Proptech in 2024: VCs, Principals and Analysts Sound Off

Further digitization, a stronger embrace of AI, more mergers and acquisitions, and a rise in investment — it’s all on the table next year

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If proof is needed of proptech’s building importance for the real estate industry going into the new year, the stampede of commentary in response to PropTech Insider’s request for 2024 proptech predictions might be all that is required.

While the real estate industry is known for its boundless — and sometimes foolish — optimism, the last few years of COVID, high interest rates, and foreign wars have tempered the expectations of many who responded by email and otherwise, including those in proptech.

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However, despite challenges old and new facing real estate and proptech, the predictions by proptech leaders sampled here offer hope that demand for technological innovation will override any obstacles that may arise in 2024.

The demand for proptech and where it will come from elicited a number of opinions, with investment and innovation in smart buildings, overall infrastructure needs, and the continued growth of artificial intelligence (AI) dominating.

“In 2024, proptech investment will be driven by critical infrastructure investment,” said Troy Harvey, CEO of PassiveLogic, a digital twinning platform for autonomous buildings. “SaaS companies selling non-business-critical solutions will struggle to invite investment as they will compete with other high interest rate vehicles. The focus will shift to higher-gain, long-term durable goods with intrinsic value. Proptech products that address critical infrastructure and building needs will see increased interest and investment.”

Business sector demand for proptech will come from “life sciences, manufacturing, higher education, health care, and industrial buildings,” said Nick Gayeski, co-CEO of Clockworks Analytics, a provider of automated building software. “There will be continued demand for innovative solutions in facilities management. Commercial real estate will continue to bifurcate into top-tier buildings with demands for scheduling, tenant engagement, energy and sustainability innovations, while much commercial real estate suffers from low occupancy, reduced budgets and asset value.”

Agreeing that demand will come from “every sector to some degree,” Cameron Steele, CEO at prophia, an AI data-driven commercial real estate portfolio platform, added that, “the underlying question is which markets are going to generate strength and therefore capital for innovation? Each sector from office to industrial is faced with different challenges, but there is no better time than right now to get ahead of market challenges. This is particularly true for struggling classes like the office sector.”

Caroline Frith, chief strategy officer of Cove, an integrated tenant experience platform that works across portfolios, sees demand coming from everywhere in 2024: “We continue to see customer demand to leverage proptech across asset classes.”

However, Frith added a note of caution: “If interest rates remain high, CRE transactions will continue in a holding pattern with owners skittish to invest in new technology.”

Of course, when your proptech business has become hugely successful providing asset management, leasing, property management, and marketing to landlords and brokerages, one can be quite optimistic. Such is the viewpoint of Ryan Masiello, chief strategy officer at VTS.

“Demand for proptech will come from the office sector, which, as a whole, is currently experiencing a major transformation,” said Masiello. “Technology is playing a major part in this, given there is now a renewed focus industry-wide on enhancing tenant experience to accommodate the flexibility tenants demand in today’s hybrid work environment.”

Proptech innovations aimed at improved access and security experiences for office and residential tenants will be more important than ever entering 2024,  said Ned Murphy, general manager of Level M, a new product launched this year by Level, a maker of smart locks for the multifamily market.

“We anticipate a transformative leap in the reliability of smart technology within the multifamily industry, driven by innovation in connectivity solutions from leading IoT providers,” said Murphy, using the shorthand for the internet of things. “Multifamily property owners are poised to make substantial investments in building access control and unit locks. By embracing keyless and mobile entry solutions, owners will unlock a host of benefits, including centralized maintenance capabilities and self-guided property tours. There will be a surge in the integration of smart technology into existing multifamily buildings, propelled by the mounting pressure from newly constructed units entering the market, equipped with cutting-edge smart technology features.”

A proptech/fintech company addressing a growing residential sector need is residential screening platform Plaid. It’s a rent fraud platform that works with more than a dozen leading property management companies, including Funnel Leasing, MRI and Mynd.

