Investment in the UK’s proptech sector is growing. Currently valued at more than £14bn, the sector is forecasted to reach around £71bn by 2032, as the number of start-up firms continues its upward trajectory to compete with the other 800-plus proptech companies operating in the market.
The US, however, still has the largest slice of the pie, with a 56% share of the global market last year. The US proptech market has from the outset always been significantly larger, compared to the UK. With more than 2,200 companies operating in the region,a greater number of tech companies are battling for position to drive innovation and a real estate sector keen to adopt the latest technologies to digitise workflow.
This became more prevalent during and immediately after the Covid-19 pandemic, when US property companies rushed to adopt new tech such as artificial intelligence and robotics for use in daily business processes. In contrast, UK property companies have been inclined to err on the side of caution, especially when it comes to AI, where a certain level of scepticism remains.
Differences in the way the US and UK property sector operate can also present barriers when it comes to proptech adoption. The UK property sector has more complex lease agreements, which presents challenges for US tech to address such regional nuances. As many of the market’s best known proptech products originated in the US, UK property companies often find it difficult to implement this tech due to incompatibilities.
Big data has been a key driver in the level of business growth seen in the US real estate sector, which in turn has strengthened the proptech market. Property companies in the US have quickly recognised the benefits of using big data in decision-making when it comes to real estate investment and day-to-day operations. This, combined with the size of the market, capital and availability of funds, and a tradition of being a leader in multiple asset classes, has resulted in greater institutional investment and overall interest in the proptech sector.
In the UK, big data adoption has been slower. But this is changing. Proptech products are increasingly being adopted by UK property firms looking to close operational gaps that have developed over the years. The increased level of adoption in tech is enabling US proptech firms to expand to the UK and Europe and significantly increase their business as they look to establish themselves in the region.
Firms such as Yardi and MRI, both originating from the US, have now become global leaders in property management systems. Similarly, US end-to-end commercial tenant engagement app HqO has recently acquired its leading European counterpart Office App, creating a new entity valued at over half a billion dollars. And US proptech unicorn VTS has acquired global leasing, marketing, asset management and tenant engagement platform Lane.
The UK’s ambitions to reach net zero targets by 2050 have been the driving force behind the UK taking the lead, ahead of Europe and the US, when it comes to environmental, social and governance (ESG) matters. Government mandates are forcing the UK and European property sectors to prioritise this aspect of business – an area where the US is playing ‘catch-up’.
The spotlight on ESG has resulted in the emergence of some interesting tech in relation to sustainability and other aspects of ESG, as landlords, investors and occupiers are realising that tech adoption plays a crucial role in future-proofing assets and meeting sustainability pledges.
The result is a surge in investment in the UK proptech sector over the past 12 months, as start-up companies are solving issues of sustainability, logistics, construction, robotics, workplace wellbeing and bringing the metaverse to the built environment. Investment levels have more than quadrupled since last year as the proptech sector continues to grow.
Three trends are likely in the immediate future which will affect the markets. First, tech adoption and adaptability to the changing landscape of tech use in property will increase demand for proptech, bringing opportunities for more start-ups to enter the market.
Second, an increase in the use of proptech will allow for the development of innovative solutions tailored to the nuances and complexities within the UK property sector.
And finally, where the use of big data in the US has been a marked differentiator, an increase in the use of big data in the UK will further increase demand for proptech products and systems.
Stephanie Feigenbaum is lead, processing and automation at REdirect Consulting
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