Another feather in New York’s cap: It's home to the nascent high-tech real estate industry.
The rise of real estate tech is happening in New York and the Bay Area because the former is the epicenter of the real estate industry, the latter the epicenter of technology. Having a deep base of industry talent and advanced customers of lead users can be a crucial advantage to innovative enterprises, as MIT’s Eric von Hippel’s research has long shown. And New York has already zoomed to the top of the digital media industry and related industries because of its extensive talent and expertise in these fields. It will be interesting to see if New York can supplant Silicon Valley in this new field, or if the two can co-exist side by side.
While investment in real estate tech accounted for less than two percent of the total $29.7 billion in venture capital investment in 2013, according to PricewaterhouseCoopers’ MoneyTree Report, it represents roughly as much venture capital investment as in sectors like computers and peripherals, financial services and telecommunications.
The average deal size for real estate tech start-ups grew by nearly 150 percent, from about $3.3 million in the second quarter of 2013 to $4.8 million, according to the RE:Tech study. (Zandieh says he and his company obtained their data by reaching out to partners in the industry). The vast majority of these deals—86 percent—were for early-stage startups, signaling that the industry is just beginning to heat up and attracting more venture capital investments.
Zandieh predicts the investments will only increase; the real estate tech revolution, he says, is just getting started. “Right now, there’s a flood of investment because real estate has been a laggard in adopting technology,” he says. “At this point, [venture capital firms] are putting in capital to solve issues. Really, we’re at the beginning of it. [Investment] will reach its peak in five, 10 years.”
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But another report, from commercial real estate data company CompStak, suggests that real estate tech innovation may have already peaked. According to the report, which is based on data on venture capital deals from AngelList, over 100 commercial and residential real estate companies launched in 2012, while fewer than 25 were established in 2014*.