Market overview – Single family
As the residential market continues to flourish, tech solutions that facilitate virtual real estate transactions from end to end continue to be highly sought out platforms.
Demand for homes continues unabated as sales reached a 14-year high in 2020 – concurrently, the shortage of residential homes rose to 3.8m, a 52% increase compared to levels in 2018. For homeowners, the market frenzy has collectively increased their home equity by over $1.5trn over the course of 2020. We expect this momentum in home sales activity to continue and further drive the need for real estate technology solutions and investor interest in the space.
- Market leaders continue to aim at becoming ‘one-stop shops’ for the homebuying journey, looking to garner fees at every leg of the process – from agent commissions to receiving a cut on mortgage, title and escrow. Key areas of focus have been around consumer data access (specifically lead generation) and tools to facilitate virtual transactions
- Public market activity remains very strong:
- Redfin’s $608m acquisition of RentPath and Thoma Bravo’s $10.2bn buyout of RealPage demonstrate the ‘landgrab’ for value among strategic and financial buyers
- Compass’ public listing on the NYSE looks to be one of many to come with other real estate players, such as Offerpad, Sonder and Matterport joining in on the SPAC boom to go public
- In the private market, investor activity has been non-stop – recent funding highlights the pace and scale of investment in the space:
We believe tech solutions that facilitate virtual transactions will see significant interest from investors over the next 6 – 12 months, and the development of these platforms continues to reshape the landscape of the single-family real estate market.
Market overview – Multifamily
While some headwinds are likely to persist, we believe that the multifamily market is positioned to rebound in 2021.
- The rental market is beginning to show signs of recovery as the percentage of tenants meeting rent payments rose to 80.4% in March 2021 – whilst this is still a decrease from 84.5% in March 2020, it was a substantial improvement from 75.4% in December 2020
- Federal support in the form of $25bn of rental assistance from the American Rescue Plan and possible extensions of the national eviction moratorium continue to stoke optimism in the market
- Vacancy rates are expected to increase slightly to 5.8% in 2021, while rent is projected to drop only 0.2% (a considerable improvement to the 2.9% decrease in 2020)
We believe real estate tech-focused assets can further accelerate recovery in the sector and will generate additional interest from buyers and investors.
- Throughout the pandemic, digitization has become top of mind for property managers, focusing on key functions such as:
- Tenant management to ensure occupant engagement, satisfaction and safety
- Property management to achieve higher operational efficiency
- Smart home features / tech integration given impact on housing / rent decisions
- Investor interest in platforms continued into Q1 2021, with multiple M&A transactions and capital raises highlighting unabated transaction appetite, – the most notable being the acquisition of CoreLogic by Insight Partners and Stone Point Capital for ~$6bn
With the expected rebound of the market, we believe this will in turn further drive M&A activity in the space, positioning the multifamily market for stronger deal flow in H2 2021 and beyond into 2022.
Market overview – Commercial
Commercial real estate (CRE) leaders have moved beyond the question ‘is digitization necessary?’, with the focus becoming how to employ and use technology to remain competitive.
- While recovery in CRE continues to remain uneven, overall positivity remains with pent-up demand for retail goods is hopeful to drive higher in-store sales which in turn is expected to increase leasing activity
- Logistics / warehousing is expected to maintain momentum given e-commerce adoption and office utilization is approached with cautious optimism given vaccine rollout
- Some bright spots can be observed across CRE, such as retail rent collections reaching 87.7% in March 2021, the highest rate since the onset of the pandemic (compared to 40% in April 2020)
Despite an uneven recovery in the commercial market compared to single or multifamily, strategic and financial investor interest in digital solutions continues with the promise of life after Covid.
- Recent surveys indicate 85% of respondents believe technology is crucial in return-to-work planning – tenant engagement and ensuring a safe work environment will be critical, both of which have been top of mind for buyers / investors:
- CRE tech adoption has historically lagged behind other industries, resulting in significant greenfield opportunities and first mover advantage
- Strategic and financial investors are eager to capitalize on this advantage, which has been showcased in the significant deal activity in Q1 2021
As CRE leaders look to remain competitive, we expect to see higher investor interest in assets that make digitization more efficient.
Based on current macro-economic conditions, and unprecedented momentum and innovation in the real estate technology sector, we believe investor interest and M&A deal flow will continue to accelerate into H2 2021 and beyond.
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 ‘U.S. Existing-Home Sales Reach Highest Level in 14 Years’, The Wall Street Journal, 22 January 2021
 ‘U.S. Housing Market Is Nearly 4 Million Homes Short of Buyer Demand’, The Wall Street Journal, 15 April 2021
 ‘Home Equity Continues to Soar: Homeowners Gained Over $1.5 Trillion in Equity in 2020’, CoreLogic, 11 March 2021
 ‘Redfin Completes Acquisition of RentPath for $608 Million’, PR Newswire, 5 April 2021
 ‘Compass Makes Public Market Debut at $7B Valuation’, The Real Deal, 1 April 2021
 ‘Real Estate Tech Startup Offerpad To Go Public via SPAC Merger in $3B deal’, TechCrunch, 18 March 2021
 ‘Lodging Firm Sonder Agrees to $2.2 Billion Gores SPAC Merger’, Bloomberg Technology, 30 April 2021
 ‘Notarize Raises $130M, Tripling Valuation on the Back of 600% YoY Revenue Growth’, TechCrunch, March 2021
 ‘Side Raises $150M at $1B Valuation to Help Real Estate Agents Go It Alone’, TechCrunch, 22 March 2021
 ‘States Will Soon Start Giving Out $25 Billion in Rental Assistance. How to Apply’, CNBC, 22 January 2021
 ‘Retail Rent Collections Within 4% of Pre-Pandemic Levels’, GlobeSt.com, 20 April 2021
 ‘The Future of the Workplace is Now for Commercial Real Estate’, Proxyclick, 2 January 2021
 ‘CBRE Acquires 35% Stake in Flex-Office Provider Industrious’, The Real Deal, February 2021