Last year, I wrote that 2022 is part of a transition period. In this transition period, real estate companies are forced to make choices between the red pill and the blue pill. The world-historical challenges require not only traditional but, more importantly, transformative solutions. I have experienced the past year as a vibrational year with different frequencies. These frequencies represent a level of consciousness 1) business-as-usual - protecting the status quo 2) Pursuing digital transformation and sustainability - doing less harm and 3) Regeneration - building capacity for self-sustaining abundance of life (humans doing things as Nature). For me, it feels in the ratio 85/14/01.
2023 promises to be a challenging journey for stakeholders in the built environment worldwide, and there are always opportunities in a volatile market. 2023 promises to be a challenging journey for stakeholders in the built environment worldwide, and there are always opportunities in a volatile market. Below you can read 10 trends that will change the real estate industry in 2023.
1. Existing real estate systems begin to crumble
The trend blog 2022 describes that we are at the beginning of the great collective awakening and creaking systems. We are currently living in the fourth turning because it is a time of great change and social upheaval. It is a time of crisis when old institutions and norms are being challenged. The economic property system, and all its subsystems often cause more problems than they solve. Despite this, most people in the real estate industry are still clinging to the old familiar system, which is crumbling in the face of numerous economic, social, and environmental challenges. Growing awareness and creaking systems are giving new initiatives more room to grow and people are searching for meaning. More and more people are awakening when it comes to the future of humanity, society and planet Earth and are searching for meaning. This allows many slow-moving positive initiatives to develop, transformative technologies to be ready to scale up, and new trends to reach the tipping point. This perspective focuses not on degradation, but on rebirth.
In 2023, system evolution continues, and we reach a point where we can see what is happening, and what is coming soon, through the lens of the future. The visions and intentions are probably there, but the community is not yet. In 2023, Minimum Viable Communities - MVC is the smallest action you can take to bring people and/or organisations together and experiment with the foundations: value, relationships, and trust - are going to manifest more emphatically. In 2023, traditional relationships transform, and new (surprising) partnerships emerge between real estate and technology companies and cross-industry companies such as, for example, with the gaming industry, farmers, and even Indigenous tribes.
2. Shifts in the early PropTech market
Last year, private investment firms worldwide raised a record $697bn in new funds (overall), figures from data collector Preqin show. This year, the counter remains stuck at $537bn, the lowest level since 2015. According to Creti, VC-backed proptech companies raised $19.8bn in 2022, down 38% from (record year) 2021. According to Metaprop, PropTech industry confidence was at an all-time low in 2022. Monetary policy has dramatically increased the opportunity cost of capital and the threshold for investment. To weather economic headwinds, entrepreneurs are focusing on demonstrability/ transparency, measurement of results/ impact (quantified ROI) and solid path to profitability.
In 2023, the initiated slowdown in PropTech continues in Western countries and PropTech grows in emerging countries (such as India, Nigeria, Mexico, Indonesia, Saudi Arabia). If interest rates continue to rise, then the present value on future cash flow falls which is going to affect valuation and funding volume. Nevertheless, investors still have plenty of dry powder to invest. By 2023, tourism VCs (those who did a bit of it on the side thanks to the bull market) are disappearing from the market. Investments in modular (wood) construction, microgrids, batteries, HVCA optimisation, Space-as-a-Service (mix and multi-use), Multifamily smart home solutions will be popular in 2023. In short, impact-related solutions will be the winners of 2023. There is also an extra focus on generative AI (e.g. ChatGPT embedded) and blockchain solutions. In 2023, the chaff will be separated from the wheat, which will benefit the quality of technology companies invested in which ultimately results in more 'fit for purpose' real estate companies. By 2023, the PropTech market is visibly consolidating (e.g. Lessen x SMS Assist, a $2bn merger), as the market moves away from specific solutions/ functions towards platforms/ integrated solutions. The image of 'smart city' comes under further pressure, as more and more people question whether smart does not stand for 'control'. It prompts thinking about our relationship with digital technology. In short, there are going to be shifts in the early PropTech market.
