Proptech investment has soared over the past two years and hit record highs in 2019, as the $3.5-trillion commercial real estate market undergoes its much-needed digital transformation. Large multi- and single-family rental owners and operators recognize the opportunity in front of them and are swiftly adopting technologies at unprecedented rates to streamline operations, improve resident experience and ultimately differentiate themselves in an ultra-competitive environment.
To this point, proptech, and more specifically ‘rent tech,’ have attracted strategic investors from either early-stage venture firms focused on real estate technology or large owner/operators and REITs. But due to the depth, diversity, and successful exits within proptech, mainstream investors are entering the game, and this infusion of new capital will have a net-positive effect that will continue to drive innovation within real estate technology and establish new market leaders.
As we enter 2020, here are three key trends to watch for in the proptech investment space.
Smart apartment tech extends beyond apartments
The operations and cost savings that mature smart apartment technology provides is now enabling owners to deploy portfolio-wide as opposed to unit-by-unit. With proven IRRs and implementation becoming easier and more affordable, smart apartments are now mainstream across rental properties. It’s more common than ever for an apartment complex to provide smart features to their residents, such as smart thermostats, locks and light switches/plugs. Utilizing smart technology for asset protection is also becoming mainstream, with leak sensors virtually eliminating major water damage incidents.
In 2020, we’ll see rental owners continue to embrace smart apartment tech as they use it to streamline their operations, enhance the resident experience and discover new revenue streams. Think smart tech for building access, parking access/control and providing in-home security systems.
‘Hotelification’ evolves into a full AirBnB experience
Over the last few years, we’ve seen the ‘hotelification’ of rental properties—apartments offering high-end amenities like dog walking, fitness services and cleaning—similar to what you would experience in a hotel. In 2020, a growing number of rental properties are going to bring hotelification to the next level by taking a page out of the AirBnB playbook and offering units to tourists or tenants’ friends and family to tackle the short-term rental issue. The consumer preference is there, as is the technology that enables such hotelification. Owner/operators will institutionalize the product and deliver it in a consistent way.
Offering short-term rentals allows owners to stay ahead of their competition by delivering best-in-class resident experiences to maximize occupancy, while creating new revenue streams for themselves. It’s important for rental owners considering this strategy to closely monitor regulations around short-term rentals and partner with municipalities whenever possible to ensure compliance with local laws. Finally, choosing the right partner that places a priority on not disturbing or inconveniencing long-term residents is critical to capturing the upside from short-term rentals while not destroying long-term value.
Verticalization of markets
Smart tech and hotelification will pave the way in 2020 for more and more entrepreneurs to take advantage of the multiplying verticals within the rental market.
To illustrate, let’s look at the full experience of moving into a new rental. There are start-ups out there, such as moved., which handle all aspects of the moving process, from providing boxes and other packing materials to hiring movers and managing residents’ schedules. We’re also seeing Rent-the-Runway type start-ups for home furnishings that cater to evolving consumer behavior. For example, millennials are delaying homebuying and want to avoid purchasing and moving furniture multiple times. Therefore, furniture-as-a-service companies such as Fernish offer short-term solutions to help save those residents money and stress, while providing flexibility.
Rental property owners are even incorporating these types of services into the onboarding process to create communities of engaged and happy residents. We will see venture capital activity fuel this verticalization further in 2020 and anticipate expansion across the amenities vertical, as well as more operational verticals like connectivity, guest access and mail/package services.
After a remarkable few years, the proptech surge shows no signs of slowing down in 2020. As mainstream investors complement the work of strategic firms who have identified technologies most needed in the market, adoption of these solutions will only increase. There’s no ceiling to how rental property owners will inspire the next wave of proptech innovation that helps them reinvent the modern resident experience.
John Helm is a partner with RET Ventures, an early stage venture fund focused on building real estate technologies for the multifamily sector.
