PropTech: The Costs And Benefits Of A Real Estate Revolution

by: ING Economic and Financial Analysis

A lack of innovation in the real estate sector.

5 ways PropTech will change the real estate sector.

Bad news for realtors.

By the ING Economics Department.

Lead author: Maurice van Sante, Senior Economist, ING Economics

The traditional role of the estate agent is under threat. A digital revolution in the property market is improving the use, sale and hire of buildings, with significant benefits to consumers and corresponding challenges for industry insiders

Chapter 1: A lack of innovation in the real estate sector

Fact: There is limited innovation in the real estate sector. The real estate sector is not known for its innovation, and there are three fundamental reasons for this.

  • Extremely low expenditure on R&D

This image is made clear when you look at the figures below. Investments in real estate R&D is very low in different European countries, whereas it's much higher in other sectors, such as services.

  • Low innovation explains low growth in labour productivity

The lack of innovation in real estate is reflected in the sector's very low productivity in comparison to other industries. Productivity measures how much work is done by people employed in the real estate sector; for example, how many lease contracts one administrative worker processes and how many home sales an estate agent supports. Labour productivity in the real estate sector expanded by less than 5% in Europe this century. In the total European economy, this grew by almost 20%.

  • Opportunities for innovation through global investment in PropTech

New technological developments, however, ensure that the real estate sector will start to make significant innovations in the coming years. PropTech companies attracted more and more money for growth in recent years. The globally invested capacity in PropTech increased from below $200 million in 2011 to over $2.5 billion in 2016. In 2017, WeWork alone attracted $4.4 billion in financing for further growth. These figures also have an impact on the European market as a lot of PropTech is easy to scale up internationally.

So why is there still little innovation in the real estate sector?

The traditional culture is often mentioned as a cause. But why is the culture traditional and why has there been relatively little innovation for a long time? This concerns the specific market structure of the real estate sector. This inhibits innovation. The most important factors are:

  • The long operational life of real estate

The long operational life of real estate means that new technologies are slow to replace the old. The car fleet, for example, has been entirely replaced with new cars in just one or two decades. For real estate with its operational life of sometimes over 100 years, this process is a lot slower. The addition of new technologies to an existing building is also costly. Although this sometimes does happen, upgrading the total stock is slower than for other goods. When making improvements to leased real estate, for instance making this more sustainable, there is also a problem of ‘split incentive.’ If it’s mainly the tenant who profits from the sustainability investments, the incentive for landlords to invest in this is low.

  • The high entry barriers for start-ups

Investing in real estate is extremely capital-intensive. This results in considerable entry barriers for property investors. Not every starting entrepreneur from another sector with a good, innovative idea can just enter this sector. This means that it is the current real estate owners who largely determine what is built. As tenants also find location to be much more important than an innovative building, the incentive to invest in innovations is limited. New developments are therefore implemented less quickly. High entry barriers are not present in all real estate sub-sectors, such as real estate agents.

  • An opaque marketplace

Each real estate project is unique. This means that there is less direct competition on the real estate market. For the average market operator it is also difficult to estimate the value of a real estate object independently. The owner of real estate knows more about real estate than the rest of the market. This gives the owner of real estate market power. Moreover, many regulations and complex ownership structures make real estate transactions bureaucratic, complex and opaque.

Chapter 2: 5 ways PropTech will change the real estate sector

The word PropTech has already been discussed. By "PropTech" we simply mean the applications of new technologies that make the use, sale and lease of real estate more efficient and offer new functionalities.

We have divided PropTech into four sub-categories (displayed in the graphic below) and we will explain how each factor will change the industry.

1. Rental platforms and ‘Space as a Service’: Satisfying demand for flexibility

What do they do?

Rental platforms: they link tenants and landlords through digital platforms, or marketplaces. Tenants and landlords can therefore find each other easily, making a better and faster “match”, which reduces vacancies. Examples of rental platforms include Funda in Business, for commercial accommodation, and Skepp and Flexas, for offices.

'Space as a Service': Companies like WeWork (we'll come back to WeWork later), Tribes and Spaces are not rental platforms because they do not link tenant and landlord. They rent properties themselves for longer periods and divide these into smaller time and space blocks, with the aim of leasing these. This enables these companies to ensure a better match between supply and demand.


Flexibility and Big Data: the trend for further flexibility of the economy is an incentive for rental platforms and 'Space as a Service.' The increase in smaller companies (self-employed persons) is resulting in an increased demand for smaller spaces for shorter periods. Technologies such as the internet, big data and data analytics are lowering transaction costs in matching the tenant and landlord, enabling the growth of business models such as platforms and providers of Space as a Service.

