Real estate technology, also known as PropTech, has officially hit the mainstream. According to VentureScanner, investment in PropTech grew 63% in 2017 to over $12 billion. Companies big and small are racing to be part of disrupting the largest industry in the world.
PropTech is a broad term that means different things to different people. Most importantly for us (and presumably you) is what its impact will be on the multifamily industry.
There are tens of thousands of PropTech companies working on hundreds of unique problems. Before we get into those details, let’s take a minute to define PropTech and the massive opportunity it represents.
What is PropTech?
Broadly speaking, PropTech refers to any technology that aims to disrupt the real estate industry. This includes innovations in investing, developing, managing, appraising, selling, renovating, and living in buildings.
But that description doesn’t do justice to the scope of PropTech. Spend some time perusing Crunchbase’s directory of 34,944 real estate technology companies and you’ll quickly get a sense of the variety in the space.
PropTech got its start in the 1980s with property management software pioneers like Autodesk and Yardi. The industry really took off in the mid-2000s thanks to broadband internet, cloud computing, and the rise of smartphones. Residential PropTech companies were the first go to national with the likes of Trulia and Zillow, but commercial PropTech has grown significantly in the last few years.
The Global Opportunity of PropTech
The potential impact of PropTech is hard to wrap your head around. Pete Flint, the founder of Trulia and now a venture capitalist, tries to capture the magnitude of the opportunity in a recent blog post:
“Tech has done a lot in the last few decades to revolutionize flows of information (Google), communication (Facebook, Apple), goods (Amazon), capital (PayPal, Venmo), and transport (Lyft, Uber). But real estate is larger than all of those categories combined, and the transformation that real estate tech could bring to our lives is larger, and more profound than you might think.”
Flint goes on to quantify the potential impact in real numbers: Global real estate is valued at around $228 trillion, which is $79 trillion larger than the global equities and securitized debt market. In the US, residential real estate is worth $31.8 trillion, while commercial real estate’s value is now north of $15 trillion.
Flint’s VC firm, Nfx, believes PropTech will impact real estate in three key areas:
- Alternative transaction models
- Alternative living models
- Innovations in construction and development
In other words, PropTech will disrupt every step the real estate lifecycle: buying, selling, building, and living.
PropTech’s Impact on Multifamily
What about the multifamily specifically? With $485 billion spent in rent in the US in 2017, Flint believes PropTech could make its biggest splash in the rental industry.
“Rent burden is increasingly affecting young people. If tech innovation typically happens with young people first, and young people’s single biggest expense is rent, then the residential rental space is potentially the mother of all markets (Flint’s emphasis).”
Like the real estate industry as a whole, the multifamily market will see hundreds of unique PropTech innovations in the coming years. However, there are three fundamental innovations that multifamily developers need to follow:
- Smart building technology
- Smart living amenities
- IoT Strategy and Infrastructure
Smart Building Technology
The cost of powering and managing buildings is set to plummet thanks to smart building technology. Smart buildings– comprised of IoT infrastructure, automated building systems, software, and smart devices– will soon become the standard operating procedure for multifamily developments.
By collecting and analyzing building data, smart building technology drastically reduces energy and maintenance costs. Maintenance teams are alerted at the first sign of a problem, whether it’s a small water leak or an overactive AC. Smart devices, ranging from thermostats to smart glass, give occupants more control over their environment and help reduce costs in small ways, every day.
Building automation systems– the expensive predecessor to smart buildings– are finally seeing their utility maximized as part of smart building infrastructure. Thanks to wifi and inexpensive IoT sensors, virtually any property can afford building automation, saving its owners millions of dollars over a building’s lifetime.
Smart Living Amenities
As the rental market heats up around the world, developers are on the lookout for any competitive edge they can muster. One opportunity is in providing smart living amenities for residents.
Smart apartment amenities are now more popular than granite countertops and pools, but we have only seen the beginning of the smart living revolution. Today, we have smart thermostats and locks; tomorrow, a completely connected living space:
- Wifi as an Amenity, as easy to set up as Netflix, allows residents to choose their internet speed with a click of a button.
- On-demand services like dog walkers and house cleaners can enter securely enter units with temporary e-keys.
- Car-sharing and bike-sharing stations located on the property give residents easy assess to shared mobility.
- Mobile resident dashboards for managing everything from rent payments to on-demand services to transportation.
Smart apartments are quickly gaining popularity with residents, especially urban millennials who are renting longer and spending more on rent than previous generations. With so much of their lives and paychecks wrapped up in their apartments, it’s easy to see why renters want their buildings to do more for them.
Strong IoT Strategy and Infrastructure
In terms of innovation speed, IoT and real estate are at the opposite ends of the spectrum. Multifamily developers are rightly concerned about adopting new technology that could be obsolete in 18 months when they are trying to plan for the next 30 years.
However, the risk of falling dramatically behind is also a real threat. To keep pace with PropTech– and without risking the future viability of properties– developers are starting to think hard about IoT strategy and infrastructure.
“To capitalize on the connectedness and optimization, there needs to be an overarching charter based upon culture and objectives,” said CohnReznick partner Julie Miner in a recent BisNow article. “There needs to be a thoughtful, strategic plan that is defined, initiated and continuously revisited.”
Along with strategy, developers should invest in IoT infrastructure, both hardware and software. Wifi and Bluetooth should no longer be post-market add-ons; they should be built into the walls of the building like electricity and plumbing.
Buildings also need a standard software platform– a building operating system of sorts– that allows developers to easily onboard and offboard technologies as needed.
Without an IoT strategy and infrastructure, developers are at the mercy of fast-changing trends in devices and services. Planning ahead keeps buildings flexible and new innovations affordable.
More PropTech Innovations for Multifamily
There are other PropTech innovations on the horizon for multifamily developers as well.
Dozens of companies, including Ten-X and competitor BiProxi, are changing the way developers buy and sell real estate. Leasing and property management are also set to change thanks to blockchain technology.
PropTech startups are also changing the way renters live. Medici Living just raised over $1 billion to create the world’s largest co-living network. In the US, startups like Bungalow and HomeRoom are repurposing the old housing supply into move-in ready roommate houses.
And then, of course, there are the innovations that have yet to be dreamt up. Whatever new technologies are on the horizon and beyond, multifamily developers should prepare themselves for a roller coaster of a century– one they can win if they start planning today.
