2021 was not a juicy Disney movie and people are increasingly making the choice between the red or the blue pill. By 2021, we have all begun to look for a new balance. What that looks like differs from person to person. For resulted in a year, I spent mostly online which makes me aware that our world is more connected than ever. This connectedness is reshaping the built environment. In addition, I experienced 2021 as organized turmoil. A year where the system is propped up and was afraid to drop. Covid-19 distracts us and may be "nurtured" to avoid making major changes yet, but it rumbles in the undercurrent.
Last year I wrote about mental health, deepening on ESG, decoding work continues, the dead of PropTech, the race to zero, 15-minutes cities, and new leadership. Every year, it's a great puzzle to write a trend article based on my observations gleaned from conversations with people from all around the world, books, and content I read the past year. Here are 12 trends that will change the real estate industry in 2022.
Trend 1 - Collective awakening
We are in the beginning of a great collective awakening. Awakening to the future of humanity, society, and planet Earth. For example: We know we have a connection problem. Poverty? We have enough money, but it is not distributed in the right way. Food? We have enough food, but it is not distributed equally. Climate change? Our climate is working fine, we will reconnect with nature and change our behavior to become part of nature again. We have the technology (digital, physical, and nature) and we can use it to solve global societal challenges. It is not about technology; it is about human consciousness and our mindset. Technological developments continue to accelerate, and people need to accelerate their awareness.
In 2022, we will look more explicitly for meaning in living consciously by re-evaluating our life goals. We will also look for collective guiding principles. Even the classical property leaders seem to transform themselves more and more into purpose-driven leaders. The creator-economy will grow, and we will see more CommUNITY (of like-minded people connected in circles, coalitions, action groups, alliances, or even micro-economies - part of the decentralized movement, the silent revolution) bringing together uniqueness and working together towards a shared goal. This collective awakening will have a major impact on how we view, use, and experience the (digital) built environment in the years to come.
Trend 2 - Cracking systems
Our current real estate systems are creaking and cracking on all sides. There is a lot of uncertainty about raw materials, supply chains, business prices, labor costs and the demand for talent. One of the most notable incidents in 2021 was the blockade of the Suez Canal by the ship Evergreen. In addition, delayed production, delayed just-in-time shipment, labor shortage and shortage of raw materials/spare parts caused non-functioning supply chains. Stagnant supply chains put additional pressure on the realization of real estate and PropTech projects. Labor shortages lead to rising wage costs. A shortage of raw materials - the earth is not inexhaustible - puts the continuity of companies under pressure. Insourcing production capacity in the region costs time, money, labor, and materials. And the ESG movement demands real prices, including externalities. After years of unprecedented growth, mainly financed by gigantic debts, the Chinese real estate sector is in financial distress. The Chinese real estate companies Evergrande and Kaisa are on the verge of collapse. If these billion-dollar companies are not reorganized in the right way, this could have global consequences and cause multiple real estate and financial companies to collapse.
In 2022, the realization of development and (re)construction projects and the implementation of smart solutions (hardware - 40B Things to 350B Things in 2030) will stagnate. Growth prospects of startups/scale-ups, which depend on smart hardware, will come under pressure. Energy and fuel prices are driving up prices, (hyper) inflation, increasing interest rates, and degrowth are lurking. Local products will get extra attention, which will have a positive effect on the circular and biobased movement. Capitalism promised us predictability, security, stability, and sustainability. But now capitalism is creating unpredictability, uncertainty, instability, and fluidity in 2022.
Trend 3 - The great reignition for the future of work
More and more people are re-evaluating their lives. This reappraisal is about the radical reordering of values that people have with their home life, their family, their friends and with work. This movement has led to the beginning of "the great reignition". The movement is growing, and people are looking for answers to (life) questions such as: "How does work give meaning to life as we face loss and trauma on a social level? How can we build a different relationship to work? These questions are bigger than the office workplace. To answer the questions, we need to extend the conversation to family, friends, business stakeholders and our inner selves. In 2022, more companies (possibly in collaboration with real estate partners) will be looking for answers to the questions "How do people think about the future of work and where are we moving physically and digitally?" In addition, the status quo of the workplace will be openly questioned (going beyond a different interior for collaboration and a smart building) putting pressure on current real estate business models. The office is becoming more of a facility than an office for work.
