Innovations in PropTech
Innovations in PropTech
Alliance Global Advisors is committed to providing informational materials on current, relevant topics, including real estate technology and innovation. As technological advances transform how people live and work, industry professionals must understand the technological trends across asset classes.
Technology has become a fundamental part of successful investment management strategies, delivering strong performance and providing customer service excellence. Investors now want a self-service element in which they can view their investments in a flexible and open platform. Technology offers the ability to execute multiple complex processes simultaneously across teams.
Property Technology (PropTech) is part of a monumental transformation for the real estate industry, which has been slower to incorporate technology into many of its processes. PropTech is designed for owners and operators of real estate, essentially serving as a remote control for any building while reducing operating costs. PropTech conducts a broad array of functions that make owning, purchasing, using, selling and managing an asset more efficient. PropTech benefits residents and the building management team alike and is helping real estate professionals understand customer patterns better by tracking customer traffic and preferences. PropTech provides a path for more effective value creation by focusing on tenant experience and the people who occupy certain buildings, acting as a catalyst for its rapid growth.
Interest in technology in the real estate industry has spiked in the last several years, made apparent by the number of tech professionals hired by REITs and private equity firms as they become more data-driven in their approach. Forbes reported a 1,072% growth in venture capital investments of property technology in the real estate industry from 2015 to 2019. In addition, in 2018, venture capital firms invested $8.3 billion in PropTech firms worldwide, and by the end of 2019, $31.5 billion was invested in PropTech.
Monica O'Neill, Partner at PropTech venture capital firm MetaProp, recently remarked, "We've been active and investing in this space for more than 10 years and our portfolios include more than 135 startups. This PropTech market is absolutely booming. This is an incredible opportunity for real estate operators and savvy investors to engage real estate industry innovation and technology." MetaProp recently announced the close of $100m PropTech seed fund, the largest in the world.
PropTech’s effects on the real estate industry have differed across sectors, further discussed in the subsequent sections.
Leasing Platforms
PropTech has enabled the use of technology to assist asset and property managers, as well as landlords and brokers, with a better platform to manage their assets, facilitate leasing and provide tenant insight. To illustrate, a Dallas-based PropTech startup, Dottid, offers a software-as-a-service technology platform for the commercial real estate industry. The Dottid platform facilitates the deal-making process, tracks details throughout the entire leasing process and provides transparency for all users. PropTech has transformed the leasing process, and it will only continue to grow. Dottid has raised $4.5 million in a recently closed round of capital funding. Another digital platform that has transformed the leasing and management process for landlords is VTS. In a Forbes interview, Nick Romito, the co-founder and CEO of VTS, stated that VTS has reduced deal cycle times by 41% and doubled conversion rates. Platforms like these are becoming the standard for many brokerages.
Retail
Retailers emphasize the importance of integrating omnichannel experiences into their stores as customer preferences change to online platforms. According to the latest Digital Commerce 360 analysis, consumers spent $861.1 billion online with U.S. retailers last year, up 44% from 2019. The United States is undergoing a broad transformation in the retail market; with every 1% increase in online penetration, over 8,000 stores are projected to close. PropTech will continue to transform the retail market as the industry continues to evolve and adapt to newer formats in e-commerce and in-store experiences. Furthering PropTech in the retail sector will likely erode certain boundaries between online and physical formats.
Trends in e-commerce and new physical layouts due to integration of PropTech platforms:
Amazon Go stores
High-tech shopping carts that recognize and weigh items
Payments linked to Amazon account for a speedy checkout process
Klarna
Shop and buy from any U.S. retailer
Uses a one-time card through the app, similar to a credit card
Asiabots
Provides a source of information for customers
Analyzes and collects customers’ foot traffic and shopping preferences to optimize tenants’ sales and revenues
Office
With the recent work-from-home trend and the rise of technology allowing for more remote work opportunities, PropTech and service-led solutions are transforming the office sector. Landlords have taken on the position of service providers by offering flexible hours, flexible lease terms, custom office spaces and high-quality amenities. PropTech data allows businesses to understand employee and customer needs more efficiently, serving as a catalyst for companies to transition from traditional office space to flex space.