3. PropTech narrative is changing
Driving digital transformation of the real estate industry has been the PropTech narrative since 2016. This first phase of the PropTech movement is characterised by digitalisation and the digitisation of existing processes. Linked to this are also the buzzword 'disruptive', the quote 'the winner takes all', and the technology push from an Industry 4.0 mindset. Since 2021, the narrative has been visibly shifting towards 'driving the sustainable transformation of the global real estate industry'. This new phase has emerged from increasing pressure to contribute positively to social issues and is being driven by new laws/regulations, social engagement of employees and new talent, new market players, and changing customer demands. This is also creating growing collective awareness and a new influx and growth of impact-driven startups/ scale-ups. By 2022, this sustainability movement within the real estate industry has manifested itself emphatically.
By 2023, the international real estate industry is visibly becoming more involved in solving those future challenges, such as environmentalism, affordable housing and the materials transition, and the call for systemic change is growing. International real estate companies see that 'solutioneering' - buying a ready-made (digital) product/service - is not the solution to solving the world's most pressing issues. By 2023, the new PropTech narrative - driving the sustainable transformation of the global real estate industry - is gaining momentum. The new PropTech narrative reinforces the question "what if impact is our purpose and real estate and technology are our tools?". This means that a growing group of pioneers in 2023 will be looking for a new Return (on Investment), which is going to generate exciting dialogues on with the GDP-driven real estate industry and investors/ VCs.
4. Redefining value
Gross Domestic Product (GDP) is the total monetary or market value of all final goods and services produced within a country's borders during a given period. As a broad measure of total domestic output, it acts as a comprehensive scorecard for a country's economic health. To GDP is mostly associated with words like growth, revenue, sales, competition, market share, profit, shareholder value. The current real estate system is all about one thing: creating as much financial economic value as possible with real estate in as short a time as possible. At the expense of everything and everyone. As a result, nature has invariably drawn the short straw for far too long. By now, we know that the economic system needs to be redesigned. Away from the one-sided financial profit definition and more inclusive definition, incorporating Return of Inspiration, Return of Social Capital, Return of Natural Capital, and Return of Financial Capital. By covid-19, people have become more aware of well-being, but GDP does not measure well-being. In addition, more and more investors are done with the focus on financial results only. They lack meaning and were faced with questions from and about the future generation(s).
2023 marks the 300th anniversary of Scottish economist Adam Smith, patriarch of laisser-faire capitalism. His birthday could ensure that the debate on laisser-faire capitalism is revived, and the future of capitalism is more emphatically questioned. In 2023, the paradigm "value" and "values" for investors converge. In 2023, we will hear globally the buzz words: responsibility, vitality, viability, resilience, circularity (donut economy), regeneration, evolutionary capacity, customer and community retention, and well-being and happiness contribution (Gross National Happiness - Bhutan) contributing to the redefinition of value and the makeover of GDP.
5. Acceleration of new construction methods and materials transition
By the end of 2022, the world population passed 8 billion. The floor area of buildings worldwide is expected to double by 2060. To accommodate the largest wave of urban growth in human history, 2.4 trillion ft2 (230 billion m2) of new floor space would be added to the global building stock (the equivalent of an entire New York City building every month, for 40 years). Achieving zero emissions in new construction requires energy-efficient buildings that use zero fossil fuels on site and are 100% powered by renewable energy on site and/or elsewhere. Looking at all new construction expected to take place between now and 2040, we can see the crucial role embedded carbon plays (did you know that electronic waste is the fastest growing waste stream in the world and less than 20% is recycled). In 2020, The New European Bauhaus (NEB) initiative was launched by the European Commission, linking the European Green Deal to living spaces and experiences and expressing the EU's ambition to create beautiful, sustainable, and inclusive places, products, and ways of life. Von der Leijen expressed Europe's ambition to become the ‘Home of CleanTech’ and industrial innovation on the road to Net-zero. Von der Leijen wants to enable the net-zero transition without creating new dependencies (as is currently the case with the raw material lithium because to achieve climate neutrality, the EU will need 18 times more lithium by 2030 than Europe uses today and almost 60 times more by 2050). Each city, country, region, and continent are taking its own approach to achieve societal goals, rethinking supply chains and trade relations. For example, Saudi Arabia has announced it is building a new sustainable city, The Line, and Tokyo announced it is expanding the city (Tokyo eSG) and will be built around the principles of environmental and social governance and incorporate the latest green technologies.
