2019 was an incredible year for PropTech.
From the highest highs (a record $16 billion in VC investments) to the lowest lows (WeWork implosion), 2019 may well go down as one of the most eventful years for PropTech to date. The cautious excitement coupled with the possibility of explosive growth ahead is palpable. Will 2020 be the year that finally delivers this growth? I am no clairvoyant, but I can’t help to think that 2020 will be big. Likely bigger than 2019. Here are my predictions for the 10 big ideas that will shape PropTech in 2020:
As a PropTech provider, I am obviously biased in making this statement and projecting the impact of tech on the real estate industry. For objectivity though, one only has to look at adjacent industries (Hospitality Travel, Retail, etc.) to see how players who embraced tech fared compared to their peers who did not. Take retail for example. While some players vanished (Circuit City) and others became a shadow of their former self (Sears), there are some that emerged bigger and stronger (Best Buy). Why? They embraced tech wholeheartedly to not just break away from their competition but also avoid being disrupted by tech giants (e.g., Amazon).
Fortunately, other industries took notice and adopting digital tech has become a $2.3 trillion dollar business worldwide. The real estate industry will be no different. I expect 2020 to be the year where players who wholeheartedly embrace tech - specifically PropTech - will start to break away from their competition, leapfrog them (2022-23) and eventually obliterate them (beyond 2025).
While PropTech’s early success came from the focus on the user of space (e.g., resident, tenant, etc.), its growth will increasingly depend on its ability to deliver a financial return to the managers of space (e.g., operators, property managers). How does PropTech increase revenue? Reduce operational costs? Increase operational efficiency? Increase renewals? These are the kind of questions PropTech will increasingly face and will have to answer in a ROI positive way in 2020.
For example, it’s great the PropTech increases digital engagement of residents. But does this engagement actually cause residents to stay longer in their leases? If so, how much additional revenue and cost impact does it bring? And is the impact a multiple of the PropTech costs, thereby ROI? Expect more such conversations and expectations from PropTech in 2020
Such is the onslaught of data in the real estate space that it’s hard to go into an industry conference and not have data as a key discussion topic. From data about how properties are performing to how residents are interacting with physical space to the millions of data points being generated by smart devices (smart locks, digital home assistants); it is no secret that we are in the midst of a data tsunami.
But collecting data for data sake is futile. The real power of data lies more in the insights that can be derived from it and the resulting actions that such insights help trigger. And I expect 2020 to be the year where PropTech starts doing exactly that.
For example, imagine being able to act on resident engagement data to reduce marketing spend by targeting only those residents who are likely to churn vs all whose lease may be up for renewal. Or in the case of operations, imagine being able to act on property performance data to increase training efficacy by training only those staff who have higher than average response times to work orders. Or when it comes to investment decisions, imagine being able to make better ones by getting real answers to thorny questions such as: why two similar properties in similar zip codes exhibit stark differences in their ability to command rent? And is the difference really attributed to factors you control (e.g., type of property, amenity, etc.) or those you don’t (e.g., density of 5-star rated restaurants in close proximity)?
Expect data to be your friend for making such decisions in 2020 and acting on them
While PropTech has and will always be about the physical space, its success will ultimately hinge on solving pain-points for those who interact with this space. Whether these are people who occupy these spaces (residents, tenants, etc.) or manage them (operators, property managers, etc.), it is critical to remember that in their day-to-day life, they are regular consumers like you and me. And when it comes to consumers like you and me, it is safe to say that technology has spoiled us so much in our day-to-day that arguably the only thing more important than ‘what we want,’ is ‘how we want it.’ (e.g., the only thing more important than getting a ride is to get it via a one-click)
This desire for experiences that are on-demand (you can hail a Lyft anytime), ubiquitous (anywhere), convenient (one-click), reliable and affordable will require PropTech to take an experience-first approach to shape their value proposition in 2020.
Consider this: an experience-first approach may incent residents (think reward points) to pick up their packages instead of just sending them a standard twice-a-week reminder that they have a package waiting. Whether it’s adopting that latest consumer trends to provide 24x7x365 digital connectivity, smart home technology to enable seamless access, or a one-click FinTech to deliver digital payments, expect more customer experience-centric innovations from PropTech in 2020.
