. Technology served as a lifeline to help companies survive and thrive during the pandemic, and it kept us even more connected than before. When stay-at-home orders were put in place, anything that wasn’t happening online already went virtual overnight, including property tours, open houses, meetings, transactions, and more.

What’s Next for Real Estate Technology

The pandemic also opened the door for PropTech companies and investors to rethink what’s possible and what’s next, including trends and opportunities for the real estate industry. PropTech is an umbrella term, short for property technology, that represents companies that use technology and software to assist in today’s real estate market. Some of those trends were easier to spot and began pre-pandemic, like the shortage of inventory and increased pressure for companies to keep up with, and invest in solutions for, the intense residential real estate market in particular. Others took the past year’s events to become mainstream. Either way, because of the need for technology to support everything from virtual tours, property management, and a booming market, to the proliferation of working from home and ever changing consumer behavior, there’s been a major shift in what PropTech companies and investors value. 

Real Estate Technology Goes Public

One manifestation of this change is the rise in special purpose acquisition companies or SPACs, also known as “blank check companies”, in the first half of 2021. SPACs are generally seen as an easier way to go public because after SPACs build their initial investor capital, they then merge with a company to raise even more capital and start selling shares without going through the whole process of an IPO. The growth in SPACs is indicative of the interest in and demand for companies providing real estate and real estate technology services to go public. 

As one example, Nextdoor recently announced that it would be going public through a SPAC with Khosla Ventures. Nextdoor is expected to gain $686 million from the IPO. Estimates now put the company worth between $2.2 billion and $4.3 billion. Nextdoor is expected to use the money to accelerate company growth by expanding the platform to reach more people. 

Economies of Scale in the Real Estate Industry

Being able to bring products or services to market quickly and at a large scale is a big advantage in the PropTech space. For real estate brokerages, economies of scale can help alleviate upward pressure on profit margins. Because of this, a standard merger or acquisition (commonly referred to under one umbrella of M&A) is also a popular method for increasing resources. In June, @properties acquired Suburban Jungle, a pre-search consultation service. For @properties, the acquisition gives them access to referrals and lead generation sources, while Suburban Jungle will gain access to more resources to help expand their platform capabilities; a win-win relationship for both. Another path to accelerate growth is through private equity investment like Permira’s recent investment in Engel & Völkers. Both companies described the investment as necessary to enable the company’s “digital transformation journey” and fuel international growth.

These are just a couple of examples of companies looking for and creating opportunities in the current market. In short, the increase in real estate company valuations, the shifts in the PropTech industry, the rise in SPACs, and the flurry of M&A activity 2021 has seen so far have all aligned to elevate the real estate industry’s digital transformation. It will likely be increasingly challenging for smaller real estate companies to effectively compete and be profitable in the years ahead, though several have found success in developing a niche and changing how they operate.

What Should Real Estate Companies Do?

As with any new market opportunity, it can be tempting to jump right in and try to get ahead of everyone else (see the rise in the Clubhouse app for real estate as one example of this). However, just because something is new, looks promising, and is seemingly what everyone else is doing, it doesn’t mean that it is the best decision for your company. Some of our most successful clients and partners have maintained their independence while growing organically and kept a steadfast focus on their strengths despite having several opportunities to pursue new products and services, and join forces with others.

Whatever you make of this year’s real estate trends, including the rapid acceleration of many companies’ growth through the avenues mentioned above, it’s important to take into consideration how much and what kind of growth makes sense for you. Agent adoption, revenue goals, and integration with your other tools and resources are all important considerations, among many others. Look at your data and have important conversations with your team to see what’s working, where you could improve, and whether you want to do it on your own. If this past year is any indication of the upward trend in digitization and expansion, then we’re expecting to hear a lot more about investing in the real estate industry in the future. For companies looking to keep up with and help lead the shift, the time is now to start planning for 2022 and beyond.

Need help finding the best real estate technology for your company? Are you looking to grow organically and are not quite sure how? Contact us today to discuss your needs and get personalized recommendations for your real estate company.