Proptech (short for property technology) is a term for an array of technology in the real estate industry. Proptech often refers to applications and platforms used in buying, selling, renting and managing real estate.
However, it can also be used for building technology used in planning, construction, design and renovation, such as 3D printed buildings, home automation, and innovative building materials. Here’s our look at PropTech, and how it is changing the real estate industry.
Technology has radically altered the real estate industry in the past several years. It has empowered buyers and renters to compare buildings in their area and price range, contact and negotiate with owners, and even tour buildings and plan out renovations before scheduling their first meeting. For owners, it has been every bit as beneficial, providing a wealth of tools for setting rates, managing billing and contractors, recruiting and approving tenants and even planning renovations.
But proptech doesn’t just affect property owners and those looking for property, According to David O'Rell, TenantBase Vice President of Operations:
“One of the most exciting aspects of proptech is that it impacts virtually everyone. People need places to live and work, they also go to buildings for entertainment, dining or medical services. The various aspects of proptech impact the way people design, build, lease, sell, finance and utilize space. And this market is not limited to just the US, it has a global reach.”
While the term is relatively new, much of the underlying technology of proptech is not. You could argue that the roots of proptech go back to the late nineties, when Craigslist began to evolve from an email list to a website. With its simple interface, and free posting, the site made it easy for users to post rentals and real estate for sale, first in a few cities — and then eventually, across the world.
Although the format is similar to traditional printed classified ads, the technology provided many major improvements. Owners could update data instantly, including pictures, links and lengthy descriptions as needed — all for free. For renters and buyers, it was an even more substantial improvement. Instead of finding a paper and skimming through often outdated classifieds, they could sort based on cost, keywords, locations and even most recent posts, and use alerts to inform them of new properties as soon as they went up — all from the comfort of their home.
Around the same time, another app was advancing the possibilities of proptech for homeowners. Starting in 1995, Realtor.com began providing proprietary information on real estate for the industry. In 1996, they expanded to the general public, enabling users to search through tens of thousands of home listings. Over time, they provided more tools for homeowners to better manage home value and home improvement, and search for new homes.
Both Craigslist and Realtor.com changed the rental market to a degree — especially for residential leases and home purchases — but they didn’t really reshaped the majority of the real estate industry. It became just one more channel where a landlord and a renter might connect, but the industry as a whole continued business as usual, evolving much more slowly than other industries. Then came an app that changed everything.
Zillow was launched in 2006 by Expedia and Microsoft alumni, Rich Barton and Lloyd Frink. The company quickly began to disrupt the real estate industry, growing to a $4 billion company with over 2,000 workers in its first ten years. But it wasn’t just an extremely profitable venture — it provided a glimpse into what a modernized real estate industry might look like, both for its residential users and for the commercial market which had yet to release a similar product. As David O’Rell puts it:
“I consider Zillow to be one of the first modern proptech apps due to the way they took assessor data and developed an automated valuation model for every residential property. Everyone wanted to be able to view the Zestimate for their house and other addresses of friends, coworkers or celebrities. It may not have directly changed the process of how people buy homes, but it raised the awareness of proptech and showed what is possible.”
Barton says the founders got the idea for Zillow when they were shopping for family homes.
“After Expedia was acquired by Barry Diller’s IAC around 2003, we took some time and we were trying to figure out what the next thing was. It turns out Lloyd and I were shopping for homes while we were trying to hatch a new business idea.
We were having babies and we were really frustrated that we could not find the information that we needed, the basic marketplace information, so the idea came up and punched us right in the forehead while we were thinking about these other things. It was just like, ‘Wow, it’s 2005, I can’t believe that we can’t access all this marketplace information. We should give power to the people in real estate, too.’ That’s kind of the way we got going.”
Zillow is a central hub for residential real estate. They maintain a database of over 110 million homes across the US, with estimates of home value (called “Zestimates”), images, descriptions and other important information. They also provide rent estimates, and help connect buyers, sellers, renters and realtors across the country.
However, Zillow’s limits are just as important as its functionality. Early on, the team behind Zillow planned to work as a brokerage, not just a hub for home real estate, however according to Frink the broker was a crucial element who could not be automated.
“We thought about being the real estate agent, being the brokerage ourselves. We spent weeks, months doing this project and getting it up and going, and we figured out pretty quickly that there’s a lot of value that real estate agents add and brokers add that was not our area of expertise.
