Rental property owners are undergoing a major digital transformation to provide a better resident experience which is fueling an investment feeding frenzy. 2017 was PropTech’s coming out party as venture capital firms invested $12.6 billion in PropTech companies and the industry kept the momentum going in 2018 as 96 percent of this same group of VCs indicated they would make the same number or more investments this year.
Any industry attracting this much attention is prone to overvalued market highs that ignore businesses’ underlying economics so it’s important that PropTech entrepreneurs and investors not get swept up in the echo chamber. As a real estate tech entrepreneur with multiple successful exits and managing partner of an investment fund led by the largest group of multifamily property owners in North America, I have some unique insights into the cutting-edge technologies that are positioned to take off in 2019 as well as the potential winners and losers from the PropTech investment trend. Here are the most important real estate technology trends entrepreneurs and investors need to be aware of:
Insight #1: RentTech Will Emerge as a Hot PropTech Market Category in 2019
PropTech companies are broadly and easily attracting investors right now, but new markets within that broad category will appear. RentTech will quickly emerge as a leading category that attracts investors as both large and small property owners and managers prioritize technology adoption in 2019.
Residents, property owners, and managers now need technology that makes the apartment experience more efficient, automated and enjoyable from initial resident interest all the way through move-in and move out. For instance, Smart Apartment tech and AI can be integrated into CRM systems to enable a prospective resident to chat about rental rates and unit availability, organize a self-tour and lease the apartment all without needing to interact with on-site staff until move-in. The experience even extends to after move-in day when residents will be presented with the option to book amenities, such as dog walking, apartment cleanings, and maintenance appointments, directly through their phones. With more properties deploying smart apartment technology, access will automatically be granted during the appointment windows, with the resident receiving notification when that particular service provider entered and left their unit. Multifamily owners will leverage this technology to make it easy for residents to remove friction from their lives.
Insight #2: The PropTech Investment Space Will Experience Growing Pains
It’s no secret that hot categories can draw attention from a wide range of investors who wouldn’t otherwise invest in the category and who lack deep industry knowledge. We are already seeing that happen within certain PropTech and RentTech sub categories, as the opportunity is simply too big to ignore. However, growth strategies that work well in more consumer-focused industries often become derailed in the more complex real estate owner/manager/vendor/user ecosystem. For example, sales cycles, particularly in RentTech, are much longer than in consumer industries as property owners have long pilot/deployment timelines, which magnify the problems associated with a high burn rate. Traditional venture models need to be adjusted for this and several other idiosyncrasies unique to the real estate industry.
This is why it’s important for PropTech and RentTech entrepreneurs to make sure they’re working with the right partners to scale their business, not just firms that are willing to cut big checks. A good investment partner will not only be able to provide capital but will also help entrepreneurs through these unique sales cycles.
Insight #3: The 2019 Market Correction is Coming… But that May be Good for PropTech
A real estate market correction is likely to happen in the near future given the market’s ascent for the past five years. In the past, when the market has squeezed rental property owners, they have found ways to more efficiently operate their properties and better compete for residents. Property owners and managers will partner with cutting-edge technology companies to create more efficient, effective, and enjoyable resident experiences while lowering their operating costs. A market correction will only increase the urgency with which owners must seek out operational efficiencies and ancillary revenue opportunities.
Specifically, the technology around smart thermostats, locks, moisture sensors and load monitoring has matured to the point where owners and managers of apartments are able to underwrite the cost of deploying the technology purely on an operating/cost-savings basis. As a result, we are seeing broader and more rapid adoption of these technologies as opposed to the usual slow, unit-by-unit deployments based on resident demand.
As our cities become smarter we expect to see more opportunities for the multifamily industry to leverage their benefits and provide renters with truly incredible living experiences.
PropTech and RentTech are poised to take off in 2019. There is the right mixture of customer adoption, investor interest, and technological innovation to make the New Year truly special for real estate technology entrepreneurs, property owners, and residents.