In our recent insights posts, we gave an overview of the PropTech startups disrupting the German real estate market and dug into the segments Design & Build and Finance & Invest.
Today we will dig deeper into the developments within the segment Manage & Operate in recent years, both in Germany and on a global scale. For more context on our methodology, look at our overview article for the segment breakdowns.
For a better understanding of this category, we have grouped startups into the three subcategories Smart Buildings, Property Management (Software) and Space-as-a-Service. You will find an overview and excerpt of startups in the following graph.
The segment Manage & Operate seems relatively small, as we have shown in the overview article. Of the total $960m disclosed funding for German PropTech startups founded 2013 and later, only $98m went into Manage & Operate startups.
The top three in terms of funding are NavVis ($46m), which provides a suite of smart building services including indoor mapping, 3D modeling and digital twin creation, property management software Vermietet.de ($19m) and Home ($15m), which provides end-to-end subletting services for landlords. Successful startups with less funding include Thing-it (smart buildings, $5m), Habyt (coliving, $4m) and ParkHere (smart parking lots, $3m).
Within the subcategory Smart Buildings, interconnected business models have proven to be valuable solutions. With their latest Series C investment, NavVis has built a suite of products which now extends beyond the segment Manage & Operate into Design & Build and a different industry, namely Manufacturing. Their success lies in their ability to offer solutions to similar problems across sectors. And they are definitely on the right track – Samsung and Microsoft just recently launched a pilot collaboration, Azure Digital Twins, on smart appliances management in buildings.
Looking at smart building applications, we find another great advantage: improved sustainability. According to German property association GdW, real estate companies have invested a cumulated €300bn into energy-efficient buildings in Germany since 2010, but have largely failed to solve the problem. While ⅔ of portfolio buildings were renovated, energy consumption has barely stagnated. They are now calling for new solutions to rethink energy efficiency.
Enter IoT solutions. Startup BEAD empowers buildings with AI-analytics for occupancy behavior and energy management. Their sensors collect building data, while the software analyzes and optimizes efficiency. According to their website, they have reduced their client’s CO2 emissions by over 500,000 tons within 2 years. Another German player is Thing-it, which provides preventive maintenance and energy management services for facility managers.
Sadly for the German ProTech scene, BEAD has moved headquarters to San Francisco, US in 2019. And just as mentioned before, with Deutsche Telekom and Nassau RE telco and insurance companies are already participating in a smart building startup.
The line between startups making buildings smart and those empowering property management is blurry. In fact, the property management tool pinestack labels itself as a smart building-operating system. This is to no surprise, as sensors provide a fast and efficient way to observe a building. On casavi’s website, one can already find integrations for smart post boxes, room booking, and consumption analysis.
As the feature sets of these integrated software suites continue to increase, the market will mature and competition will stiffen. Integrating IoT applications into the software will become a must-have rather than a wow feature. As a result, those with only a small suite of features that can neither clearly communicate their value proposition nor are capable of finding a niche within property management will shut down or become irrelevant.
Big incumbents are mostly using proprietary and highly customized property management software. A one-size-fits-all solution will probably not satisfy each one of them, meaning that market reach is limited. And as the mostly large members of GdW have a share of 30% of the German rental market, this is quite a big limitation for market reach. The answer to offering more customized solutions lies within software modularity packed into APIs, such as what pinestack or facilio provides.
And while B2B startups may be more dependent on offering APIs and integrating IoT applications to maintain a competitive edge, the niche focus and simplicity of Vermietet.de on rather smaller customers have paid off. The major problems for their target group of private/ semi-professional landlords involve more general administrative tasks: billing, accounting and tenant management. Their clear focus and value proposition seem to have paid off and stirred the market: they have collected a total of €17m funding and attracted the interest of big incumbents. Players Momeni and Art-Invest Real Estate, both being direct competitors, have invested strategic stakes through their investment arms.
Last but not least, we looked into startups with value propositions around space usage.
Coliving & serviced apartments provider Habyt is competing against supercharged Medici Living (founded 2012), which has received a commitment from Corestate to invest €1bn through a joint venture into coliving real estate, with Medici in turn taking care of the operations. This shows the vast amount of capital potentially available in the German real estate industry.
A model that has been devastated by COVID-19 is coworking. Even before stay-at-home measures came into play, we found only a few small and local German players founded after 2012, all without significant investment or size. German player Design Offices, founded 2010 and funded with €60m in 2018, is the exception in this regard.
While small players often provide a better tenant network and experience, the pandemic is a tremendous test of the true value that coworking spaces provide.
Even giant WeWork has had its troubles, including overselling its tech-skills, a failed IPO, and a pending lawsuit against its majority investor. Nonetheless, surviving will be much easier than for smaller competitors: the average tenant is larger and has longer contracts, providing more steady cash flows.
And while it is estimated that industry consolidation and bankruptcies among smaller providers will follow the pandemic, Dror Poleg draws a picture of how the office space may shift to a more fragmented market, in which the dominant strategy is not to own space, but instead be the aggregator for many distributed mini-offices – a great read in that regard. If small competitors survive Corona, they may benefit from these new dynamics.
In the absence of a fully-present workforce, coworking spaces require creative solutions. A temporary conversion of space into storage or fulfillment centers may provide additional cash flows, for example. In a more general office context, JLL speaks about releasing part of the leased space, and that demand for better-quality offices may increase. Nonetheless, the outlook for coworking in the mid-term is said to be positive as the structural trend towards flexible office solutions persists.
Proptech startups are becoming more and more active in every aspect of the real estate industry, mostly receiving industry backup through strategic investor stakes.
Dedicated PropTech funds like PropTech1, Bitstone Capital, Signature Ventures, Ampolon Ventures, Signa ventures or Alexander Samwer’s Picus Capital have emerged and are growing in fund size on a yearly basis. They are often the first to provide risk capital to technology- and business model innovations. And their efforts already start paying off, attracting and fostering a growing ecosystem of venture capital within the real estate industry.