Trend 4 - Metaverse: hype or is the next BIG thing
The metaverse was the tech word and hype of 2021. The metaverse has several definitions. For example, Oxford Dictionary defines it as "a virtual-reality space in which users can interact with a computer-generated environment and other users". According to recent reports, the metaverse market would grow to more than $1,544 billion in less than a decade. In 2021, Facebook announced that it would become a metaverse company and change its corporate name to Meta. As a first step, Meta has launched a new VR platform Horizon Worlds where Americans and Canadians can meet and play games virtually. Facebook is not the only one with Meta plans. Companies like Tencent, Amazon, Microsoft, Apple, EPIC Games (Fortnite) also have big metaverse plans. Companies such as Nike (acquisition of metaverse fashion company RTFKT), Adidas and auction house Sotheby (sale of digital art) are already part of this development by offering their products digitally.
Real estate is also playing a central role in the metaverse. In November, Tokens.com bought $2.4 million worth of "real estate" in Decentraland. In the same month, Republic Realm bought a piece of land in The Sandbox for $4.3 million. When we talk about the metaverse, words like web3, NFT (Non-Fungible Tokens - $40B market in 2021 - Disney, AE, WWF, et al are already using this), crypto, DeFi, blockchain, and DAO (Decentralized Autonomous Organization) are quickly used. For example, cities in the physical world can have a digital twin in the metaverse and their own crypto currency (read more about Crypto Cities). For example, the city of Miami already has its own MiamiCoin. They launched the cryptocurrency to fund city programs and may even replace taxes in the future.
In 2022, VR/ AR/ MR companies active in the real estate sector (such as Matterport) will use the metaverse hype to sell their immersive technology. In 2022, it is too early to speak of a fully-fledged new real estate asset class. The Metaverse is not going to eat the world, but create a whole new world, from entertainment to community to money to identity. Marc Andreessen said: "Any failed idea from the dotcom bubble would work now". The Metaverse trend is not so much technological. It is cultural and social. The metaverse will not be multiverse madness in 2022.
Trend 5 - Catalyst of innovation
BCG published the report "Overcoming the Innovation Readiness Gap" in April 2021. One of the conclusions is that 90% of the companies that perform better on innovation show a clear involvement of the C-suite in the innovation agenda. 31% of companies see poor collaboration between marketing and R&D as the biggest obstacle to better return on innovation investments. People have had time to think and innovate over the past 12-18 months. There is also more capital available than ever before, which means more crazy ideas are getting funded, which in turn leads to more breakthroughs. And the cost of doing things is getting cheaper too: the number of experiments being conducted in the "Silicon Valley garage" is exploding. The number of international patent applications has risen four per cent year-on-year to a record 275,900.
Amidst the countless tensions of the past COVID-19 years, creativity is flourishing in the real estate sector (and in other sectors). And while many office-related healthcare solutions have seen the light of day, others are seeing the results of taking a step back to look at the bigger picture. In 2022, these new ideas and innovations will be crucial to solving a range of societal problems. In 2022, many new green, digital initiatives will see the light of day. Initiatives that lay the foundation for impact climate positive ventures.
Trend 6 - Power to the PropTech startups and scale-ups
The world is richer than ever, but much of that wealth is stored in real estate and stocks. Or in venture capital funds, waiting to be deployed. 2021 was - by and large - a record year for venture capital. In the first three quarters, $454 billion was invested. Larger funding rounds dominated, and the number of unicorns (currently 959) grew. Early-stage financing grew the most, with 104% year-on-year and 11% quarter-on-quarter. In the first three quarters of 2021, $32 billion was invested in PropTech (7% of $454B).
In 2022, the traditional 'financing party' will continue, despite interest rates and inflation going up. PropTech VCs will be looking for their own differentiation to really make a difference to their portfolio companies and LPs. In addition, the number of M&A transactions is increasing. PropTech startups and scale-ups will demand better terms from their investors. Impact ventures are looking for investors who really fit them and are looking for KPIs to measure impact.
Trend 7 - Net-zero: from pledges to action
In 2021, the climate agenda became mainstream, prompted in part by COP26 and nature's awareness of the situation over the past two years. The tech sector is taking the lead. Apple promises to be climate neutral by 2030, while Microsoft will even be carbon neutral by then. With the Green Deal, the EU wants to be climate neutral by 2050. Decarbonization means using less CO2 and compensating for it. That will be a big challenge for the (real estate) world in the coming years.