Recent trends seen in the office sector:
Shift to flex space
Instant Offices forecasts that by 2028, these changes could see as many as 140,000 flex office locations globally, in comparison to the 13,500 in 2008
Automation – day-to-day operational tasks in the workspace are automated by systems that can manage new clientele, billing, mail sorting and other services
PropTech even goes as far as furthering “smart building” innovations and robotic process automation
Big Data – collecting and analyzing data provides valuable insight for office managers and operators
An IDC white paper estimates that 75% of the world’s population will interact with data daily by 2025
Internet of Things (IoT) – IoT makes managing a space more efficient with the use of smart technology
Artificial Intelligence (AI) – the new norm in the workspace allowing building users to interact easily with their environment
Platforms to manage flexible working arrangements
Zonifero Is an app that allows workers to book rooms and track employees and incorporates Bluetooth and sensor technology to monitor work spaces
Virbela is a virtual platform that customizes a campus to bring remote employees together through digital features like breakout rooms, video chat and other features
Multifamily
PropTech has become a vital part of providing high-quality building services to improve the quality of life for residents and property managers in the multifamily sector. The implementation of PropTech has automated many manual processes like signing leases, picking up rent checks and a variety of other services.
Tech-facilitated amenitization is becoming a rising trend:
Touring and leasing have gone touchless with several options for virtual touring and signing
A self-guided touring option allows managers to increase property tours even amidst the pandemic where in-person contact is difficult
Matterport is an all-in-one media platform that provides 3D solutions that digitalize real estate in order to facilitate virtual touring
Renters are prioritizing a connected living space that is easy to use
Other trends include a car-sharing station on-site, resident portals to manage rent and maintenance requests, easy package delivery systems and even smart thermostats that can be used all through tenants’ phones
Nest Learning Thermostat is a Google product that uses smart technology to recognize temperature patterns in different rooms customizable to a person’s schedule and preferences
Latch calls its offering “the first operating system for apartment buildings.” Latch’s smart locks are in one out of every 10 new apartment units built in the U.S. Once installed, the locks and the software that power them enable access control, unattended apartment showings, and a growing range of other features. Technology like this is expanding the range, quality, and efficiency of services that can enter the home
“Human beings spend a third of their lives at work and much of the rest of it at home”, said Casey Berman, Managing Partner at Camber Creek. “Wherever we happen to be, real estate is shaping our experience. With the success of companies like Latch, it is becoming clear that real estate technology will be just as ubiquitous.”
Industrial
Property technology is changing how industrial buildings operate. As retailers shift to a more significant online presence, many are looking for new strategies to keep up with supply and speedy deliveries.
Key factors and trends in the industrial sector of commercial real estate has made logistics real estate the steadiest performer throughout the global pandemic for a variety of reasons:
The increase of digital platforms and an online presence in the retail sector has increased demand for distribution and warehousing centers
Opportunities with storage facilities
Cold storage
Grocers are maintaining larger inventories of refrigerated goods for in-store restocking and online order processing
Self-storage
Effects of the pandemic have caused many households to downsize, and the need for self-storage has increased
Distribution and fulfillment centers
A shift from “just-in-time” to “just-in-case” methods has increased the need for better inventory technology
Opportunities with drone technology
According to a market research report conducted by ETH Zurich, a public research university, this technology will grow globally by $29 billion by 2027, with an annual growth rate of 20%
Used for automated inventory checks, intralogistics and surveillance
The application of scanning technologies, QR codes, radio frequency identification and AI enable drones to play a role in industrial buildings successfully
The drone company Ware makes drones for warehouse inventory management
13x more of completed inventory counts per year by using drones
Conclusion
PropTech is here to stay and grow into the foreseeable future. Investment in PropTech is a building owner’s commitment to a sustainable and improved quality of life for property management and tenants, as well as contributing to the productivity of how space is utilized. With the manual labor of everyday maintenance tasks, building management can focus on creative and novel ways to improve the resident and tenant experience. Since the real estate industry has primarily relied on precedence and history, this shift to a more transparent and data-driven industry will cause plenty of change in the near term. The dynamic startups emerging around PropTech are disrupting all sectors of the commercial real estate industry through digitization, adding the need for industry professionals to be cognizant of the significant amount of investment opportunities and volume of capital being poured into PropTech. Real estate firms that embrace the benefits of a quickly expanding digital age are likely to separate from the competition.
About Alliance Global Advisors:
Alliance Global Advisors is a women-owned consulting firm focused on empowering the institutional investment community to elevate best practices. Advising clients with approximately $130 billion in assets under management, Alliance partners with organizations to provide an independent perspective and innovative approach to critical strategic initiatives. Our partnerships allow senior management teams to focus on what matters most: diligently managing client capital, creating value and delivering exceptional returns in a performance-driven market.
Disclaimer: This blog was originally published on July 20, 2021, and will be updated periodically to reflect changes in the industry. The content may contain or cite personal and/or professional opinions that differ from the views of Alliance Global Advisors.