Post global financial crisis, we are in a “new normal” where asset price growth is no longer linear and the days of 10% per annum increases are gone.
Emphasis has moved to creating value through asset management and repositioning of assets. Specialists like Tristan Capital, who cultivate a sense of stability in a seemingly risky business, have come to the fore. And that’s certainly what’s needed after the last few weeks. Technology is a key methodology in creating value and as such, proptech companies are well positioned to capitalise on this new reality.
It was common consensus before Brexit that the UK market was looking toppy in terms of price, especially in the prime regions. Plenty of investors had moved from being “buyers” to “sellers” in order to take some money off the table and diversify into other asset classes. Tech was one such asset class and Pi Labs has engaged with numerous investors for this exact reason.
Instead of languishing in what might have been and overstating the impact, it’s worth looking at the positive opportunities that now arise from this seismic shift. First, real estate is illiquid and a long term hold. Performance should be measured over a five to seven year investment horizon, not an eighteen month one.
Opportunities in proptech
Second, post-Brexit panic in the property market is short-sighted because there is a huge opportunity here and a surge in open-ended fund suspensions due to liquidity concerns is offset by the weight of dry powder that is sitting in private equity real estate funds globally. Prequin put this number at $775bn in Q1 2016. Third, optimism in the tech sector remains firm.
Many high profile VC firms will continue to invest as normal as they have raised their funds and have capital to deploy. It’s business as usual in London. After all, a weak pound will encourage overseas investors and this could have a balancing effect as the UK will have attractive valuation entry points.
Nowhere are these opportunities more apparent than in proptech. Brexit, however surprising, has given a tremendous opportunity for investors and tech companies by creating a dislocation in the market to create new paradigms, forcing consumers and clients to look at their businesses differently.
There are no two ways about it: things have changed and we must act to reflect these changes. Alternative methods for creating value are required to reap the benefits from this new era and tech will be at forefront of this, leading the charge. In the case of tech start-ups, the opportunities are vast and they’re ready to thrive in this new environment; let’s not forget some of the biggest tech companies were founded in moments of deep recession and uncertainty such as Uber and Airbnb.
Great companies will raise cash in any environment, and VCs still have cash to deploy; these relationships will be vital and will sort the wheat from the chaff. Careful consideration is needed to safeguard stability and get a clearer picture (even the RICS has delayed its sentiment survey to ensure clarity); venture is the perfect solution for these first cautious footsteps into the unfamiliar because the start-ups have it ingrained in their nature to deal with the unexpected.
Venture will continue to offer high returns to specialists like Pi Labs with a laser focus and strong track record, and on like for like basis it is probably a better choice now.
We are in unchartered waters but we must embrace the possibilities a new era throws up. Pi Labs are frontier investors and, as such, we are used to dealing with the unknown and capitalising on new opportunities. We may be in choppy waters now but a path to calm seas can be navigated with time and consideration.