Broker 2.0: $1.5B Investment Into Proptech By Big Firms Is Changing How They Operate

The nation's biggest brokerages have invested almost $1.5B in proptech deals over the past 10 years. They know the world is changing, they know they need to stay ahead of that change, and they have put up real money to invest in the future. But what has that investment actually bought them?

The real estate industry is being redefined by extensive investments in new technology. Global venture capital investment in proptech exceeded $61.1B since 2010, according to investment data from Pitchbook.

While venture capital investors and tech startups seek to create breakthrough products and change how the industry operates, change is also coming from within, in the form of big brokerages and real estate service firms investing in their own technology and even creating their own technology investment funds. All this investment in changing operation systems and data analytics is also changing the way many operate within commercial real estate, including brokers and property management staff, and challenging firms to move beyond generational divides and siloed workforces and institute more sweeping upskilling across the workforce.

According to Fifth Wall partner Dan Wenhold, whose venture capital firm invests in proptech, the flood of funding and tech is changing the way brokers operate. The formerly very analog position is being replaced by a different kind of broker with more extensive technological knowledge, who forms more long-term relationships with clients that go beyond leasing transactions and who becomes a trusted adviser around office technology. It’s what he calls broker 2.0, a tech-savvy new model he feels the tech rush by big brokerages like CBRE, JLL and Cushman & Wakefield is making not just enviable but inevitable.

“There are opportunities for brokers to monetize the relationship with clients beyond initial transactions for that space,” he said. “It’s more than the lease re-up. Tenants don’t just want to know if their employees are using their space, it’s about how they’re using the space.” 

The rise of a number of new technologies, including artificial intelligence, better space analytics solutions that track how workers use offices, and a suite of property management and sustainability measuring tools, was supercharged by the coronavirus pandemic and its reorientation of the way so many workers view their workspaces, according to JLL Executive Managing Director James Quinn. There is an investment in tools and tech that create a bespoke experience that encourages collaboration and almost mimicks hospitality, he said. Going forward, he believes mastery of these kinds of technologies, and how they’re impacting the workplace, will be part of the requirements of working with tenants.

“From a decision-making standpoint, real estate firms need to check the traditional boxes and be an expert in tech as well,” he said. 

Large CRE brokerages and CRE firms have made extensive technological investments in the past five years, especially now that there’s a track record of success evident from early startups in the space. Fifth Wall’s Wenhold said he’s seeing more firms today focus on tech around flex space and hybrid workspaces, space analytics and space planning. A majority of CRE firms now have an executive position dedicated to data strategy and governance, according to Pitchbook data, and 92% plan to maintain or increase their tenant experience-related technology investments. 

“We need to change CBRE at the core,” CBRE Chief Digital and Technology Office Sandeep Dave said. “We’ve been applying technology in everything that we do. How can it fundamentally drive our transformation, not as an investment strategy for returns, but to drive strategic transformation?” 

While firms wouldn’t provide data on their own investments into tech firms, an analysis prepared by Crunchbase found significant proptech investment by top global brokerages (this analysis doesn’t include certain venture investments or a complete list of deals and total funding amounts). In the past decade, Newmark invested at least $554.5M in five deals, CBRE invested $400M in seven deals, JLL Spark (the firm’s investment arm) invested $363.8M in 23 deals and Cushman & Wakefield invested $115M in three deals.

“Data is the new crude oil,” said Anita Kramer, senior vice president for the Urban Land Institute's Center for Real Estate Economics and Capital Markets.

A survey published in July by the organization found proptech and new technologies being applied “in every conceivable business area in real estate,” and that it is thought that “if you don’t adopt, you’ll be behind, and need to invest to maintain market share.” 

JLL Spark Global Ventures partner Laurent Grill said two key areas the firm will invest in over the next five years are the digitization of the entire life cycle of property, and sustainability, a very data-heavy investment requiring extensive emissions monitoring.

Big CRE firms want to provide tenants and clients with the tech-enabled spaces they desire, and the tech-informed advice and platforms they need to operate them. That explains how the big three pursue investing, Wenhold said. 

What they share is a focus on long-term investment. Unlike VCs, they can’t walk away when an investment goes public; installing a platform for building security means making a significant investment across physical assets and an expectation such platform and forms will be around for a longer time frame. 

What these investments have done and will continue to do is shape hiring within larger CRE firms. CBRE’s Dave said proptech investment has dramatically changed the firm’s talent mix, with many new designers, engineers, product managers and data scientists who probably wouldn’t have been at the firm five years ago. At the same time, it is shifting the way brokers work at the firm. Everyone has access to data, he said, so the best brokers going forward will be more attuned to client demands and act as advisers, constant sources of contact and advice, and be less purely transactional.

JLL is also seeking more tech talent, employing more than 3,000 globally within JLL Technologies, and continuing to hire for JLL Spark Global Ventures. 

Part of this industrywide investment in tech is also giving brokers new tools, including data sources like Crexi and Reonomy, and what Wenhold calls “alternatives for the blocking and tackling of the day job.” JLL’s Grill points to tech like Lev, a JLL Spark portfolio company that utilizes human capital and expertise and AI to quickly figure out capital for potential transactions, as well as Blackbird, a proprietary visualization platform that helps clients make site-selection decisions with virtual tours, as ways that the firm’s investments are helping workers in the field.

“Brokers can’t be expected to analyze how tech firms and startups are going to function in five to 10 years,” Wenhold said.