The real estate sector could become the new oil industry if it does not take responsibility to reduce CO2 and at least become climate neutral. The past year (inter)national real estate companies have communicated their promises (such as Bouwinvest, Redevco, Nuveen, NREP, PGIM Real Estate, CDL, et cetra) and the number of companies, municipalities, and countries is growing. Communication is one thing, converting these promises into action is another. This requires new knowledge, skills, and vision.
In 2022, a dominant material-related net-zero movement will emerge. Moreover, the need to jointly develop Scope 3 activities is growing as the low-hanging net-zero fruit is being 'picked'. The undercurrent of the regenerative vision is growing.
Trend 8 - Concerted action to accelerate ESG
ESG assets could reach $53 trillion by 2025, Bloomberg reports. And the drivers behind this are not just altruistic. There is a growing belief that financial and ESG performance are correlated. Integrating ESG factors offers companies lower volatility in their stock performance compared to their peers. In 2020, ESG became mainstream. In 2021, real estate companies started to think seriously about how to make a sustainable impact and communicate their plans and progress to stakeholders. In 2021, environment (energy and CO2) and governance (mainly on reporting) dominated ESG panel discussions and events. In 2021, ESG also landed at PropTech VCs. An ever-growing VC group jumped on ESG, primarily to fund scalable SaaS solutions such as Clarity AI or Measurabl. VCs also started to adapt their communications and organization and build new ESG funds.
Looking ahead to 2022, growing ESG awareness in the real estate sector and among technology companies has paved the way for a significant increase in ESG initiatives, investments, and funding. Startups and scale-ups are starting to translate their products/services more into ESG objectives. Given the venture capital industry's increasing focus on ESG, founders of startups seeking investment should be able to better anticipate ESG issues now and as the company scales up in the future. VCs that do old wine in new bags (ESG washing) will have a harder time. Real estate companies will increase their communication to their stakeholders to realize their ambitious ESG plans. Although the environment (especially carbon) will continue to dominate discussions, I expect that this topic too will be approached more holistically and that Social (with additional attention to Diversity, Equity, Inclusion, and Belonging) will be the linking pin to achieve many goals. In 2022, it is unlikely that many real estate companies will include ESG-related targets when determining executive pay.
Trend 9 - Larger climate shadows
Action on climate is no longer optional for companies: climate risks will affect 68 of the 77 major industry categories. That is 89% of the market value of the S&P Global 1200. It has become a simple risk-benefit analysis: doing nothing is a liability and taking action is an asset. Climate is not a new topic for the real estate sector, but our language and actions are changing. The built environment (cities) produces 80% of our wealth and >80% of our carbon footprint, so some focus can accelerate our journey to achieve our net zero pledges. The COP26 meetings resulted in several commitments as leaders pondered what it would take to stabilize the global temperature rise at 1.5°C and achieve other energy-related sustainable development goals. Many say net zero is the new organizing principle for business. Now is the time for action that protects the planet and brings sustainability goals closer. COP26 was a pivotal moment, not only for the planet, but also for leadership. We are becoming more aware of our footprint; but it measures everything except what makes life worth living. What about your climate shadow (the sum of our life choices that affect the climate emergency)? What do you consume? What choices do you make? What do you pay attention to?
To know the true extent of its impact on the planet, the real estate sector is going to create a bigger climate shadow. In 2022, real estate investors will value companies that take bold steps to finance sustainable actions more positively. As awareness grows, employees will ask their boards, "What are we doing to scale up climate action and emergency response?".
Trend 10 - ClimateTech is going to thrive
2021 was a breakthrough year for awareness of climate technology (ClimateTech). Early-stage investments in climate tech companies - they have climate action at their core - skyrocketed. In general, impact ventures (planet positive and purposeful startups) are being taken more and more seriously. More money than ever before is being pumped into these ventures. In the first nine months of 2021, investment in the sector rose to 11% of total technology funding ($10 billion) - an increase that is twice as fast as total technology investment. Europe leads the world in this area, while America leads in terms of total funding in technology startups. According to Sifted, climate technology investments in Europe have increased by a factor of 7 in the past five years, more than the global average of 4.9x. Sustainability-focused venture capitalists in Europe have raised $1.8 billion so far this year, including the €350 million fund of Ecosia-backed venture capital firm World Fund. In the real estate sector, ClimateTech has also received additional momentum thanks to the efforts of companies such as Fifth Wall, 2150, and CREtech Climate.
