The State of Blockchain in Real Estate, 2023

Figure 2: Annual % growth in number of products in FIBREE Product Database

The recovery that has been underway since 2020 proofs once again to be continued and more robustly than before. The 690 products found in 2023 is well above the previous record 520 from the very first reporting year 2019. It illustrates that interest in blockchain products is booming globally. In 2019 the market was still dominated by parties looking to capitalise on the general hype surrounding blockchain at the time. Meanwhile, that hype has been left far behind and many startups of the early days are showing that they are increasingly able to find their way to the market and among a wider group of users. Analysis of the product database shows that, on average, a startup in our industry takes about six years to go from MVP to broad market adoption. Around this average of six years there is a wide range with outliers of 2 to as much as 12 years.

Figure 3: Growth Stage and Entry Point of products

Figure 3 clearly shows that products developed from within an existing real estate organisation are significantly more likely to make it widely used in the market, compared to products developed solely from the blockchain/IT side. Whereas more than half of the number of products developed from the blockchain market are still in the pre-MVP phase, only just over 20% of the products developed from the real estate side still are. At the same time, around 50% of the products developed from the real estate industry have reached the third growth phase, compared to only half of these in the case of products developed from the blockchain industry. Unfamiliarity with the product or brand name is a common argument why parties are hesitant. At the same time, familiarity with the name of the real estate organisation from which it does seem to be doing well is often an argument for integrating blockchain solutions faster into operations. In all regions of the world

Whereas in previous years certain regions of the world grew faster or slower than others, this year's figures show strong growth in every continent.

Figure 4: Relative growth by region

Continents that lagged last year relative to the rest of the world, such as Europe and Asia & Pacific, have all found the line upwards again. There is not a continent this year whose annual growth in the number of registered is below 40 per cent. At the top end, though, there is a notable outlier: Middle East & Africa, whose number of registrations more than doubled, from 26 to 57.

Figure 5: Regional development numbers of products

Europe is still the region in the world with the most blockchain and real estate products, closely followed by North America. Asia & Pacific follows at some distance, with Middle East & Africa and Latin America right behind. Within the different continents, growth is seen across the board. Of the 88 countries in the product database, only 6 had a decreasing number of products, of which the Netherlands, with minus 2, had the largest decline on balance. Indeed, in addition to 5 removed entries, 3 new entries were registered in this country.

On the other hand, 47 countries saw a net growth, of which no fewer than 7 had more than 10 products. By far the largest growth in the number of products took place in USA last year. Other countries with large growth rates on balance are UAE, Singapore, Spain, and India. Both USA and UK had not only many new entries, but also a relatively large number of removed entries. It illustrates the still great dynamism in the world of blockchain startups.

Table 1: Top 5 countries with most new or removed entries in the product database

USA even firmer in lead

With 199 products in the 2023 database, USA is again by far the country with the most blockchain products for the construction and real estate industry. Compared to last year, USA has even significantly further strengthened its lead over number two in the list, UK. The gap between USA and UK grew by 43 registrations. UK in turn lost slightly to other strong emerging countries such as Singapore and Spain. Other notable developments in the database are the explosive growth in UAE, which managed to climb from 20th to 7th position in the global ranking with 17 new products in the past year.

Table 2: Top 20 countries 2023, and their previous scores

The biggest decreaser is the Netherlands, which dropped seven places. Other notable decreases in the ranking are China and Italy. Although both countries saw unchanged numbers of registrations, they were overtaken by several countries that did grow.

The battle of the cities

Unsurprisingly, last year's big growth developments also made for a turbulent battle between the various metropolitan regions as to who can call themselves the blockchain for real estate capital in the world this year. Whereas this title invariably and by some distance ended up with New York since the beginning of the series, that is no longer the case in 2023. Indeed, London has caught up with New York and both may call themselves the leading global capital with 41 registered products in 2023 each. Anyway, the battle at the head has more close contenders than ever. Singapore with 33 registrations, Dubai with 22 and Paris with 17 registrations have managed to significantly close their distance from the two capitals to the head of the field. Also, the numbers two to five recorded many more new products compared to New York.

Figure 6: Development top 10 cities

Shortly behind Paris, San Francisco leads the rest of the global top 10 with 14 registrations. The remaining cities are not far behind. Los Angeles, for example, the global number 10, still has 12 registrations enough for a 15th position if listed in the country ranking. Outside the top 10, a few other cities show notable developments. Madrid (+9) and Miami (+7) are the biggest risers outside the top ten. Berlin, Barcelona, and Tokyo are the biggest risers in the ranking on the global list. As shown earlier, the growth of blockchain and web3 activities for the construction and real estate industry is taking place across all continents. From that perspective, it is interesting to know which are the continental capitals. Table 3 presents the top five capitals of each continent, including the respective numbers of product registrations in the 2023 database.

