Proptech is getting a ton of attention, but its exact definition is hard to pin down. Co-founders of a big VC in the space spent 18 pages of their book trying to explain it.
- Proptech is in the big leagues now, with a front-page meltdown involving one of the biggest proptech-adjacent companies, record-level investments in proptech companies, and increasing attention from institutional investors and landlords.
- Some define the word conservatively: proptech is the application of digital and software tools to real estate, in the same way fintech is to finance. To others, the term encompasses a new mode of thinking about real estate that's a reaction to the demands of tech-enabled consumers.
- MetaProp co-founders Aaron Block and Zach Aarons's 2019 book PropTech 101 devoted an 18-page chapter to defining proptech and discussing how to categorize startups in the field.
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Proptech is in the big leagues now: with a front-page scandal involving one of the biggest proptech-adjacent companies, record investments in proptech startups, and growing attention from institutional investors and landlords. But what exactly does the term "proptech" mean?
Some define it conservatively: proptech is the application of digital and software tools to the problems of real estate, in the same way fintech is to finance.
To others, the term encompasses a new mode of thinking about real estate that's a reaction to the demands of tech-enabled consumers. In other words, it's what's happened as operators, owners, and tenants adapt to the effects that tech has had on the rest of the economy.
MetaProp co-founders Aaron Block and Zach Aarons's 2019 book PropTech 101 devotes an 18-page chapter to defining proptech and discussing how to categorize startups in the field. They've created a framework to classify and understand the space, but they're also not sticklers for hard definitions.
While proptech is probably the buzziest word for the industry, other terms like real estate tech, RE tech, CRE tech, and built world tech are also in use.
Block and Aarons began to use the term in 2016, a gesture they made to proptech's international community after they heard the term used in Europe. While proptech is probably the leading term to describe this change, Business Insider and many others use it interchangeably with its synonyms. They offer their "short" definition of the term:
PropTech, short for "property technology," refers to the software, tools, platforms, apps, websites, and other digital solutions enlisted by real estate practitioners, from architects to construction managers to brokers. It realizes efficiency and provides innovation to facilitate real estate activities, including designing, developing, building, buying, selling, leasing, managing, appraising, financing, marketing, investing, and so on.
This definition is clear and grounded, but they then complicate it by comparing to the definition of James Dearsley, cofounder of proptech research firm Unissu:
PropTech is one small part of the wider digital transformation of the property industry. It describes a movement driving a mentality change within the real estate industry and its consumers regarding technology-driven innovation in the data assembly, transaction and design of buildings and cities
This definition acknowledges the shift within real estate as part of a "wider digital transformation," what Block and Aarons call the fourth industrial revolution. It emphasizes that this process is as much about a change in mentality as it is about a change in the way real estate is done. In this framing, Block and Aarons say that proptech is a catalyst towards increased wealth in real estate, the largest asset class in the world.
The challenge of classification
Block and Aarons emphasize the importance of classification at the outset of the chapter, especially in a space where categories can overlap and change can come rapidly. Given these conditions, with investment growing exponentially and no real centralized bodies to dictate the terms, classifications vary wildly.
"There are now nearly as many taxonomies for real estate technology as there are analysts tracking the space," they wrote.
They delve into one taxonomy by Andrew Baum, a professor who studies real estate technology. Baums sees proptech and fintech as the two circles in a venn diagram, with real-estate focused fintech as the overlap (think marketplaces for real estate securities or new residential homeowning models).
Within proptech, there are two other subcategories. One, smart real estate, centers around the internet-of-things and other smart sensor technologies. The other, shared economy, has a small overlap with fintech, and contains everything from WeWork to coliving.
And MetaProp's own taxonomy relies on four variables: technology, asset type, geography, and its place on the real estate value chain.
Technology is a simple variable, but as most companies utilize some, or all categories of tech, it is less useful than some of the others. They separate technology into software, basically any sort of software as a service; hardware, any physical components or the Internet of Things; and tech-enabled services, or new business models enabled by tech.
WeWork has utilized all three of these categories with their own internal tenant applications, usage of sensors to design and run their space, and their business model of lease arbitrage.
The next variable, asset type, also contains some overlap. The asset types: multifamily, office, residential, industrial, retail, and hospitality are self-explanatory. However, tech that is helpful in one may be helpful in some, or all, of the other asset classes. This variable defines the "depth and state of the market" for a potential product.
Another variable is geography, especially important in the hyper-local world of real estate. Some products will only work in specific areas, whether as a result of local industry, socioeconomic makeup, or legal regulation. This variable is extremely important, but also self-explanatory.
Block and Aarons describe the final variable, the real estate value chain, as "the most important, useful, and unique way in which we categorize PropTech."
The idea is to break real estate into its constituent parts, "from dirt to disposition." This steps, from financing to actual building, can be broken down into an infinite number of buckets, though MetaPop has chosen eight: analysis and financing, space ID and listing, site selection and negotiation, diligence, development and construction, process automation, space usage and management, and payment and services.
This variable is especially important because it emphasizes a startup's function and usefulness to the real estate industry. It also makes it much simpler to see how startups intersect, and could complement each other.
They see these categories as both extremely fluid and easy for building owners and operators to adapt as it fits the way they typically view their own business. One area of interest, construction tech or "contech," shows how this could evolve. What Block and Aarons now consider a part of proptech, under the development and construction bucket, has the opportunity to become a huge industry, potentially even splitting off from proptech.
This is all to emphasize that its is important to categorize and define proptech, but that its borders will always change.
"PropTech is too dynamic to be framed in steel," they write. "Attempting to lock down categories as the space evolves, we think, would be a mistake. Much better to let the market decide the boundaries and to alter them when innovation or the forces of supply and demand warrant."
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