2. Sales platforms: A more transparent real estate market

Linking the seller with a buyer

Sales platforms are (digital) marketplaces where buyers and sellers of real estate can meet. Examples are Funda,, Pararius and Jumba. Estate agents can also offer real estate via their own website.


Big data: The availability of big data in real estate reduces risks across the industry. Many real estate platforms currently on the internet are still relatively simple websites in which property is offered in a kind of “digital window.” By using (big) data, data analytics and artificial intelligence, these can match supply and demand much more effectively. This makes the real estate investor market even more transparent and can increase the liquidity of real estate through lower transaction costs.

Blockchain: To facilitate an increase in the sale and liquidity of real estate, companies are developing various new platforms, including Atlant, Bloqhouse and Brickex. Some platforms aim to go a lot further than just bringing together supply and demand. In this way, real estate is absorbed under a kind of fund and investors can sell their stakes (among themselves), dividing up the real estate investment. For the administration, blockchain technology is sometimes used to sell the stakes (so-called tokens). If agreements are made, a blockchain can safeguard the ownership of the stake. The price risk does, however, remain and can fluctuate. An additional advantage of the blockchain is that investments can be divided up into smaller sections and transaction costs can be reduced dramatically.

3. Administrative management: Further digitisation

Lowering transaction costs through a more efficient admin process

The continued digitisation of administrative management will lower transaction costs through a more efficient administrative process. The large number of involved parties means that current administrative processes are often complex. That is why many transactions are recorded on paper and are at most distributed by e-mail as digital PDF. Digitising forms, contracts and signing offers a solution for this. So applications that ensure the entire admin process for sales and purchasing and/or rental of all (legal) forms is digitised, will run faster, more efficiently and cheaper.


Digitisation: Digitising makes the sales and purchase and rental processes much more efficient, faster and cheaper. Various market participants benefit from this. For example, the cost of valuations is reduced by using big data. In some cases, blockchain offers a solution to optimise processes.

Case study - Vesteda digitises, saving 24 working hours a week:

Vesteda staff used to have to print out the hire contract, send it, rescan it after signing and send it out again. Now the entire process takes place digitally, including the signing, via All related documents, such as the general conditions and tenant guide are also sent digitally. Employees used to spend a lot of time on basic administrative tasks, such as walking to the printer, scanning and taking to the post. It is estimated that this saves three FTEs (24 hours a week).

4. Smart Buildings: Digital services in the building

Smart buildings meet the requirements of their users

Smart Buildings are about digital and other services in building efficient buildings which ensures:

  • More efficient use of space
  • Lower energy consumption
  • A healthier indoor climate.
  • Services for user convenience.

Through the use of technology, a Smart Building senses what the user requires and facilitates this. Extra services and improved occupancy deliver added value, which means that the tenant may be prepared to pay a higher rental price per m2.


Customer requirements, big data and IoT: Sustainability, ‘healthier buildings’ and more efficient use of space are becoming increasingly important tenant requirements. The rise of the Internet of Things (IoT), computing power and big data enable this through Smart Buildings. The combination of connectivity with additional computing power and sensor technology results in buildings that generate huge amounts of data. These big data give information about the use of buildings. The huge challenge is to filter useful information from all these data and to do something useful with this for the user.

Case study - The 'Google analytics for buildings'

Marcel Lamers CEO & Co-founder of Lone Rooftop compares a building with a website. Online marketeers see exactly how many people visit their websites. Real Estate Managers generally don’t have this insight regarding the use of buildings, which results in sub-optimal use. That’s why Lone Rooftop has designed a ‘Google analytics for buildings’. Lone Rooftop measures the occupancy of a building via Wi-Fi signals. They use the existing infrastructure which means that no additional investment in hardware is needed. The result is that organisations can see any inefficiencies in the building at a glance. It can improve building occupancy by 20% or more, which reduces hidden vacancies and offers considerable cost savings. Users in an office can also find an available workspace more easily. Connected to this, there were requests for applications such as cleaning and lighting. Lighting doesn’t need to be on in rooms where nobody is present and cleaning can be prioritised according to use. Lone Rooftop does this in cooperation with other companies, with the aim of reducing organisations’ carbon footprints. And the service is not only for large office users, Wageningen University, for example, also use these data to timetable lectures more efficiently.