In 2023, the movement of more regionally oriented value chains continues and is further driven by the agenda of upfront carbon (upfront carbon', will be responsible for half of the total carbon footprint of new construction between now and 2050 and threatens to consume a large part of our remaining carbon budget), the growth of consumption especially in Asia, and international localism (by buying locally, consumers can protect themselves financially, ecologically and psychologically and feel they are giving something back). In 2023, there will be more discussion of stranded assets and the remaining material value with a view to harvesting this regional value. Modern Construction Methods are gaining popularity in 2023, although it is often traditional construction methods (such as Japanese Minka houses) that have been unearthed and heralded as innovative and progressive techniques. The EU's Carbon Border Adjustment Mechanism (CBAM) - will start in October 2023 and will have an impact on the global real estate sector as materials such as steel, cement, aluminum, and electricity are frequently used. In addition, CBAM is going to demand low-carbon design, products, and services.
6. Light at the end of the Carbon tunnel vision
When the real estate industry talks about the climate issue, they usually mean carbon technology. Over the past year, carbon tunnel vision dominated: carbon footprint, carbon equivalent, carbon credit, carbon compensation, carbon credits, carbon emission reductions, carbon offsets, and decarbonisation. Not all real estate companies have yet taken as concrete steps towards net zero as some of the industry's frontrunners, such as NREP or Newsec in Scandinavia with their commitment to reach net zero by 2028 and 2030 respectively, or Charter Hall performing above the global average in terms of sustainability performance. For example, three quarters of the UK office market is below the minimum energy efficiency standards that will be in place by 2030, and the rest of Europe shows similar figures. According to estimates, $500 billion worth of high-carbon office space could be stranded in New York by 2030 because they do not meet green standards and renovation has become too expensive. By 2022, the real estate sector - accounting for 39% of global energy-related CO2 emissions: 28% from operational emissions, from energy needed to heat, cool and power them, and the remaining 11% from materials and construction – was stuck in the carbon tunnel vision. The real estate industry is increasingly recognising - by making Net-zero pledges, funning ClimateTech funds, embracing the Paris Agreement and the New Green Deal, and developments such as Inflation Reduction Act, CBAM (EU's Carbon Border Adjustment Mechanism), the WEF's Giving to Amplify Earth Action (GAEA) initiative - that action is needed to achieve the path to net zero. The conflict in Ukraine and a volatile global economy may have complicated the net-zero transition, but the need to scale up carbon reduction solutions has never been clearer.
In 2023, we will see real estate companies being judged on what they deliver, further increasing the demand for eco-efficiency in 2023. The pressure to implement real solutions - not offsets - increases and those that cannot show tangible progress towards net-zero will be further distanced. In 2023, awareness that net-zero is more than reducing energy and CO2 goes green and biodiversity projects and climate-positive activities are further initiated.
7. ESG is shifting towards outcome
ESG suffered a setback in 2022. The past year saw several ESG washing scandals - BNY Mellon/ SEC, HSBC AM suspended the head of Responsible Investing, Tesla was kicked out of the S&P 500's ESG index, German police, and regulator BaFin raided DWS and the SEC/ Goldman Sachs. Major European asset managers, including Amundi and Axa, and New York-based BlackRock, have downgraded ESG funds that were previously listed with the highest sustainability levels to categories with less stringent criteria. BlackRock and Vanguard have been accused of watering down their ESG commitments. An anti-ESG movement has emerged in several US states, and Florida, West Virginia, Texas, Louisiana, and Missouri have already divested billions of dollars from BlackRock funds in protest. In 2022, you couldn't attend a real estate or PropTech event without a panel discussion(s) and/ or presentation(s) on ESG. Many ESG panel discussions could be summarised as "E is about reducing energy and carbon emissions, Society is hard to measure, and Governance is measuring the E". In addition, the lack of standardised criteria was identified as a problem and ESG integration is "work in progress".
