A new report from A/O PropTech, Europe’s largest proptech VC, finds London is second only to San Francisco in terms of deal count for early stage investments into retrofitting technology, which will be vital in achieving net-zero by allowing gas gulping older buildings to be greened. Emissions from buildings are responsible for almost a third of total global CO2 emissions.

Despite real estate being the world’s largest and most polluting asset class, investment in retrofitting technologies still lags far behind that of EVs. A/O PropTech’s analysis of Pitchbook's data shows that $21 billion was invested into climate technology startups in 2021, of which 42% ($8.82 billion) was allocated to EV startups despite the mobility sector comprising 16% of global greenhouse gas (GHG) emissions. This is compared to the 9% ($1.97 billion) of funding invested into retrofitting last year, despite emissions from the operations of buildings contributing 28% of global GHG.

However, retrofitting technologies are seeing growing investment. Between 2017 and 2021, more than $4.7 billion was poured into the sector, representing a compounded annual growth rate of 55 percent across close to 600 individual deals. A/O PropTech’s report shows that investment reached an annual high of almost $2 billion last year and growth is showing no signs of slowing down with more than $1 billion being invested in the first four months of 2022.

But there is more work to be done to accelerate the roll-out of this technology and encourage building owners to do the necessary work. In a context where the annual deep retrofit - retrofits that reduce energy usage by at least 60 percent - rate in Europe stands at just 0.2 percent historically, this is sorely needed.

Why does retrofitting matter?

Not only do emissions from the operation of buildings contribute to almost a third of global CO2 emissions, but the majority of buildings existing today will still be around in 2050. The European Commission estimates that 85-95 percent of buildings in the EU will still be in operation in 2050 and that 75% of these buildings are currently classed as energy inefficient. In the UK, the UK Green Building Council estimates that 80% of today’s existing building stock will still be in use by 2050.

Catriona Hyland, Investment Research Analyst at A/O PropTech, said:

“If investment in retrofitting continues at this level throughout 2022, then we are set for another record-breaking year as private capital continues to back companies that are tackling the significant contribution of leaky buildings to the ongoing climate emergency. However, with rising interest rate rises and persistent inflation, there is a risk that the challenging macroeconomic headwinds may cool investment, despite the urgent need to continue to back innovative start and scale-ups if we are to achieve net-zero.”