Gen AI, Compliance Fuel PropTech's Comeback in 2025

A new wave of interest in Prop Tech is beginning to crest with a surge of investment likely, along with a rising tide of mergers and acquisitions, according to PWC and the Urban Land Institute’s latest report on emerging trends in real estate in 2025.

Adjustments in pricing and improved deal quality have spurred increased venture capital investment in early and late-stage activities. “According to the Global Prop Tech Confidence Index, 77% of surveyed investors plan to maintain or increase their investments over the next 12 months,” the report noted. “A substantial 87% of investors surveyed expect the volume of Prop Tech mergers and acquisitions to either remain steady or increase over the next year.”

This interest marks a change from the record lows in industry sentiment of 2022. Stabilization is now being signaled.

The report identified three forces reshaping the Prop Tech landscape: the impact of generative AI, ESG requirements, and the restructuring of residential real estate commissions.

The report described a frenzied initial inflow of capital and founders into the generative AI market. Now, however, it says the rush has subsided somewhat as the market is maturing, while select generative AI applications are driving the return on investment. Among the leading applications are the structure and use of data through document abstraction, property marketing tools, AI chatbots that facilitate communication with clients and tenants, more efficient request-for-proposal processes, and improved market analysis and feasibility studies.

Prop Tech is also valuable for environmental, social and governance (ESG) purposes. Even though spending on this has slipped since 2021, “ESG initiatives can drive focused investments in carbon emissions quantification, disclosure compliance, and building retrofits,” according to the report.

The report noted that some regulatory pressure remains because of California’s and the Security and Exchange Commission’s climate disclosure rules. However, while some companies are using technology to streamline data processes, quality assurance and reporting, others continue to handle the work piecemeal, in-house. “The solution space will likely continue to mature in line with the regulatory landscape.”

The report was published before the Presidential election that will return Donald Trump to power. However, according to news reports, Trump is expected to try to roll back ESG reporting for corporations, and the SEC’s climate disclosure rules and the Fed’s climate stress testing rules may be scrapped. Nevertheless, U.S. companies with foreign subsidiaries may still be required to comply with the European Union’s Sustainability Reporting Directive, leaving some room for Prop Tech usage in ESG reporting.

The use of Prop Tech to address issues related to price setting and revised rules regarding residential real estate commissions is a development worth watching, according to the report.

It noted that the Department of Justice has sued “a Prop Tech giant” (RealPage), a company that uses proprietary software to help landlords set rental prices because its algorithmic pricing system has led to widespread price-fixing. “Firms involved in third-party data sharing are likely to tighten their belts,” the report commented.

On the other hand, complex new rules regarding the payment of residential real estate commissions “may lead some potential buyers to forgo working with an agent altogether,” the report said. “A slew of promising new startups can be expected to streamline various aspects of the homebuying process, potentially mitigating reliance on real estate agents.”