Sep 28, 2022
Amid spiking (but potentially abating) inflation, higher interest rates, SPAC collapses & recession fears, talk of PropTech’s future and VC concerns have dominated recent headlines.
The 2022 Mid-Year Global PropTech Confidence Index, sponsored by PwC, shows that confidence in PropTech - as an industry - is at an all-time low for both investors and founders. Years of unprecedented growth in the industry led to record levels of confidence in 2021. What's behind this abrupt shift? Let's take a closer look.
Investor Confidence has declined considerably, measuring a 5.8 out of 10, down from a 9.3 in mid-year 2021 and the lowest since we have measured the score. PropTech enterprise value-to-sales multiples were down 40% for incumbents and 65% for new entrants from NASDAQ’s 4Q21 all-time high. Transaction volume in the late-stage venture market has declined as some of the most active investors during the recent bull run – non-traditional and crossover investors – exited or meaningfully slowed their deal paces amid well-publicized losses and continued market volatility.
Doom and gloom aside, there are favorable tailwinds for PropTech. Commercial adoption of software and hardware technology is at an all-time high and overall revenue for enterprise software continues to grow quickly. As real estate customers struggle with increasingly challenging environments of their own, they often double down on technology that can provide them an edge on the revenue generation side or the cost-cutting side.
The real estate recession during the global financial crisis of ~2007-2010 saw some of the fastest growth rates for revenue of property management software systems like MRI and Yardi, as the recession forced CFOs to embrace technology as a means to drive efficiency. We believe this trend will accelerate during the current stagflationary environment, as technological efficiency compounds over time. In fact, many of our portfolio companies have experienced record levels of revenue growth and margin expansion in the second quarter of 2022 despite the challenging financing environment.
Only time will tell if and when confidence will increase and while these scores are indicators of the state of the industry, they do not indicate an industry beyond repair. This [wild] economy - record low unemployment, runaway inflation, an inverted yield curve, and strong customer sentiment included - gives us the opportunity to adapt and share best practices across asset types, sectors, and geographies. It’s showing founders how to move toward true capital efficiency and giving investors a new lens on how to make meaningful investments.
As the real estate market continues to evolve, technology will play an increasingly important role. The key for entrepreneurs is to focus on developing truly innovative products that solve real problems. If they can do that, then they'll be well on their way to success. One thing is certain: there will always be opportunities for those who are willing to take risks. Learn more about investor and founder sentiment around the state of the market in the full 2022 Mid-Year Global Confidence Index.