“Self-guided tours are becoming more popular than ever, but that has also increased risk and fraud,” said Joel Oxman, a residential leasing professional at Plaid. “Proptech players are increasingly focused on adding more trust and safety measures like identity verification and risk checks into their platform.

“And consumers are increasingly comfortable with digital forms of income and ID verification. These risk checks are fast becoming a prerequisite for consumers as they navigate these experiences online.”

Providing alternatives to the return to the traditional office will also continue to grow, said Amina Moreau, CEO and co-founder of Radious.pro, an online marketplace for rentable home office and meeting space.

“As office lease terms expire in 2024, the majority of tech companies will not renew,” said Moreau. “Instead, they will either downsize by moving into new, smaller offices, or they will eliminate their real estate footprint altogether and opt for flex office solutions for occasional, in-person work. This will give them greater financial agility while offering their employees the flexibility they desire.

“The world’s largest enterprises will continue to push RTO agendas. Given that they typically have the most real estate holdings, they are financially disincentivized to offer employees location flexibility, and will make every effort to get butts in seats to justify the expense of their office space. As a result, they will see attrition of some of their best talent, as high performers seek more flexible employment opportunities.”

Not surprisingly, the role of artificial intelligence in proptech was a top topic among those responding.

“Artificial intelligence is going to continue to expand and grow in proptech and offer CRE leaders opportunities for innovation,” said Prophia’s Steele. “In 2024, innovation will largely center around defining an AI strategy and devising a plan and process for implementing that strategy. Sidelining AI vendors will no longer work in the coming years, and all of the leading firms will have to systematically implement artificial intelligence to stand out to investors and keep up with the direction CRE is going.”

William Sankey, CEO and co-founder of northspyre, a cloud-based real estate development software startup, said: “The first dominant trend I expect will influence commercial real estate tech in 2024 is the escalating impact of AI. Despite the recent buzz surrounding innovations like ChatGPT, the industry is still in its AI infancy, with only a select few providers possessing true AI capabilities. Next year we will witness fierce competition among proptech companies, each striving to perfect their AI models to emerge as pioneers in the market.”

A similar view is held by Istvan Fehervari, CEO and founder of Homebourse, an online real estate marketplace that connects buyers and sellers directly.

“I anticipate AI will be pivotal in revolutionizing the proptech sector,” said Fehervari. “Our commitment to developing advanced AI solutions aligns with this trend, reflecting our belief in its transformative potential. The continued emphasis on digitalization is set to further globalize the industry, making remote and paperless transactions a standard practice. This evolution towards digital efficiency will mark a significant shift in how real estate transactions are conducted, offering enhanced convenience and accessibility.”

Lily Liu, CEO of Piñata, a rewards and credit building platform for renters, said: “The deployment of AI and machine learning for myriad areas of proptech from predictive analytics, property valuation, and customer service automation, are the most obvious trends, including AI-driven property management tools, chatbots for customer interactions, and advanced data analytics for market predictions.”

Mike Sroka, CEO and co-founder of Dealpath, a real estate investor deal management software company, said: “We expect proptech demand in 2024 will be for solutions that can best aggregate data and leverage AI, as well as those addressing cybersecurity, debt, recapitalization support, repositioning enablement, and asset management. We predict there will be a healthy amount of activity in all these areas, which will subsequently drive the innovation needed to keep up with demand.

“We incorporate AI-driven solutions into our platform, which can address the industry’s need for standardized data and streamlined workflows,” Sroka added. “To date, real estate has been a ‘document-heavy’ business. Huge value has been trapped in these documents that can be unlocked by enabling information within them to be more easily reusable and transferable by leveraging AI.”

Frank Spadafora, real estate industry principal at financial management platform DealCloud, took a comprehensive view of AI’s function in real estate.

