The COVID-19 pandemic is forcing the real estate industry to accelerate its digital transformation, bringing both challenges and opportunities to the sector, according to a new report by independent European venture capital (VC) fund PropTech1 Ventures.

In a paper titled Proptech and the Corona Effect: Impact of COVID-19 on Digitalization Trends in the Real Estate Industry, the VC delves into the impact of the pandemic and resulting economic turmoil on the sector, and explores how the financing landscape for proptech startups and the market opportunities for their investors are expected to develop.

According to the report, in the aftermath of COVID-19, several subsegments of the proptech sector will experience a boost in relevance, while others will struggle to survive at least in the short term.

Changing requirements

Agile startups and those that address rapidly changing requirements and expectations induced by COVID-19 will prosper, the report says, citing for example startups with technical solutions that reduce the risk of infection in office and retail spaces, but also companies in former niche topics, such as decentralized care for the elderly.

German startup Thing Technologies (Thing-it), for example, has developed a new digital solution called Virus Guard that helps reduce the risk of infection. Virus Guard provides an easy-to-install and easy-to-operate solution to control the in and out flow/presence of people in a store or building using sensors.

Seniovo, a proptech startup providing a digital platform that connects local craftsmen with elderly and disabled people looking for age-appropriate and barrier-free reconstruction, is another company that should prosper post-COVID-19, the report says.

The new PropTech1 Ventures paper also comes back to the proptech trends the VC predicted in its February European Proptech Trends 2020 study, and gives a reassessment of these forecast trends that takes into account the possible short, medium and long term impact of COVID-19 on them.

According to the report, “GretaTech,” which refers to all proptech technologies that make the real estate industry more climate-friendly, will attract less attention in the short term, but will nevertheless remain relevant in the long term.

Prefabricated homes (prefabs) and related industries will continue to struggle amid movement restrictions and the after-effects of lock-down in the short term, but in the medium to long-term, these sector should experience growth as COVID-19 strengthens the existing trend towards cost reduction as well as the digitalization of all processes.

On consolidation and M&A activity, COVID-19 will have a negative effect on the short term, but activity is expected to significantly pick up in medium and long term, the report says.

In the short and medium term housing and rental business, companies will see a sharp slump in the short term as global mobility comes to an halt. In the long term, however, the trend towards flexible living and working is expected to revive.

Finally, on all three timeframes, short, medium and long term, COVID-19 will continue to fuel digitalization in the real estate industry, a trend that will only accelerate over time, the report says.

Opportunity for VC investors

COVID-19 has put a toll on startup funding as VC investors shift to risk management mode and primarily focus on their existing portfolio. This will continue in the near future, the report says, making it more challenging for proptech startups to raise new capital.

But this difficult financing situation for startups will actually come to benefit the few dedicated VC investors who continue to actively invest. With startup valuations becoming less overheated due to competition and hype, investors will have the opportunity to get shares at a more attractive price.

And with the crisis likely to turn the digitalization of the real estate from optional to mandatory in the medium to long term, this could prove to represent an even greater opportunity for them.