Impact of Inflation, Rising Interest Rates, and Bear Market on Proptech

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Impact of Inflation, Rising Interest Rates, and Bear Market on Proptech

June 28, 2022
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It is important to be aware of the dynamic economic factors that influence the real estate market. Rising interest rates, historic levels of inflation, and a bear market are all impacting property technology, most commonly known as proptech. The relationship between the economy and real estate has an impact on proptech since all of these things are intertwined.

If you’re wondering how proptech is doing in 2022, you only need to look at how much was invested in the first quarter of the year. A record $4 billion was invested in that quarter alone, which demonstrates that investors involved in this sector are very confident that it will only grow in the coming months.

Where Proptech Stands Right Now

The investment of $4 billion into property technology is an increase of more than 40% from the final quarter of 2021. It’s also over 30% higher than it was at the same time last year. Keep in mind that this is speaking about a year where proptech saw record-breaking amounts of investments that totaled $32 billion.

A major part of this may be related to the fact that investors in this sector are more willing to take on risks. Seed and early-stage investments have gone up over 120% year to year. However, mid-level and late-stage fundraising have declined by about 14% in terms of dollars.

The numbers from the first quarter of 2022 reflect that investors are identifying and adopting proptech opportunities with a positive outlook. However, that hasn’t always been the case when it comes to the public image of proptech. For example, proptech stocks performed poorer than expected in Q1 in favor of established businesses, as inflation increased.

The Nasdaq Composite and S&P 500 saw drops of 11% and 6% over this period. The companies that went public through a special purpose acquisition company or a merger saw the most issues. These companies fell an average of 47% in the first quarter of 2022.

According to KBW, the market conditions at the moment are ideal for mergers and acquisitions. These are often used to reset performance expectations and company valuations. This may explain why there were 57 deals of this nature announced during the first quarter, more than 15% higher than the last quarter of 2021.

What the Current Economy Is Doing for Real Estate

When we discuss the last recession, real estate experts harken back to 2008 when the housing market imploded and led to a strong economic decline. The situation today is different and is unlikely to create the same issues in real estate. 

As new services and products are provided through proptech companies, the upside of real estate is easier to access. The “rent to own” market is expanding, because many buyers are no longer able to own a home using traditional finance methods. 

In addition, the tech industry is happy to move forward to help change the housing market into something ideal for now and the future. Venture capital funds are quickly becoming a vehicle for change for companies across a variety of industries. Venture capital (VC) companies create capital and then use it for other companies.

Even if the anticipated rising interest rates, bear market, and inflation were to lead to a recession, there’s a lot of capital available that can be used for companies to do well in these prevailing economic situations. Some of the largest companies might be cutting back, but startups are still building a new economy with work created by proptech brands.

Changes to Be Aware of Today

Whenever the next recession occurs, everyone has a role in putting things back together. As reported by Bloomberg, the ability to own and buy housing, more than other sources of wealth or income, is a massive factor in the increasing divide between those who win in the economy and those who do not.

Giving renters the option to become owners is one of the best ways to democratize real estate, especially as many people have far less in savings now than they did three years ago. While the economy could move in any number of directions, proptech is going to be a part of that change.

While some people look at the economy right now and don’t see hope – it’s important to keep planning and moving toward an improved future. When market instability is a common ground, it’s the time for change to occur. The opportunity shouldn’t be lost and the people leading the pack are those who understand that.

There are a variety of tools that show how innovation can come in the worst times. For instance, construction sites can now be monitored on a remote basis through solutions like OpenSpace and Nabr

Companies that have embraced AI and innovative concepts are also worth watching, such as Vesta and Snapdocs in the mortgage world. There are also companies like Juniper Square in investor reporting and Spruce in titles seeing great success. 

With a recent reset of tech valuations in the public market, the product focus of many proptech companies is moving toward automation and imaginative initiatives that can help with overall growth.

The Causes of New Interest in Proptech

A lot of proptech companies are receiving attention from the public and venture capital markets recently, which has led to more funding to create better technology for those who work in real estate, need to buy or sell a home, or have any other involvement with the industry.

While some of these funding sources have always been interested and involved in proptech, that isn’t always the case. Many major companies that typically work with everyday consumer technology are moving into the industry and investing money on proptech investment.

So, with other industries struggling based on the economy, why is proptech bringing in new investments? There are several reasons and they each have an impact on the current climate for proptech companies. The reasons for sarong new interest in proptech include the following:

Changing Proptech Buyers

In the past, proptech was largely purchased by sales and marketing departments, but that has changed over the last couple of years. Today, many solutions are being sold to technology and operational leaders in companies. 

This has provided more exposure to proptech solutions and made companies more likely to invest due to the technology being useful for a variety of buyers.

Awareness of Climate Change and Waste Reduction

The entire world right now is focused on reducing waste, cutting down carbon emissions, and counteracting climate change. The current solutions aren’t always the best ones. Smart devices, parking management, artificial intelligence (AI), managed wireless Internet, package management, and waste management are all important.

One of the best ways to drive innovation in the real estate world is through proptech. This technology offers new ways to accomplish things that are most important to people. Investing in new solutions that make the world a better place is something large companies and investors care about.

More Interest in Self-Service Options

Major industries, like retail, auto, health, and banking, are all moving toward customer experiences based on self-service. While it has taken a bit longer for real estate to move in that direction, it’s something that is underway. This shows that real estate is moving into the future, which is something that investors are seeking.

For example, virtual and self-guided tours are common today, with homes and apartments. Parking management, Internet buying, and customer relationship management (CRM) now employ AI. Many forms of proptech also make use of cutting-edge technology like virtual reality (VR), augmented reality (AR), and mixed reality (MR).

New Willingness to Use Innovative Technology

Owners and operators in the real estate world recognize the need to change systems and adopt the newest and brightest technologies on the market. The COVID-19 pandemic made changes for everyone, including owners. There was a sudden need to do more with less, and that has carried forward to now.

Centralizing operations was a significant part of the process and has simply set the page for how real estate looks now, and will look in the future. Investing in and creating tools that focus on ease of use, accessibility, and infrastructure has been essential and attracted investors.

Final Thoughts

With rising interest rates, inflation, and a bear market, it’s become more challenging for the average person to purchase a home. However, this turns out to be a positive for all of those who are involved in real estate and rentals. The huge demand for properties has only helped to grow the proptech industry and this trend is only expected to continue.

The massive amount of demand for property technology indicates that people within the industry are using it to succeed, even when other industries might be struggling. The proliferation of new technology lets companies automate processes to create efficiency that will be indispensable, no matter how the economy changes over the next few months or years.