“While AI dominates headlines, the CRE industry’s steady march toward digitization and automation of real estate processes remains a key demand driver,” said Spadafora. “Historically slow in adopting technology, many CRE firms are realizing the benefits of digitizing their operations, resulting in accelerated execution, optimized resource management and enhanced agility to navigate competitive CRE markets. This connection to firmwide systems unlocks valuable proprietary datasets, critical for elevating decision making and unlocking the true potential of generative and applied AI.

“Next year will see a continued focus on expanding digital and data solutions to simplify complex and fragmented CRE processes, including document and data ingestion, underwriting and capital structuring, construction and development, space utilization and portfolio monitoring and management.”

Looking at the proptech investment horizon in 2024, the Center for Real Estate Technology and Innovation (CRETI) predicted a diversification in investment stages for 2024, with a 15 percent increase in seed funding and s 20 percent increase in Series A and B funding, according to Ashkán Zandieh, CRETI’s managing director, based on the organization’s 2023 survey of investors.

“This shift indicates a growing market that is ready to support startups transitioning from the seed stage,” Zandieh said. “Additionally, a 15 percent increase in investments in AI, machine learning and IoT is anticipated, alongside a 25 percent growth in larger investments in more established proptech companies.”

Sarah Liu, a partner on the real estate technology investment team at proptech venture capital firm Fifth Wall, tied AI to investment.

“In 2024, we will see the continued proliferation of AI, but simultaneously the flushing out of some of the earlier players that were essentially just ‘GPT wrappers,’ ” said Liu. “There will also be an emphasis on ‘AI enablement,’ as well as ‘AI enhancement’ of the existing businesses versus just building brand-new AI businesses. The deal volume will pick up as an increasing number of companies will need to raise funds, and there will be an increase in M&As when many startups are not able to raise more venture dollars.”

From an overall investor viewpoint, Christopher Yip, partner at RET Ventures, which focuses on multifamily proptech investment, offered a cautious outlook on 2024.

“We see continued secular tailwinds and budget dollars driving demand and adoption of operational technologies that can improve efficiencies (NOI) while increasing tenant satisfaction,” said Yip. “All that being said, ROI hurdles are high and users are focused on best-in-class solutions.

“Even amid an uncertain market, many property owners and managers continue their focus on ESG [environmental, social and governance] initiatives driven by consumer trends, including EVs, resilient demand for healthy unique spaces, a focus on sustainability, and water and energy conservation, as well as public and private institutional capital mandates for long-term decarbonization and more transparency in data gathering and reporting. Solutions that fulfill those objectives — and particularly those that also have strong financial ROI — will continue to meet with strong demand.”

A note of warning, though, was sounded by Maureen Waters, chief growth officer at Measurabl, an ESG platform for real estate investment grade sustainability data.

“In recent times, the politicization of ESG has threatened to cloud corporate judgment and delay key policies, putting the brakes on much-needed change within the real estate industry,” said Waters. “In 2024, this has to change. Instead of inciting disagreement, corporations need to take major steps towards meeting net-zero goals. Reducing carbon emissions can significantly reduce operational costs, improve NOI and ensure owners and operators retain access to capital.”

Finally, but certainly not alone among the myriad issues to be foretold for 2024, RET’s Yip pointed to proptech startup consolidation continuing to be a hot trend, along with “a focus on sustainable business models and getting to ‘default alive’ profitability. We think this will be further accelerated by real estate owners focused on scarce budget dollars, startup vendor risk and point solution consolidation.

“Our outlook is still cautiously optimistic,” Yip said. “There is still significant innovation and technology adoption needed in real estate, but many investors are pulling back. We believe that VCs who can help their portfolio companies accelerate customer adoption and shorten product development cycles will continue to be successful.”

Philip Russo can be reached at prusso@commercialobserver.com.

CLARIFICATION: This article was updated to reflect Ned Murphy’s correct job title. It was incorrect due to an editing error.