We basically went down the path of let’s just build the website and then learn how to do a better job of connecting consumers with existing real estate professionals.”
Both Zillow’s technological capabilities and their self-imposed limits provide crucial queues for the real estate industry — particularly the commercial side which has lagged behind the residential industries in some ways.
Zillow was founded in 2004, however the proptech industry has only become a major phenomenon in the last few years. Part of the reason for this is the way the industry is structured.
Finding and vetting a property, budgeting and negotiating a deal are always going to be complex processes that require specialized knowledge and professional experience. Additionally, data is valuable — particularly in commercial real estate, where companies have much more exacting demands than the typical homebuyer, and much more complicated lease negotiations than a residential rental.
But the recent growth of commercial proptech has also been driven by other factors in real estate: the rise of telecommuting and the related growth of flexible and coworking space,
“With more capability in the consumers hands, the market is opened up to accommodate the emergence of a new type of consumer similarly created by tech - the start up,” Says Anna Lee, Lead Product Designer at TenantBase. “Proptech responds to consumption patterns. Coworking spaces are a reply to the demand for flexible workspaces and the tech/startup/entrepreneurial trends.”
This has contributed to the growth of coworking companies like WeWork and Knotel that are quickly becoming the largest occupiers of space in major markets, as well as numerous smaller flexible space operators.
“One major factor is connectivity that allows people to work from almost anywhere. You no longer have to be hard wired at your desk and be in an office during normal business hours.” according to O’Rell.
For many users of coworking space, buying a desk to work at or an office is as simple as buying any other commodity. You can show up, pay your rent and immediately be up and running in a coworking space.
This approach is quick and convenient, but it still has many drawbacks compared to traditional lease agreements. Users can end up paying more than they should, for space that doesn’t fit their needs — particularly as their company grows and changes. Unless they’re educated in coworking spaces and have the leverage to negotiate favorable terms, they’ll often run into unanticipated problems, such as a lack of privacy for phone calls and confidential meetings, and a distracting environment that harms morale and productivity.
As O’Rell puts it, “Commercial tenants often need to be educated on the amount of space they will need and the total occupancy costs associated with leasing or purchasing a property.
The decision-making process can also be more complex for commercial tenants depending upon how many people are involved in the decision-making process. All of these factors make it more challenging to develop proptech apps focused on commercial leasing.”
Meeting these proptech challenges demands a combination of technical innovation, broker experience and organizational intelligence. While proptech may one day automate commercial real estate, we’re nowhere close to that point, and attempts to eliminate the human element have so far proven inadequate to many businesses.
For TenantBase, the key to success in the commercial proptech realm is a combination of best-in-class technology and a supportive approach that makes tenants part of the process, says O’Rell.
“TenantBase empowers our clients with technology to be actively involved in the entire process from space discovery through lease execution. Our tenants have a consumer mindset where they want to be actively involved in searching and reviewing spaces online. Our advisors help them identify properties that can work, arrange tours, and provide market information as part of the negotiation process. Our technology allows our brokers to effectively service a larger number of tenants and complete deals efficiently, typically three times faster than the industry average.”
Another factor is positioning ourselves as client advocates. Many brokerages are cutthroat environments, where individual brokers are competing with each other to make the sale. Far from serving the tenant, this approach can actually undermine them. Each broker sits on their own data silo and contacts, which means any individual tenant only benefits from a small part of the organization’s knowledge, and can potentially be undermined by the very company they’ve hired to help them find a property.
We see this as an outdated relic of a less efficient time in real estate. Our team shares information, with a transparent approach that benefit all of our clients. Additionally, unlike other brokerages, the tenant does not have to pay for the service. Small businesses that couldn’t afford the traditional brokerage model benefit from better terms and quicker placement, while larger ones save substantial costs over what they’d normally budget for a brokerage.
While this is an innovative approach for the real estate industry, none of these ideas are new. Businesses from medicine to finance have already benefited extensively from better data sharing, and automation has changed how customer service works in many industries, enabling customer representatives to focus on educating and empowering the customer, rather than selling to them.
TenantBase is a tech-enabled brokerage focused on empowering business owners in their search for commercial office space. By combining powerful technology and brokerage talent, TenantBase is offering customers a best-in-class service experience when it comes to finding and securing office, coworking and warehouse space.