Table 3: Top 5 cities per continent (number of products in respective city)

New categories Web3 and Metaverse immediately prominent

With the expansion of the FIBREE mission, the focus for the product database has also broadened. Two new product categories have been added this year: Web3 and Metaverse. Interestingly, both categories scored well immediately with 26 and 32 registrations respectively, good for an entry in the mid-range. It immediately underlines that FIBREE is getting closer to where the business is taking place with broadening its mission.

As in previous years, the Invest & Finance category is by far the largest product category. Just under half of all 690 products classify in this category. They are often solutions that enable fragmented investing in the SPV that owns the relevant real estate properties. The investment may relate to existing real estate properties, or to the contribution of equity for a real estate development yet to be realised. It involves all types of real estate properties, ranging from individual residential properties to shares in mixed real estate portfolios. From offices to hotel properties and often but not always in combination with a secondary trading facility on a token platform.

Figure 7: The spread across product categories.

The second largest category is Markets & Platforms. These are often, but certainly not always, the markets on which real estate tokens can be traded. It is also common for a solution in this category to collect data and documents about buildings and make them shareable via a platform with third parties and stakeholders for various purposes. In yet other cases, this category involves solutions for the irrefutable collection of data used to drive smart contracts. The data are then traceable and can act as evidence and thus ensure greater transparency.

The third category, building technologies, is a somewhat special category. This includes providers of blockchain-based technology specifically designed to support real estate processes. Think of white-label solutions, for example for the tokenisation of real estate. Or data infrastructure-layer solutions that improve data interoperability or enable creating trading markets for various tokens.

Finally, Research & Valuate and Plan & Build are the two smallest product categories. For Research & Valuate, this is still somewhat understandable. After all, there are few blockchain applications specifically designed for research. Moreover, the products in this category rub close to the products in many of the other categories. Think, for example, of Manage & Operate data, data coming from Markets & Platforms, or Smart City data. The product may not have been developed specifically for research and validation issues, but the data it generates are.

It is more surprising for Plan & Build, as blockchain solutions are already widely used in other indutries, especially in the areas of supply chain and complex multi-party collaborations. Perhaps the high fragmentation in the market and the relatively large number of small entrepreneurs in the construction sector combined with low digitisation rates explain the low score of this category.

Steadily growing market penetration in all product categories

For 3 years, the FIBREE Industry Report has been investigating what the so-called Growth Stage1 of a product is. Growth stage 3 is the highest achievable so far. Although for many products it is difficult to determine the exact growth stage of a product based on desk research, every year we try to estimate it as accurately as possible. If the results of the past three years are analysed, like figure 8 demonstrates, a clear growth pattern can be identified in almost all product categories. Not only has the overall number of products grown steadily in recent years, at the same time the number of products in growth stage 3 has also grown. In total, 200 out of 690 products, or 29%, have reached this third growth stage.

Figure 8: Development of number of products in growth stage 3 for different product categories

Nord America and Europe dominate this domain with 163 of these products. What stands out from this is that European products have relatively most often reached the most advanced growth stage. In this respect, Europe is closely followed by North America. In contrast, products from Middle East & Africa are the least likely to have reached growth stage 3. When analysed in more detail, both Asia & Pacific and Latin America show a strong concentration of growth stage 3 products in the categories Invest & Finance, Markets & Platforms and Building Technologies. The Nord American and European continents clearly show a wider spread of categories in which growth stage 3 products are located. They also include Transactions & Escrow, Manage & Operate and Metaverse.

Tabel 4: Continental distribution of growth stage 3 products

So regional differences can be observed, yet this is most likely not really a determiner of the speed at which a product can be successfully introduced to the market. It was shown earlier that the background from which a product is developed is at least as important, if not most important. Indeed, the graph in Figure 3 already showed that products developed from a real estate background reached growth stage 3 twice as often as products developed solely from a blockchain background. Products developed from a real estate background enjoy some clear advantages. For instance, the real estate background from which they emerge immediately provides the valuable validation environment in which the product can be tested at the development stage. After the MVP is ready, the right real estate setting is then immediately in place to enable scaling up. For growth beyond the ‘mother company’, there is another significant advantage for products developed from the real estate environment. We call it the image-advantage. For many construction and real estate entrepreneurs, blockchain is still a very difficult technology to understand. The lack of the necessary knowledge and interest to quickly recognise the potential added value of blockchain technology is an obstacle for the right decision making. Unknown makes unloved is a well-known saying and it certainly applies in this case. The trusted image and familiarity of an existing real estate organisation opting for a particular blockchain product will in that regard quickly provide a familiar image for a blockchain product, as opposed to a product developed by a party with no track record in the real estate environment and no already proven benefit for a construction or real estate organisation. Further analysis shows that in doing so, regional differences hardly seem to influence the speed of market penetration anymore.