5. The tenant's customer journey: To digital

From a digital window to a complete 'webshop'

The real estate process is currently hardly digitised. Only the orientation process takes place digitally via internet (e.g. Funda). All steps after this are generally not digitised. Significant steps can be made in this in the coming years. Consider how webshops (e.g. (NASDAQ:AMZN)) have currently digitised almost the entire customer process from orientation to returns in the retail trade.

Algorithms help in selection and VR for first impression

Algorithms from platforms can make selections of buildings based on the personal characteristics of the tenant. Where an individual real estate agent understands a part of the market and can give, for example, 10 suitable objects, an algorithm can overview the whole market and can offer 50. A first impression of a building can take place via Virtual Reality and contracts can be signed digitally.

Smart Building gives advice for optimum use

The sensors and Machine Learning enable Smart Buildings to give the tenant feedback about their current use of the property and link advice to this to save energy or improve the occupancy. Maintenance reports can take place via an app. Ultimately the lease contract can also be cancelled digitally.

How PropTech will succeed? It’s all about the combinations

The real strength of PropTech lies in the combinations of different applications. The combinations on offer will be convenient and time-saving for users. Buyers/tenants are guided through the entire process as efficiently as possible. The focus on one sub-process, such as a more efficient course of the rental process, is more about process optimisation and does not place the customer - user, buyer or tenant - central.

Case study - Qíì: Not one sub-process but optimise the entire customer journey

Work from a customer perspective with one customer journey. The objective is to create value for the customer. People often choose for solutions that are more efficient, but do not add value for the customer.” said Rutger van Hulzen, founding partner of Qíì. In Qíì, the entire process of searching, matching, viewing, transactions, hiring, leasing and cancelling takes place in one customer journey and digitally, where possible. The unique combination of data regarding socio-demographic and lifestyle characteristics and consumer behaviour in one ‘Woonpaspoort’ (Living Passport) enables Qíì to offer insight into the needs of the tenant, but with the associated privacy. Each subsequent process is optimised and connects seamlessly, resulting in lower transaction costs. Signing a lease contract currently costs a landlord €600 to €800, via Qíì this can be reduced to around €300. A next step for Qíì is to offer homes services such as a laundrette, cleaning and shared cars. Having satisfied tenants results in reductions in turnover, fewer vacancies and improves returns.

Chapter 3: Bad news for realtors

If we look at all the PropTech applications, we can see that it’s mainly users and tenants who benefit. Through Smart Buildings they get a building that better matches their requirements and they can better monitor and arrange occupancy. Rental platforms enable shorter leasing periods and lower estate agent fees.

Real estate owners: From “investing in bricks” to entrepreneurship

To respond well to changing demand in the market and the opportunities offered by PropTech, real estate investors will start to operate more as entrepreneurs. This means focusing on more things than just the value of the property, duration of lease contracts and tenant creditworthiness. A real estate entrepreneur will have a rewarding business model in which he/she creates added value and ensures continued demand for his/her (Space as a) Service.

Real estate agents will struggle but there are also opportunities

The traditional role of real estate agents is under pressure. Platforms are digitising and seem to be taking over their role in the investment market (sales/purchase) and the user market (rental/lease). By supporting administrative arrangements of transactions, further digitisation is likely to reduce the role further. Real estate agents can attempt to operate as a platform themselves and digitise transactions.

5 consequences of PropTech

Yield requirement under pressure because of PropTech

PropTech can ultimately result in lower yield requirements in the investment market. Transparency increases. This reduces the risk that the real estate value is incorrectly estimated. This also increases liquidity: lower search and transaction costs through platforms. This results in increased supply and demand which means that PropTech also makes real estate more liquid. PropTech also reduces the risk of vacancies. These combined factors can all have a dampening effect on the yield requirement.

PropTech provides a higher rental price per m2

New PropTech on the rental market can result in improved occupation (Smart Buildings), higher quality and lower energy consumption. This offers the tenant added value in the form of a relatively higher rental price.

Higher real estate value through PropTech

Lower yield requirements and users who are prepared to pay a higher lease both enable the value of ‘PropTech real estate’ to increase.

Division with other real estate

Real estate that is not provided with PropTech may be at a disadvantage. The location of buildings of course remains important, but tenants will be less interested in ‘nonPropTech’ buildings because the quality is lower, the energy consumption is higher and the occupancy is less efficient.

Risk of long-term vacancies

Higher occupation in PropTech real estate can ultimately result in fewer m2 being leased, which will result in vacancies in the less attractive non-PropTech buildings. The high entry barriers, long operational life of real estate and the associated low replacement cycle mean, however, that this process will be slow.

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