2019 was a riveting year for PropTech. Venture investments peaked at $25BN (double that of 2018), acquisitions picked up (a handful at >10x revenue multiples!), unicorns emerged (VTS), and valuations hit new highs. While one PropTech titan wound down its IPO (WeWork), another is getting ready for the hottest IPO of 2020 (AirBnB). The cycle is hitting a dizzying pace.
Five years ago, when we both entered the space, the term “PropTech” would earn you confused looks from techies and real estate vets alike. While other industries were getting disrupted by cloud computing, mobility & SaaS solutions, and social networking – real estate felt like the frontier.
Fast forward to today, a perfect storm has accelerated tech adoption in real estate. Real estate markets have sustained a long and healthy recovery from the recession, institutional money flowed in (to both physical assets and ambitious startups), and fierce competition emerged among technology pioneers (Zillow vs. Trulia, Hightower vs. VTS, and WeWork vs. the real estate world). The tone of the market moved from skeptical in 2014 (“If it ain’t broke, why fix it?”) to engaged in 2019; having an informed tech strategy is the new normal. We’ve now gone full circle, with the average CRE owner or operator inundated with tech.
This brings us to 2020. There are many speculations on market trends, funding, and hot technologies – but with all the differing opinions, the future seems as uncertain as it did five years ago. Whether the industry is hitting its stride or at a saturation point, we wanted to share our thoughts on where the rubber will meet the road when it comes to real estate companies actually adopting technology in 2020.
Return-On-Investment is King.
With a landmark election coming up, construction at an all-time high, and key questions centered around demand (whether rents have peaked and the impact of new supply) – there’s no room for “cool tech” as these topics circulate boardrooms. If you’re selling a service or product in PropTech, it needs to deliver clear, tangible, and measurable value.
Apart from the macro trends impacting real estate, the deluge of PropTech options is overwhelming operators. We recently spoke with an executive of a leading institutional operator who shared that while centralizing their evaluation of technology, they discovered that over 300 products or services were being evaluated by different groups across the company. To stand out, “You need to be able to deliver real value as real estate companies have been battle-hardened by implementing successful and unsuccessful solutions.”
Time-To-Value is Queen.
If a measurable return is critical, no less important is the time to realize your return. In terms of IT and administrative resources, real estate companies are historically leaner than other industries; therefore, most implementations must be led by the end-users. Property managers, asset managers, leasing brokers, etc. are the stakeholders often tapped with implementing new solutions, and their time spent there is in addition to their full-time jobs.
Furthermore, the progress of the past half a decade means that most real estate companies have undergone at least one technology implementation in the past 36-months. The majority will tell you that it took longer and was more painful than they had anticipated – leaving them with questions and concerns before diving into new initiatives, regardless of the perceived benefits.
In our experience rapidly deploying Jones and other solutions across hundreds of properties and tens of thousands of service providers, a few lessons have emerged:
- Easy implementation is the leading indicator of customer satisfaction. The more you can take off your customer’s plate, the better. Ask yourself, can the average customer: A) pilot this with minimal effort, B) assess the results within a few weeks, and C) decide to continue or not without meaningfully disrupting operations? If not, your ability to earn their time and attention will be difficult amongst the torrent of tech out there.
- Engaging power users early, soliciting ongoing product feedback, and repeating scalable processes is critical. In conversations with real estate owners, we continuously hear variations of, “Well, we are only using about 30% of [platform name] ‘s potential” or, “Adoption has been a challenge.” Executives want to see their investment going to good use, and operating teams want tools that actually save time and help them get their job done.
- Be willing to integrate. At some point in the customer life cycle, your product or service must be integrated with your customer’s core systems so that they don’t have to make a trade-off between operating practices and a point solution. Integrations and managed services to reduce data entry or duplication of effort have to be part of the long term view.
Enhancing the tenant experience will continue to be focal.
The rise of co-working has demonstrated that owners, managers, and developers need to curate relationships with tenants beyond the terms of the lease. While office space is overwhelmingly weighted toward new construction and the best class-A space, a key question for both real estate companies and tech providers is: how can existing services, space, and experiences be repositioned to drive tenant satisfaction?
The promise of new technologies, especially software, is that it can improve and simplify relationships at each step in the value chain. The rapid rise of tenant experience platforms, evident not just in the magnitude of VC investments but also their successful adoption, is a clear indicator of the market. As tenant experience solutions become ubiquitous across product categories (such as wellness, commuting, commerce, and community), users will inevitably become increasingly dependent on them for daily activities (whether personal or professional), which could position PropTech companies as broader platform solutions.
Welcome to the 20’s.
We believe the core principles discussed above will stay true for the next decade. In the past five years, the real estate industry saw its fair share of disruptors challenging the core operating model. Yet, tech companies innovating across the largest asset class in the world still have to align with core business drivers – creating measurable value across a reasonable time frame. As software continues to “eat the world,” the challenge for real estate and PropTech companies – who share the goal of driving success through growth and innovation – will be how they come together in an increasingly fast-paced and competitive environment. We believe that these trends will continue to amplify and prevail as themes that companies site when talking about the successful PropTech adoptions of 2020 and beyond.