Outlook and recommendations

With already the fifth edition of FIBREE's annual survey on the state of blockchain in real estate, the value of the research series and research data collected is growing year by year. Blockchain and real estate still is a niche market. Overall, the construction and real estate industry still finds blockchain technology difficult to understand. Conversely, the blockchain industry also still seems to find it difficult to develop appealing digital solutions in the construction and real estate industry. However, the research series of the past five years shows a clear pattern that the market is nevertheless developing strongly. It is the expectation of FIBREE's researchers that this growth series will only increase in the coming years. Indeed, in our view, developments are driven by various irreversible global megatrends.

The most important of these is the ever-increasing digitalisation of society and the economy. The real estate industry is lagging other sectors in this respect, but that does not alter the fact that more and more processes in this industry too are becoming data driven. And this in turn generates more and more data of an ever-increasing quality, which enables the digitisation of related processes. Existing industrial and logistics processes will become increasingly automated and process innovations will lead to higher productivity. This leads to a flywheel effect for digitisation in the construction and real estate industry, which in our view has only just begun. Exponential data growth also means that checking and relying on the quality of data will be organised less and less manually and more and more digitally. FIBREE anticipates that blockchain technology will play an ever greater - often not externally visible - role in this, under the bonnet of future digital tools.

The second megatrend that, in our view, is a driver behind blockchain adoption in the real estate sector concerns the growing prosperity in the world. This is the megatrend from which global demand for more sustainable solutions is emerging. Economic history has shown that price and function are the key determinants of demand. New functions or major price-changes that impact large shares of a population may be considered the perfect storm to unlock a steepening increase of a market transition. Due to global demographic trends and urbanisation, there will be a great need for accommodation of residential and commercial functions in the coming decades. However, as prosperity levels rise as well in large parts of the world, not only the number of shelters, but especially better-quality shelters will be demanded. As a result, in addition to new construction, the existing stock will also be upgraded. It will cause an explosive growth in demand for building materials and raw materials worldwide, causing prices to rise because of scarcity. If the 'housing' function becomes unaffordable for large populations, it will trigger significant demand for alternatives. Shared ownership or part-time ownership or usage of buildings and construction materials in buildings, which will be made digitally possible with tokenisation, may then suddenly become interesting alternatives. The rapidly growing group of generation Y and Z, who invest their savings in crypto currencies in increasing amounts, are the harbingers of this. They experience its high volatility and start looking for asset-backed investment opportunities. Real estate tokens are an excellent solution for this. As they become familiar with them, they will also more easily trust other blockchain-based solutions. This combination of changing prices, functions and growing familiarity with advanced digital technology solutions will also make blockchain technology increasingly common in the toolkit of the future real estate sector. And it will only become more.

To keep up with the speed at which society changes, much scientific and applied research is needed. Perhaps even more than ever before and both at universities and in corporate research departments. After five years of FIBREE experience, in our view it is still far too common for researchers to spend a lot of time answering basic research questions on what is blockchain technology and how can it be applied, where by now thousands of researchers around the world have preceded them in this. Many research resources are unnecessarily wasted in this way and fundamental advanced research into the potential applications, challenges of the technology, and changes needed is unnecessarily left behind. This is at the expense of the potential scientific and societal relevance that is increasingly and emphatically at stake. The five-year research series built up for the FIBREE Industry Report each year provides fertile ground for such advanced scientific and applied research. In addition to the product database data itself, there are the hundreds of best practices offered by the registered products in the database. Both the success stories and the failures are interesting to examine in more detail. Why did something go right or wrong? What can the industry learn from this and, above all, how can it be anticipated more quickly? However, how can researchers around the world also better iterate on each other's research results? And FIBREE is of course happy to collaborate and facilitate our data.

FIBREE would therefore like to conclude with the recommendation to both the market and researchers to become increasingly open to the integration of blockchain solutions. Start experimenting more, help product providers validate their digital solutions in your organisation more often and thus contribute to ongoing research and education. After all, whichever way you look at it, you will benefit from it because the digitisation of your construction and real estate processes will only increase in the coming years.