It is no secret that real estate and property management companies have been adopting PropTech at a feverish pace over the last few years. So much so that a closer look at the last few years of VC investments reveals a steady rise:
2017 - $12.6B
2018 - $9.6B
2019 - $16B (through mid-year 2019)
What’ll it be in 2020? A specific number is anyone’s guess but going by the trends, I expect this number to continue to rise. Why? Plateauing property prices, a desire to provide greater service levels and drive operational efficiencies will continue to drive higher VC investments in 2020.
One of the implications of higher VC investment is that more and newer players will continue to enter the PropTech space. And because apps are a popular method for PropTech players to deliver their services, an influx of new players will also result in further proliferation of apps.
One downside to this - and something we have seen in the consumer tech space too - could be app fatigue, where consumers (residents) do not want to download any more apps. I don’t think we are there for PropTech yet. However, towards the latter part of 2020, I would not be surprised if app fatigue starts to kick in. It will be important for apartment operators to consider app consolidation or how to work with PropTech partners to streamline the number of apps needed.
Few topics seem to get so much interest in PropTech as does automation. Freeing humans from repetitive, low-value tasks has long been the promise of automation. The only difference now for PropTech is that promise is finally coming true. Glimpses of automation are already here as evident with self-guided tours, chatbots and digital work orders. However, I believe the day where the leasing office has a digital assistant isn’t too far away and could gain traction in 2020. This assistant will not only review a list of all possible tasks needing action but - more importantly - will have the intelligence to direct staff time and attention to only the one(s) needing urgent attention, such as making a personalized outreach to a resident regarding a 3-day-old unresolved maintenance request.
An implication of more VC funding and app proliferation will be that as real estate companies adopt more PropTech, they will increasingly rely on their PropTech providers for solutions, including those related to security. And because many PropTech providers are digital natives with applications in the cloud instead of data centers, potential for exposure to cybersecurity risks will likely make security go beyond the IT departments. Specifically, topics that were previously relegated to IT departments - like encryption, identify/access management and better incident tracking and response - will increasingly be discussed in the corporate boardrooms. The good news is that PropTech providers are digital natives and I expect them to flaunt their cybersecurity capabilities as a key competitive advantage.
It is no secret that attracting the right digital talent is challenging in current times because of alternative options – e.g., Facebook, Amazon, Netflix, Google etc. - and job prospects such talent has. But savvy real-estate players, will not let this delay their plans to embrace tech. Instead, they will take charge of their destiny and start adopting talent innovation. Specifically, I expect they them to start identifying internal talent who can be re-trained to meet the demands of a digital economy and workforce. Expect more “up” and “re” skilling in fields such as IT, digital marketing, automation and more.
While the above ideas and innovations are promising, they also represent a change from the status quo. And change is never easy. Especially for an asset class like real estate that has not needed to change in a long time.
But I also feel that this change will be necessary.
There’s ample evidence from other industries on the need for this change. We already saw that for every Best Buy that changed, there was a Circuit City that did not. For every Netflix that changed, there was a Blockbuster that did not. And for every iPhone camera that sold, there was a Kodak that did not. And it’s not because they did not try or want to change. They did. But that is the thing about change. It is never easy. Where some succeed, others fail.
In 2020, for every real estate company that will grab the opportunity that change presents, there will be one that will not.
These are all I have for now. It's virtually impossible to get these right. But getting them right is not my goal for writing these. But I do hope this made you think. As much as writing these made me think. Do you agree with my predictions? Why or why not? Please leave your thoughts in the comments below. Towards the end of 2020, I’ll revisit my predictions and assess how accurate or off they were.
Here’s to an exciting 2020.
Nitin is the CEO of Mobile Doorman, a former Management Consultant at McKinsey & Company and Board of Trustees Member at the Naperville Public Library. He advises Company Boards, CEOs and BU heads on product strategy, growth and operations. He also has multiple US patents (5) for design and development of mobile, wireless and networking technology including a patent to extend smartphone battery life. Nitin holds a masters in Electrical & Computer Engineering from the University of Texas at Austin and an MBA in Marketing & Finance from the University of Chicago Booth School of Business.