Proptech shines a light through the gloom
KPMG’s most recent fintech report made for grim reading for the industry in terms of its ability to attract investment.
Total investment for fintech in 2023 was $114 billion, down 42% from $197 billion in 2022. The number of fintech deals was down a similar level at 4,547, from 7,515 - 39% less than the year prior. This was a far steeper decline than that already experienced in 2022 where investment fell 10% and the number of deals 7%, such that 2023 represented the weakest results since 2017 – a full seven years ago.
Causes for the pullback were inevitably listed as fears of stubbornly high inflation and related high interest rates; conflicts including Ukraine and the Middle East; and concerns of still unrealistic private valuations.
In terms of subsectors, the payment space fell furthest from $57.9 billion in 2022 to $20.7 billion in 2023 but remained the largest subsector. Of the other subsectors, regtech, cybersecurity, greentech and crypto all declined, with only insurtech and proptech seeing a year-on-year increase. Insurtech saw investment grow an impressive 42% from $5.9 billion in 2022 to $8.1 billion.
However, proptech (property technology) was the real highlight, recording a massive 226% increase from $4.1 billion to $13.4 billion.
Proptech as an industry goes far beyond fintech, despite emerging from fintech and sharing crossover in technologies that facilitate financial transactions in property. Proptech also covers Real Estate Tech (ReTech) with platforms such as Rightmove, Zoopla and On The Market; Commercial Real Estate Tech (CreTech) with CoStar leading the way in the provision and processing of commercial real estate information (and which has recently acquired On The Market as it seeks to do the same in the residential property space); Shared Economy Real Estate including platforms such as AirBnB; Construction Technology (ConTech), with companies such as the UK-listed Eleco offering numerous property design and construction solutions; and Smart Homes in which intelligent software and IoT devices for heating, access, security systems and more, improve comfort and reduce costs for residents.
With the many and varied advantages proptech provides, its ability to attract investment may appear inevitable despite the wider investment environment. The commercial real estate sector has suffered owing to higher interest rates and the work from home phenomenon, and technologies that can better manage property and reduce costs have become essential. In addition, the need for more accurate valuations and improved energy efficiency and sustainability of properties have been key drivers.
According to the Climate Group, 40% of carbon emissions are from the built environment, representing a phenomenal opportunity for property-focused clean technologies. Further opportunities are also being driven by AI fuelled innovations which are increasingly entering the industry. These are leading to ever-smarter homes and driving advances in the ability to analyse data for insights, leading to such benefits as more intelligent property marketing.
All of this adds up to sustainable long-term growth potential for those that have the skills, innovation, and capital to back them up. A December 2023 report form Ascendix shows strong predicted growth for the industry, more than quadrupling in a decade, from $30bn in 2022 to $133bn in 2032. The report also shows the UK as Europe’s leading country in the space with 805 proptech companies, against France with 547 and more than double Germany with 342.
In summary, proptech provides a rare positive within the fintech investment environment, and, with the UK a clear leader in the industry, offers a welcome light in the gloom.