I had a great call the other day with Jim Young, arguably the one person in CRE tech with deepest knowledge and longest history of the sector. Jim started Realcomm when many of the current crop of startup founders were still in diapers (sorry Jim, I am of the “mature” kind myself :). Jim and I chatted about the current state of the startup/CRE tech scene and it was really insightful to get his perspective on what’s happening currently and what’s likely to happen next. Jim and I also discussed his fascinating blog and chart on his website, which details the history of CRE tech in market cycles. Really smart stuff, great insights and interesting historical perspectives.
My talk with Jim really got me thinking about where we are in the CRE tech cycle overall. As someone who is in the space full time and spends almost all of my time meeting and connecting with startups, I think it’s very easy to get lost in the weeds and not see the macro trends at work. But I think it’s important to step back and really analyze where we are in the overall CRE tech cycle.
I never claim to be an expert in deep tech, but I do spend a lot of time thinking and planning for market cycles and try to anticipate where I think things are headed from a macro point of view. It’s no different than when I was running my PR firm for decades... I saw that that industry (and the media in general) was going to get hit by seismic changes in its business model. Therefore, I made the decision to join the tech world because I thought that it was also where content and media were headed (and while I hate to toot my own horn, I think I was right about that one).
Back to the CRE tech sector… so where are we?
Well, in my humble opinion, the cycle we have been living through over the past five years or so is just about over. Done. Finito.
That cycle could be described as the true “startup period” where hundreds, if not more, of startups rushed onto the scene! They got some funding, got something built, got a little traction, and generated some revenue. Many of the founders were first timers and still even more were new to the real estate scene entirely. But it was an exciting period to be a part of and an important first step in building a mature, viable tech ecosystem in the commercial real estate sector. And now, it’s just about over. And here is what has emerged:
A handful of successful, well funded sites with strong leadership that are aiming at becoming a larger ecosystem for multiple CRE tech solutions.
Many good sites, with good tech and solutions, but little capital and customer engagement. The best of these sites will be sold or wrapped up into one of the larger sites above.
New investment in startups has virtually dried up. The VC/Private Equity/sophisticated investors have seen that revenue is far off, there have been no exits and no quick exits and so the money is on the sidelines for the foreseeable future.
Industry adoption is still very small. While it is growing, it has a long, long way go.
Failures will become more common as a result of all of these trends.
And so, I think we are really at the end of that initial “Gold Rush”. Reality has set in. Those that thought it was going to be quick and easy have left and gone back to what they were doing before. Those that invested early have probably written off their investments. And those that remain and have the resources and stamina to go forward, will emerge stronger than ever.
And then what will the next phase be? And what does it look like? And who will lead it?
Well, it’s already started. And it will be the era where shit really begins to take off and the industry gets to a whole new level of adoption and maturity.
It looks like this:
Big, big dollars being invested. The days of startups getting off the ground with a few hundred thousand in seed capital is over. Huge investments are being made in new tech solutions from companies with very deep pockets.
Landlords and brokerage firms will take the lead. I met with one huge landlord last week (I will be profiling them in blog soon) who is committing $100 million to venture investing in the CRE tech space. I met with JLL, CBRE, Colliers, Newmark and others that also also planning multi-million dollar investments in technology for their own company and professionals.
A handful of ecosystems will emerge and be the “Bloomberg” of CRE tech. If you spend enough time as I do with the end-users of the CRE tech products (brokers, owners etc), there is a real sense of overload with too many one-off sites. The pack is clearly separating into those with resources and traction and those without. Look for the race to build the one large ecosystem that the majority of the industry will engage with on a daily basis.
So, that’s my crystal ball. As someone who has been in this business for a long, long time, one thing I have learned is the real estate business is that it goes in cycles. And the key is to anticipate them as best you can before you get left blindsided. Hopefully those in the CRE tech space are also spending their time thinking about this current market cycle and planning accordingly, because in my book, I would bet the biggest opportunities are in front of us. But change, big change, is inevitable and part of the the normal lifecycle of every industry. And the CRE tech sector is no different!
Come meet Michael in San Francisco on June 8th at CRE // Tech! Tickets are on sale now!