Real Estate Tech M&A | Real Estate Market Outlook 2022 – Insights – News, Deals & Insights

Market overview – Single-family

As home sales continue to climb, the residential community has been turning towards all-in-one virtual transactions solutions to avoid home closing delays.

Key drivers in this area include:

The surge in home sale activities, motivated by rising interest rates, has put homebuyers on an urgent agenda to close deals on homes. Specifically, the residential housing community witnessed a 7% MoM increase of existing home sales in September[1] as mortgage rates surpassed 3% in the same month¹. As the interest rate continues to climb, we believe home sale activities will continue into 2022 but at a smaller growth rate as the number of homes of the market decreases
Homeowners benefitted from rising home prices in 2021, as they saw a YoY 29.3% equity increase, totaling an equity gain of $2.9tn across the US as of Q2 2021[2]. Despite the rising interest rate, we are expecting an upward momentum in housing prices in 2022, given the lack of housing inventory

We believe the overall momentum in home sale activity will sustain and further drive the demand for PropTech into 2022, as well as investment activity in this space.

These drivers are already having their effect on the market, most noticeably:

Zillow's lack of accuracy in its algorithm to price houses[3] led to its abrupt exit from the iBuying industry in October. Zillow’s withdrawal reduces competition for its major competitors, such as Opendoor and Offerpad, moving their share prices up as much as 20% after Zillow’s exit.[4]
Mynd, the virtual investment and management platform for single-family housing, increased its valuation by almost three-fold, raising $57.3m[5] to make real estate investing more accessible
Reali raised $75m in equity as part of a $250m financing[6] to expand its one-stop solutions (from search to close) into other locations
Lone Wolf's acquisition of Propertybase[7] adds leading websites, CRM, and marketing solutions to its product suite, making it an end-to-end platform for brokers and agents

Investor interest in end-to-end platforms continues unabated as the demand for a more streamlined selling and purchase process grows. These digital all-in-one solutions will, we believe, position the single-family sector for stronger M&A activity in 2022, as platforms look to acquire additional capabilities, aiming for market leadership.

Market overview – Multifamily

In 2021, multifamily investments hit a YTD sum of ~$179bn and are on track to beat 2019's record total of $193bn[8].

Key drivers for this trend include:

The multifamily sector continues to show positive momentum in terms of rent growth and occupancy rate:
- Redfin reported a YoY 20.5% increase in November 2021[9]
- Apartment occupancy rates were also at their record high of 97.5% in December[10], positioning landlords for raising rents
Investors are looking to multifamily assets as a hedge to rising inflation as the apartment rental activity spikes, driven by rising home prices. We believe this momentum will continue in 2022, as housing prices look set to continue rising

PropTech has changed multifamily ownership, tenant experience, and leasing operations fundamentally, providing an alternative real estate experience with higher speed and transparency. We believe the recovery of the multifamily sector will continue to boost the need for digital solutions and investor interest in this space in 2022.

Evidence of these drivers can be seen in particular market updates, including:

Inhabit IQ's acquisition of Resman in August 2021[11] enhances its core offerings specified to the residential market
Entrata raised $507m of minority investment in July 2021[12] to continue expanding its market share
Blueground raised $180m and tripled its valuations to $750m[12]
Smaller players, such as June Homes[14] and Ukio[15], raised $50m and $9m respectively
Sonder is also positioned to go public via SPAC[16]

Digitizing property management remains the focal point in the PropTech investment landscape, as property managers are looking for more visibility and transparency in their operations to save time and costs.

Investors are also betting on the remote working trend that fuels demand for higher lease flexibility to invest in short-term rental firms.

As multifamily operators are leaning towards technology solutions for increased cap rates, we believe investor interest in multifamily-focused PropTech offerings will persist in 2022.

Market Overview – Commercial real estate

Fueled by accelerated economic reopening, commercial real estate (CRE) gained momentum to achieve a strong recovery in 2021, which we believe will persist into 2022 as people are adapting to life with the ongoing pandemic.

Macro drivers for this recovery include:

The CRE community has witnessed record sales of more than $193bn[17], with intensified investment activity in life-science labs and industrial properties
Weaker-performing assets in the past quarters are making a better-than-expected recovery despite the spread of new Covid variants:
- The office segment shows signs of revival in the secondary market with strong rent growth, specifically in the Sunbelt states such as Florida[18]

As the CRE community looks to return to pre-pandemic normal more cost effectively, we believe digitization offerings that provide CRE leaders the flexibility to realign resources will become the main investment theme in the space.

The growth of PropTech in the CRE space is shown by:

CBRE’s 2021 Occupier Sentiment Survey indicated that 87% of large companies plan to roll out hybrid work models[19]. This new normal translates into heightened investment activity in workplace management solutions, which employers rely on for actionable data to plan better:
- iOffice was acquired by Thoma Bravo for an undisclosed amount[20], and in less than two months, it acquired SpaceIQ[21] to expand its platform capabilities, aiming for industry leadership
Virtual workspace solution providers also capitalizing on the switch from centralized offices to distributed workspaces to reconnect hybrid/remote workforce through informal communications:
- Teamflow increased its valuation by almost three times to $200m, raising $35m[22], while the new entrant Nooks raised $5m in seed funding[23]

We believe tech-based workplace solutions that revolutionize the traditional work model will gain significant interest from investors in 2022 and beyond, and the development of these digitization offerings will continue to reshape the landscape of CRE.

Conclusion

Based on the evolving macro-economic conditions and increasing PropTech adoption, we believe capital investments will continue to accelerate in 2022 across the real estate industry. We anticipate seeing higher M&A and public listing activity in single-family and multifamily sectors, as platform companies look to scale by expanding product suites and geographical coverage. On the other hand, CRE-focused real estate tech companies are also riding the investment momentum wave from the single-family and multifamily markets to raise capital. The CRE community is embracing digital transformation, setting the stage for more growth in 2022.

For more information and insight into the US Real Estate market, please reach out to our team

DC Discusses: US Real Estate Technology Market Outlook for 2022

Market overview – Single-family

Market overview – Multifamily

Market Overview – Commercial real estate

Conclusion

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