Inflation and economic uncertainty are causing commercial property owners of all kinds to prepare for and adapt to a changing market. According to the latest data from the National Multifamily Housing Council, apartment sales fell in July as the cost of equity and debt financing increased. CRE market intelligence provider Yardi Matrix projects that while demand remains strong in most markets, the second half of 2022 is likely to be less active than the same period in 2021, in large part due to the spike in debt costs.
One way savvy investors are meeting the challenge of change is by embracing real estate technologies called proptech.
So What Exactly IS Proptech?
Proptech companies provide physical products for buildings or use technology services to improve or streamline how people interact with properties. From apartments to multi-tenant offices, single-family homes to industrial facilities, proptech also makes managing commercial properties easier.
It’s a relatively new innovation that’s seen exponential growth – from 261 companies in 2014 to over 1,200 in 2022. Much of that growth was certainly fueled by the pandemic as the world was suddenly thrown into a touchless environment. However, convenience, health and safety are still top priorities for tenants and employees in our pandemic/endemic world. Demand for proptech is increasing as developers, owners and property managers see the benefits of automating processes that enable them to better manage their assets, streamline building operations and improve the tenant/visitor experience, adding value to a building while saving time and money.
In the multifamily marketplace, modernizing older buildings with proptech helps owners remain competitive, particularly with millennials (60% of them choose to rent vs. buy). These young renters have come to expect modern/technology-based amenities, are willing to pay more for them and are more likely to move on to buildings that do. With about half of all renters leaving within a year of moving in, offerings that improve safety and convenience are smart investments that help differentiate properties.
“Techie” Amenities that Help Sell Properties
Some key proptech innovations that attract new tenants and maximize net operating income (NOI) by improving retention include:
- Virtual apartment tours (some of which include a virtual reality experience) – expedited by the pandemic, these allow property managers to book more tours and engage with more prospects. Prospective residents can target preferred units more efficiently and safely.
- Self-guided multifamily tour platforms – include automated sign-in video windows, keypads and doors to gain entry to apartments and common areas without an agent.
- Video intercoms – use smartphones with built-in cameras to enable remote visitor verification before recording and granting building access, enhancing building security.
- Solar power – one of the original forms of proptech, this renewable energy source appeals to Gen Z and millennial renters who comprise the majority of the multifamily rental market. It also gives owners more reliable control over their energy needs and can put more money back into their pockets through an arrangement with their power provider called net metering.
- Better air purification systems – one example uses bipolar ionization tubes, a proactive HVAC technology that emits negative and positive ions that seek, attack and remove contaminants and germs rather than just react to them.
- Touchless building fixtures – examples include automatic faucets, toilets, lighting, outlets, doors and elevators.
- Smart apartment locks/keypad access controls – use smartphones to assign virtual keys for visitors that can be configured to work at specific times. PIN codes or smartphones can also be used with keypads to open doors to amenity spaces within the building.
- 3D building/unit capturing technology – provides a “virtual twin” of a building to monitor systems/detect leaks or other problems in real time, which enables managers to proactively deploy fixes before major issues develop. It can also simulate various events (e.g., weather, crowds) to allow managers to prepare for them.
- Smart thermostats and blinds – automatically lower the temperature when tenants aren’t in the unit/building and control how much sunlight comes in, reducing energy costs.
The National Apartment Association elaborates on the benefits of combining some of these systems in a recent article.
Another proptech amenity addresses an issue always high on the list of tenant concerns: mail delivery and safety. A key finding of the National Multifamily Council’s 2022 Renter Preferences Survey report states, “The share of renters who received two or fewer packages per month dropped from 45 percent in 2019 to just 24 percent this round, while the share who received three or more packages per month increased from 55 percent to 76 percent over the two-year period.” Adding electronic parcel lockers or package rooms equipped with video access control systems prevent mail theft, offer contactless delivery and allow property management staff to focus on other building projects.
Investing in proptech amenities can keep property owners ahead of the curve by giving a potential tenant or buyer the extra incentive they may need to choose your building over someone else’s. It’s worth investigating which ones may be a good choice for you. Many of the items mentioned can also be reallocated to shorter depreciation schedules as part of a cost segregation study. Contact us for more information and a free benefits analysis to see how you can maximize your return on investment in these emerging technologies.
