October 2, 2020
Concern over declining investor support for the proptech sector may have been premature. A sharp pullback in the first quarter resulted in a 41.5% year-over-year decline for the first half of 2020, Deloitte says. However, Q2 investment volume globally was up by more than 100%.
“This second-quarter growth was largely directed toward US proptechs, which raised more than US$2billion and comprised nearly 95% of proptech investments globally,” says Deloitte. “It was also heavily weighted toward proptechs that focused on leasing and purchase-sale transactions, which received 71% of the funding.”
Deloitte says its research revealed a growing dichotomy between recent proptech funding and performance. Many co-sharing proptechs and startups were significantly hit by the pandemic due to rapid contraction in business activity, travel restrictions, and health and safety concerns related to shared spaces.
In particular, Deloitte notes that co-working companies experienced negative rental impacts as some of their primary sources of income comes from freelancers, startups, and small businesses, which were adversely affected by the government-led economic shutdowns. Many of them adopted cost-saving measures, such as layoffs, while others offered discounts and attractive terms to retain customers.
However, during Q2, a large proportion of funding was directed toward co-sharing spaces, which raised U$1.2 billion, “signifying continued investor confidence,” according to Deloitte.
Meanwhile, in the U.S., there was a gradual rise in M&A activity in the first half of 2020. There were five deals in the first quarter and six in the second. Proptechs in the property development and management category continued to be the prime target and accounted for seven of these 11 acquisitions.
“Considering three different scenarios based on the potential speed of recovery from COVID-19—baseline, no end in sight, and fast bounce back—our forecast estimates that total funding in the US proptechs may decline to US$7.3 billion–US$8.3billion in 2020, even as funding improves in the second half,” Deloitte says in a report assembled by U.S. real estate leader Jim Berry and colleagues. “In 2021, we believe funding will likely increase in the range of US$10.9 billion–US$17.2 billion.”
That said, Deloitte’s recommendations will apply to all funding scenarios. “A lower funding scenario will only make investors more selective, increasing competition.”
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