ESG was a major trend in 2022 and will continue in 2023. While ESG was not designed to save the planet, we are at a tipping point in 2023 to move to ESG 3.0 (1.0 exclusions | 2.0 integration | 3.0 outcome). ESG conversations will become more holistic in 2023 and will be more about the sustainability transition and making a positive impact. Nevertheless, the anti-ESG movement is growing in America, as anti-ESG laws are planned in at least 15 states. By 2023, tenants/ users/ partners want more contextual information on impact because they are tired of the endless clamour from real estate organisations to buy their products or services. They want to break through the noise and connect with what really matters to them, such as flexibility, circularity and 'give back'.
Driven by Venture ESG, Venture Capitalists are going to mix and profile ESG more explicitly in 2023. Technology companies will start developing an ESG policy internally in addition to contributing to ESG goals with their product/service to remain (re)financeable. By 2023, there will be a visibly greater focus - driven in part by rising living costs - on the S (Society). Real estate companies are not going to hire Chief Experience Officers (CXOs) en masse. Large real estate companies do start to pre-empt the introduction of CSRD (Corporate Sustainable Reporting Disclosure), which will come into force in 2024 for large public-interest companies with more than 500 employees, followed by companies with more than 250 employees or €40m in turnover in 2025, and listed SMEs in 2026. The ESG acronym will survive in 2023.
8. Push on ‘Fit for Purpose’
The 12th UN Global Compact - Accenture CEO Study shows that 93% of CEOs face 10 or more simultaneous challenges to their business. The top five challenges are: Inflation and price volatility, Talent scarcity, Threats to public health, Climate change, and Trade regulation. Boards and senior management of real estate and technology companies also see these challenges and increasingly understand economic, social, and environmental commitment is a fundamental threat to the company's survival if ignored or delayed. Striving for "a better built environment" is far too vague. Sponsoring a local football club or planting one tree per employee a year (CSR) is insufficient. More and more stakeholders (pension funds, activist shareholders, investors, customers/users, new laws and regulations, the current workforce, and future employees) are demanding a Fit for Purpose organisation. A Fit for Purpose company is socially engaged, change-oriented, curious, technology-driven, future-oriented, and agile.
By 2023, real estate companies will strategically reorient themselves. While many real estate companies will be inward-looking, entrepreneurs are taking the outside-in approach. New value propositions will see the light of day, organisations will be restructured, parts sold, companies acquired and disappear from the scene. In addition, real estate companies are also restructuring because of staff shortages, inflation, energy supply problems, recession threats and increasingly stringent sustainability requirements. The realignment is not just going to ensure that management rewards are linked to SDG/ ESG targets and Chief Metaverse Officers, Chief Xperience Officers, and Chief Regeneration Officers are appointed en masse. Real estate companies are not following Patagonia's lead ‘Earth is now our only shareholder’ in 2023 nevertheless they are going to include planet earth in their strategy for the coming years.
9. The great regeneration is coming
According to ABI Research, public and private investment in green urban infrastructure such as parks, forests and rooftop gardens is expected to increase from USD 606 billion globally in 2022 to USD 978 billion in 2030. Examples of green infrastructure projects include the green makeover of the Champs Élysées in Paris for the 2024 Olympics, the redevelopment of the former Athens International Airport into the Metropolitan Park and Coastal Front, Madrid's Nuevo Norte Urban Forest, and Boston's Green New Deal. In 2022, Boston appointed its first director of green infrastructure. Last year, 31 mayors signed the C40 Cities Urban Nature Declaration, pledging to invest in green spaces. Nature is the undisputed master of continuous innovation, adaptation and, ultimately regeneration. Regenerative thinking and practice challenges us to work with interlocking systems, to look at the world in a very different way from the standard decline in market creation, wealth extraction, and business-as-usual. While sustainable design focuses on mitigating problems, regenerative design is about repairing man-made damage, nurturing biodiversity, and nature's extraction of carbon from the atmosphere as we produce homes, infrastructure, furniture, and food.
By 2023, real estate companies will increasingly ask themselves "what would nature do?". After all, why work against nature when you can also work with nature? In 2023, we are going to see that architecture is not about designing new sky-high skyscrapers but about creating spaces in nature to house functions, programs, and connections. The real estate sector is going to heal the social and ecological systems our people and buildings are connected to before we can realise a sustainable and regenerative future for our cities. Regenerative design / regenerative architecture is therefore getting visibly more attention. Urban regenerators are the new creatives, this group is driving the big emerging regenerative movement.