By 2022, ClimateTech will be thriving. High valuations, a huge amount of money to invest, FOMO among investors, combined with the need to fund innovation on a planetary scale provide a strong tailwind for climate technology. The hunt for Gigacorns (a company that has succeeded in reducing or sequestering CO2 emissions by 1 gigaton per year and is commercially viable) continues. Pressure on VCs to invest in ClimateTech hardware solutions continues to increase. More real estate companies will hire a Chief Carbon Officers and cities will hire more Chief Heat Officers. In addition, the real estate sector will broaden the definition of ClimateTech, giving biobased, Internet of Nature, Circular movement more space to thrive.
Trend 11 - Cybersecurity on the board agenda
As the world becomes increasingly digital, we see an increasing number of personal and organizational cyber-attacks worldwide. In July 2021, 10 countries simulated a global cyber-attack on the global financial system. Several companies have been the target of major cyberattacks in the past year, and companies have become more vulnerable to destructive attacks, in part due to increased remote working because of the pandemic. Consider the attack on oil pipeline company Colonial Pipeline, which shut down pipelines. It led to oil shortages and hoarding in some places in the US. As the real estate sector is also becoming increasingly digital through digitization and digital transformation (smart solutions, smart cities, smart buildings,smart homes, smart devices), cyber security is becoming an increasingly important issue.
In 2022, more attention will be paid to cyber security in the real estate sector. In order to defend themselves against cyber-attacks, employees must be trained to recognize network attacks and prevent them from damaging their company's image. Pen testing will become a standard procedure in the selection of PropTech solutions.
Trend 12 - Regeneration is the new buzz word
The term regeneration ("regenerative" literally means "to bring forth again" (from the Latin verb regenerāre - the prefix "re-" means "again" and the rest, "able to bring forth or create") was increasingly used in 2021. From sustainability to regeneration is a radical shift in mindset. It is a journey of reconnection. Sustainability strategies focus on policy, technology, and finance. The change brought about by these strategies is incremental and not transformational. Sustainability is the bridge between degeneration and regeneration and allows time to evolve into transformational innovation. Regenerative strategies connect policy, technology, finance, health & well-being, compassion & awareness, creativity, play, art, and meaning. The world's greatest social challenges can be solved by real estate companies. The real estate sector can live well by doing good. By unlocking people's potential, we can empower the global business community to take actions that are better for the world, good for business and life-changing for people.
In 2022, there will be a growing awareness that the property sector plays a crucial role in the quality of life on earth, and that doing less damage is not future proof. We are going to see 'regenerative washing' announcements from traditional real estate players but also promising regenerative area development projects.
Transition period
2022 is part of a transition period. Barring unexpected events (black swans), people and businesses can start looking forward to shaping their future instead of struggling through the present. A turnaround starts with a critical look inside, making people aware that it will never be 'the old normal' again. In 2022, more people in the real estate sector will be faced with the Matrix choice of the blue or the red pill. Fighting for the old normal or creating the new. In the undercurrent, small communities of sustainability pioneers, hackers, crypto currency believers, do-it-yourselfers, open-minded thinkers, and other alternative thinkers are busy creating the new by capitalizing on the above trends. This undercurrent is becoming increasingly dominant.
How will these trends affect the PropTech for Good activities in 2022?
The PropTech for Good movement is part of the collective awakening. It is our mission to to empower people to create a responsible, resilient, regenerative environment. Our work focuses on creating meaningful experiences around three interlinked themes: property + technology + for Good. During our activities, we will discuss with our partners the impact of the cracking systems and the great reignition and explore how we become robust or even antifragile. In addition, we will increase our climate shadow by making conscious choices and where possible we will address the necessary holistic approach for ESG, net positive to pave the way to regeneration, and the importance of investing in ClimateTech. We have been following the metaverse for a year now [listen to this podcast] and in 2022 we will continue to shape this trend, because we believe it is not hype.
In our main theme for 2022, everything comes together. Our main theme for 2022 is 'Futureproof cities: 2030 and beyond'. To shape this theme, we will work with our partners, ambassadors, media/network partners, and our global ecosystem. For 2022 we have ambitious growth ambitions for the business alliance, because now is the right time for it. We invite cities, the real estate sector (total life cycle), and technology companies to share with us their most pressing societal issues and challenges (Sustainable Development Goals and ESG goals), which will give us the opportunity to create sustainable solutions in partnership with our ecosystem.
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I wish you a healthy and entrepreneurial 2022!!
Author:
Menno Lammers
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