Fund inflows into German proptechs on target to top €1bn this year

More money flowed into German proptechs in 2021 than ever before - and 2022 is shaping up to see yet more more capital flowing into the sector, according to a new report from Frankfurt-based digital consulting group Blackprintpartners.

Last year the community of start-ups specialised on the real estate industry attracted at least €666m in venture capital - a rise of more than 150% on the year before. In the first two months of this year they've already attracted €550m, including from a growing amount of foreign investors drawn in by the prospects offered by the German market, and the future wider deployment of the technology.

Sarah Maria Schlesinger, Blackprintpartners' CEO, thinks the market could well top the €1bn level this year, the way money is coming into the sector. The whole new world of compliance, revolving around ESG and climate change, has given further impetus to the rapid growth of the proptech sector, with German start-ups often seen as attractive due to the sheer volume of new regulatory hoops they have to jump through.

Paradoxically, Germany's notorious lack of market transparency also makes it difficult for digital products developed elsewhere to break through on the German market - potentially giving a sustainable advantage to the home players.

Hence, if proptech developers can overcome those specifically German hurdles, their chances of survival are good and they're seen as having good prospects for scaling up internationally. The huge size of the German real estate market - should the product or service prove successful - is another major attraction for investors. Last year those investor together put money into 107 different companies last year, across 95 different financing rounds, while a further 12 were assorted mergers and acquisitions, or other forms of capital injection.

The highest average investments were made last year in proptechs focusing on "Smart Buildings" and "Operating and Managing", which together attracted €283m of the venture capital.

The largest financing round in the DACH region was Storebox from Vienna, at €52m, while the highest German financing (€42m) was received by Schüttflix. In Switzerland, PriceHubble raised about €29m. Overall, German companies topped the list with €502m, followed by Austria at €86m, and then Switzerland at €78m.

Berlin-based proptechs were the clear winners, at €269m, or 54% of all the new capital invested in German proptechs. In Germany, Frankfurt, Munich and Hamburg picked up most of the rest. In fact, Berlin's role as the start-up capital is highlighted in the report, with 196 of a total of 654 German proptechs located in the city - as indeed are the majority of the venture capital investors.

Munich comes second (€110m), at a distance, followed by Hamburg €32m) and Frankfurt (€19m) among the Germans, while Vienna and Zürich ranked third and fourth.

Germany has yet to produce its first 'unicorn' among proptech start-ups - companies with a valuation of more than €1bn - although the report suggests that the first one is not far off.

Just recently, the US venture capital investor Fifth Wall announced the closing on its first-ever European Real Estate Technology Fund. Its €140m target was well-oversubscribed, it said, with big investors being BNP Paribas Real Estate, Knight Frank, Ivanhoe Cambridge, Momeni, PGIM and Segro.

CEO and co-founder of Fifth Wall, Brendan Wallace, said: "With so many leading European property companies supporting our European fund, we'll be able to seriously expand the proptech eco-systems in Europe and Israel." The company already has about €3bn in AUM worldwide. In contrast to fellow-US competitor Meta which invests early-stage seed capital, Fifth Wall prefers to invest in later financing rounds.

A venture capital fund managed by German-owned Proptech1 in Berlin also reached full capacity at its recent final round closing of €50m. The fund invests in German start-ups, and includes companies such as Architrave, Inpera, Wunderflats, Thing-IT and Ecoworks, and Swiss building trade recruitment website Kollabo. Only about half the fund is already invested, according to managing partner Nikolas Samios, with both further investments and further funds in planning. Samios said he receives about 100 applications from hopeful start-ups every month.

Other German companies such as Patrizia AG, Momeni, Bauwens and Aareal Bank have become increasingly active in investing directly in proptechs, with Patrizia in the process of setting up its own proptech fund. Consultants PwC invested a seven-digit million figure recently in Proptech1 Ventures, Nikolas Samios's vehicle.

Still, the lack of a true risk-taking culture in Germany has hindered the development of both proptechs and risk-seeking capital, although things are improving. While the teaching of "digital real estate" has long been on the curriculum in countries such as the USA, where it is taught in schools such as Harvard, Columbia, MIT and Cornell, it is only recently that a German institute has introduced such a course.

The Technical University of Aschaffenburg has started a bachelor degree course in Digital Property Management - the first such course in the country. This will be followed by an additional module this year - Digital Transformation, aimed at small and mid-sized real estate companies in the region.

All of this will doubtless help to get Germany up to speed in the increasingly digital world of property, despite the classically bricks-and-mortar orientation of the industry. (And not before time - REFIRE)