As industries evolve, new avenues of growth materialise – this principle remains as true for the property and construction sectors as it does for any other industry.
Over the years, a range of opportunities has developed within the built environment, specifically through the advancement of property technology (PropTech) and construction technology (ConTech). However, despite the enormous potential that such technological advancements offer, it seems that these industries are lagging in their adoption rate compared to other sectors.
Given its status as one of the world’s largest asset classes and its vast market potential for technology-based products and solutions, the built environment is primed for digital disruption. Nevertheless, the property and construction sectors have been noticeably slower in embracing this digital revolution.
Even though PropTech and ConTech have started gaining momentum over the past decade, a recent report shows that several US property companies plan to reduce their technology investments this year, despite the obvious long-term benefits.
This leads us to the critical question – why are these sectors trailing behind in technological adoption?
Barriers to digital adoption
The primary challenge hindering digital adoption within SMEs in the property and construction sectors is the substantial initial investment of time, energy, and cost required for migrating from legacy systems to innovative solutions.
For businesses that have thrived for years using basic, albeit outdated systems, this transition seems daunting and uneconomical. Moreover, the adoption of new technology is often met with resistance from employees who may not have the skills or desire to use it. Additionally, many company executives adopt a reactionary approach to new tech, viewing digital adoption as a medium to long-term investment with high short-term costs.
Aside from the initial outlay of resources, the property and construction industries face other significant barriers to digital adoption. Firstly, there is a lack of standardisation across these sectors, which can hamper the implementation of new technologies. Additionally, concerns about data privacy and cyber-security can often deter companies from embracing digital solutions.
Another significant issue is the industry’s fragmented nature, with many small to medium-sized firms and independent contractors, making coordination and implementation across the board challenging.
ConTech is ripe for disruption
ConTech is a primary focus for investors like us at LiFE Ventures, given its enormous potential for driving decarbonisation and transforming an industry often characterised by wasteful practices. Despite adverse economic conditions, the ConTech industry in the US maintained steady investment in 2022. However, there is a need to bridge the investment gap with other countries, as the US received more than four times the amount of investment than the next most active country, the UK.
The ConTech industry is showing considerable interest in AI, advanced building materials, industrialised construction methodologies, robotics, and machine-assisted applications such as 3D printing, BIM and autonomous equipment. This sector attracted 20.6% of the total funding in 2022. Furthermore, green construction companies are gaining momentum, receiving more than £3.5bn globally over the past five years, with European cities accounting for half of this volume.
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Macroeconomic challenges
The past 18 months have witnessed several macroeconomic challenges, including the global pandemic, rising inflation, and interest rates, and geopolitical events such as Brexit. The funding environment for early-stage technology companies, typically reliant on venture capital for growth, became particularly difficult in 2022.
As a result, the venture community has shifted its focus from “growth at all costs” to a more sustainable model emphasising capital efficiency and profitability. This shift raises the question of whether the contraction in the funding environment could further slow digital adoption in an industry that desperately needs it for growth.
The fourth industrial revolution
We currently stand at the precipice of the ‘Fourth Industrial Revolution’. This era, characterised by advanced analytics, automation, and advanced manufacturing technology, presents an opportunity for industries to drastically improve their operations and production. While this extends far beyond the built world, it exemplifies the drive toward the automation and digitisation of industries.
The property and construction industries stand on the brink of a lucrative opportunity, a chance to evolve into technology-first, high-growth industries. With a vast addressable market and the potential for significant impact, these industries present an attractive proposition for both founders looking to build new ventures and investors seeking to back them. The challenge lies in overcoming the barriers to digital adoption and harnessing the potential of the Fourth Industrial Revolution to their advantage.