10. NatureTech is the next big thing
The World Economic Forum states, that 50% of our economy is directly or indirectly linked to nature, although it is difficult to imagine a viable economic activity without functioning ecosystems. Currently, only 17 per cent of land areas and 10 per cent of marine areas are protected. In 2022, the UN Biodiversity agreement was concluded at COp15 in Montreal. This agreement represents an important step in protecting the world's land and oceans and supports efforts to protect the world's climate. Governments have committed to protect 30% of land and water considered important for biodiversity by 2030. Between 2006 and 2011, CleanTech 1.0 saw the light of day. Currently, ClimateTech (technological solutions that reduce the carbon footprint) is hot in the real estate sector driven by the EU New Green Deal and the Inflation Reduction Act. As the property industry continues to look for solutions to the climate crisis and increasingly understands the benefits of 'ClimatTech' and 'CleanTech', nature technology (NatureTech) will play a bigger role over the next 10 years. The report The Nature Tech Market: Necessary, Emergent, Dynamic, found that the current size of the nature technology market is about US$2 billion (A$2.92b) and is estimated to grow to US$6 billion (A$8.83b) in less than a decade. Nature Technology (NatureTech) encompasses all technology that can be applied to enable, accelerate, and scale up nature-based solutions (NbS). NatureTech differs from AgriTech and ClimateTech in that it focuses on the impact on nature.
In 2023, we will see which companies affected by deforestation can improve their due diligence and supply chain oversight to maintain access to key markets. Biophilic design, Biomimicry (the design of materials or structures modelled on biological systems) and Lo-tek solutions are visibly getting more attention at events. During discussions on wood, the elephant in the room is increasingly discussed and the externalities - (Positive) Carbon sequestration, net negative low carbon footprint, promotes health and well-being for users, flexibility through prefabrication and modularity, less construction waste and labor + (Negative) Deforestation due to illegal logging, loss of biodiversity, pollution from transport, greenhouse gas emissions during the sawing process, energy and chemicals used to produce wood products, release of carbon from landfilled wood products - named. By 2023, the real estate sector will look for new value models (e.g. nature-inclusive renovation and exposome: the science that studies the environmental factors we are exposed to throughout our lives) that support the restorative capacity of ecological systems.
How will these trends affect PropTech for Good events?
To give you a taste of 2023. The central theme for 2023 is: #iMpact. Impact means a significant or strong influence; an effect (noun). To influence; to affect (verb). Generate positive social and/or environmental impact while generating financial returns. From PropTech for Good, we will shape the theme of iMpact by connecting people in three areas:
A force for Good – In this theme, we will cover the topics of technology adoption, innovation, system value creation, the organisational transition to a force for Good;
Resilient Cities and Communities – In this theme, we cover the topics of future urbanism, future of work, healthy environment, material transition, and community inclusion & ethics;
Beyond Zero – In this theme, we cover the topics Road beyond Zero, climate adaptation, and the earth's shot of our lives: regenerative cities.
The transition to regeneration is a radical mindset shift. It is a journey of reconnection. Sustainability strategies (such as SDGs, ESG, Circular Economy) focus mainly on policy, technology, and finance. The change brought about by these strategies is incremental rather than transformational. Sustainability is the bridge between degeneration and regeneration and gives time to evolve into transformational innovation. Creating a regenerative culture is not a technological, economic, environmental, or social shift. The regenerative shift must be accompanied by an underlying shift in the way we think about ourselves, our relationships with each other and life as a whole. Regenerative strategies connect policy, technology, finance, health and well-being, compassion and awareness, creativity, play, art and meaning. This is what we will be shaping during the iMpact Summit.
PropTech for Good invites you to participate in these activities. You can find the event calendar here. Would you like to become part of the growing PropTech for Good movement and become an alliance partner? Then get in touch to discuss the possibilities.
Imagination is a superpower
The transition period will continue. This is going to be no different in 2023. The certainty of uncertainty and major complex challenges require human imagination to create a solution. Those who do not invest in solving social issues put their continuity at risk. I see a genuine desire and sense another vibration to learn and evolve, to yes, start doing better in the full knowledge that they need to transform drastically. Don’t forget, imagination is a superpower. Make it an impactful year!
Author:
Founder – PropTech for Good
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