At first listen, the term “property tech” seems to fit comfortably within the context of ultra-luxurious modernism. We picture something at home within sleek glass-and-metal walls and minimalist design. We imagine an AI-powered abode where the temperature, light, and IoT-connected outlets can be adjusted with a few smartphone taps or an offhand remark, and a security app allows you to video chat doorstep visitors from halfway around the world.
These products align with the average consumer’s idea of residential technology. But for those in the commercial real estate sector, “property tech” has an entirely different definition — one far removed from the realm of modernist homeowners and IoT-enthusiasts. In fact, far from being an unnecessary luxury, property tech stands a good chance of revolutionizing commercial real estate at every point, from development to sales to property management.
Prop Tech: A Promising New Frontier for Commercial Real Estate
As defined by Tech Target, property technology (PropTech) refers to the “use of information technology (IT) to help individuals and companies research, buy, sell, and manage real estate.” Innovative PropTech solutions are usually designed to facilitate greater efficiency and connectivity in the real estate market, allowing consumers and vendors at all levels to achieve their goals quickly and at high quality. While PropTech capabilities vary widely across products, they tend to fall into three broad categories: smart home, real estate sharing, and fintech.
The first category encompasses the majority of the IoT-powered home devices mentioned at the top of this piece — the smart thermostats, remotely-controlled home systems, and digital security solutions. Real estate sharing refers to online platforms like Airbnb, Redfin, and Zillow, which facilitate the advertisement and sale of real-world properties. The last term is all but self-explanatory; “fintech” references any tool that assists in real estate financial management or transactions.
The potential that PropTech holds to reform the commercial real estate sector is off the charts — and investors know it. According to a recent Re:Tech Report, global investment in real estate technology netted an incredible $12.6 billion across 347 deals in 2017 alone, $6.5 billion of which funneled directly to U.S.-based companies. Re:Tech researchers further noted that investment trends indicated a great deal of early interest in untested PropTech solutions, with early-stage companies receiving “the lion’s share” of funding dollars.
Early Successes Illustrate High Potential
This flurry of investor interest isn’t without basis. The PropTech sector has seen runaway growth and concrete success in recent years; aside from the evident popularity of digital-forward platforms like Airbnb and Zillow in the rental and buying markets, adoption of smart home technology has reached a fever pitch. Deloitte reports that sensor deployment in real estate is projected to grow at a compound annual rate of 78.8 percent and will likely top 1.3 billion in 2020.
Some companies have even incorporated cutting-edge PropTech innovations into their business model to remarkable success. Take the Texas-based real estate investment firm Amherst Holdings as an example. Last year, Forbes profiled the company’s strategic use of AI and data modeling during the asset identification process, noting how Amherst used AI not only to discover investment properties, but also to make dozens of offers per day on potentially lucrative homes. The strategy has paid off; today, the investment firm is thriving, and its portfolio encompasses an incredible 16,000 homes across the American Sunbelt region.
New York: A New Sandbox for PropTech Creativity?
Now, however, companies may not need to foray into PropTech testing without support. Last November, New York announced that it would launch a pilot program that would allow PropTech startups to trial their products via NYC’s portfolio of public properties. As the city explained in a press release, “The New York City Economic Development Corporation will launch a pilot program that allows companies to implement proof-of-concept property technology products in the city’s 326.1 million square feet of owned and managed real estate.”
“We want to make our buildings available to incentivize the kinds of innovations that you are all out there working on day in and day out,” Vicki Been, the deputy mayor for housing and development, commented. “We want our buildings and our tenants to be helpful to you, and provide a way to test some of the ideas that you are developing so that we can get those ideas out to the market and into buildings even faster.”
In this way, the city is offering itself up as an innovation sandbox, a place where real estate innovators can test and troubleshoot their digital tools to the betterment of all — and especially New Yorkers.
With this philosophy of openness and curiosity comes an opportunity for New York-based real estate players to not only test innovative approaches but put them together into a unified strategy. We’ve all seen companies find significant success by leveraging one variety of PropTech solution. Airbnb thrives in facilitating short-term real estate transactions, Google and Amazon have cornered the smart home market, and Amherst Holdings has established a winning, AI-powered strategy for finding and acquiring assets. Individually, all of these tactics show impressive results — but what could we achieve if we managed to link them together?
The Tools of Today Could Create the RE Strategy of Tomorrow
In theory, the disparate PropTech solutions we see now could be stitched into a seamless strategy. The strategy might progress as follows — real estate operators could use big data and machine learning to identify lucrative neighborhoods and home in on investment properties, then apply blockchain-powered smart contracts to purchase those buildings. Next, they might retrofit their assets to have utility sensors that can ensure optimal utility use and management. These IoT-equipped devices could also better automate the care of a building by notifying owners when a system requires maintenance and providing real-time insights on how tenants use their rented spaces.
When linked, these PropTech solutions can aggregate data on a portfolio level, allowing property firms an opportunity to gain better insights into how they can best use, maintain, and improve their asset properties.
The implications for commercial real estate improvement are huge — and, to be clear, this is all available technology. Real estate operators could incorporate PropTech into their strategic workflow today if they wanted. Will that change require some upfront investment and effort? Absolutely — but, as New York’s decision to offer itself as a testing sandbox demonstrates, there is no better time for real estate operators to get ahead of the curve and start crafting unified strategies than right now.