PropTech Pulse January 07, 2019

PropTech + The Shape of Things to Come in 2019

As we start 2019, the PropTech industry is likely to continue experiencing extraordinary growth. To better provide you with updates and the latest trends in this space, Goodwin is introducing PropTech Pulse, a short series of articles from members of our PropTech practice.

Over the coming year we expect to see an expansion in smart building technologies and tenant experience applications, the Internet of Things (IoT), Artificial Intelligence (AI) and machine learning. As real estate continues to adopt technology to increase efficiency, we will see increased attention to  privacy and cybersecurity concerns as well as changes in zoning and title practices.

Innovative, high growth, and disruptive businesses are becoming major forces in virtually all industries, including real estate. At Goodwin, we recognize the value of supporting the goals of our clients while navigating the rise of this sector and meeting the demands of the marketplace. With our market-leading technology and real estate industry practices, Goodwin is perfectly positioned to capitalize on this confluence.

“Our real estate clients recognize that technology is fundamentally changing how properties are designed, built, and managed, while our technology clients are at the vanguard of product development that is attractive to real estate owners, investors, and developers. We are excited to be at the forefront of this emerging and vibrant sector.” – Minta Kay, Partner and Chair Real Estate Industry

To kick-off our series, the co-leaders of our PropTech practice, Minta Kay, Chair of the Real Estate Industry Group, and Salil Gandhi, partner in the Technology Group, examine the top forces driving the PropTech movement, from curated tenant experiences, to blockchain, to consolidation trends.

10 Biggest Forces Driving the PropTech Movement

  1. Robots at the wheel. It’s not a matter of if autonomous vehicles are coming; it’s a matter of when. Whether it happens in the next 10 or 15 years, real estate companies are making preparations now. Will there be the same demand for parking? Will we need dedicated lanes for picking up and dropping off riders? Will fleets of self-driving cars require special fueling/charging stations? Will there be a reduction in traffic congestion that could open new land-use opportunities?

  2. What have you done for Mother Earth lately? More tenants expect their buildings to meet certain standards (LEED certification) when it comes to efficiency and environmental impact. Real estate companies recognize this demand and are teaming up with technology companies to deliver more transparency and personalization when it comes to heating, air conditioning, electricity consumption, lighting and air quality.

  3. Curated Experiences. Beyond wanting their buildings to be ecologically responsible, tenants are expecting them to provide the latest and greatest features when it comes to technology. From smart lighting controls and video conference capabilities to high-speed wi-fi and ergonomically engineered work stations, office operators are focused on keeping pace with innovation. Location awareness capabilities are allowing tenants to indulge in their desire for a more personal office experience. As such, real estate companies are turning to tech companies to make sure they stay at or ahead of the curve. Tech companies, such as HqO, also provide their landlords and tenants with a platform that allows connectivity between users, resulting in a stronger sense of community within a building.

  4. The FOMO factor. Fear of missing out. Nobody wants to be left behind, especially when it comes to business trends and potential disruptors. In the case of PropTech, incumbent real estate owners and investors have actively invested in tech startups to stay ahead of the curve. Meanwhile, smaller tech companies are looking to the real estate market for innovation opportunities. The PropTech movement is the byproduct of both areas seeking to evolve and remain profitable. Now that the big real estate players are realizing the untapped potential, the synergy between the two groups will continue to strengthen until there is no longer a distinction between them.

  5. Repurposing retail. As conventional retail spaces struggle to maintain occupancy and profitability, the tech sector is taking advantage of some of those empty spaces. The retail apocalypse has left many big box retailers forced to shut their doors, creating an abundance of vacant retail space. In some cases, tech and life sciences companies are taking over these empty malls, converting them into hospitals and medical offices – a move that also makes them immediately accessible to large population centers. Another idea for struggling malls is to “future proof” them by converting them into mixed-use “mini-cities,” which would include a residential component.

  6. Big data is the decider. More than ever before, the real estate industry is leaning on technology to collect vast amounts of data which can be leveraged with artificial intelligence to help determine pricing, design, usage and maintenance costs as well and evaluating how these data use changes implicate privacy and cybersecurity considerations.

  7. Changes in attitudes. When technology first began disrupting conventional industries, the reaction among established companies was, “You’re changing the way we do business and we don’t like it.” More recently, those companies are seeing opportunities to participate in the technological revolution and use it to their advantage. In the case of the real estate industry, whether it’s a company like Airbnb or the advent of co-working space, trends that were initially feared or dismissed are becoming more widely embraced.

  8. A link to blockchain. While still in its nascent stages, blockchain has the potential to push tech and real estate companies together quickly. Blockchain technology can be applied to nearly everything related to the real estate space: pricing, rental history, contracts, deeds, service agreements, fundraising and payments. All of that information can be readily accessed and transferred seamlessly through blockchain.

  9. Government getting up to speed. Nobody expects the government to spur market innovations such as PropTech, but there are signs in some cities and states that suggest they are paying closer attention. Some municipalities are reevaluating building codes and zoning laws that would accommodate dramatic usage changes depending on new technologies; others are paving the way for autonomous vehicles by designating special testing districts where companies can refine their products for more widespread use. As urban development rises, municipalities are strategically utilizing both AI and Augmented Reality (AR) to better understand their needs in order to effectively execute on urban planning and design.

  10. Wave of consolidation. The combination of the digitalization of real estate and the increase in funding specifically devoted to PropTech investments from venture capital and well-capitalized and well-established real estate investors, is driving and will continue to drive an active PropTech M&A pipeline. As fundraising has become increasingly competitive due to the deal flow in the PropTech industry and development of PropTech assets, small and midsized startups are combining to build more valuable and attractive real estate technology platforms. These trends coupled with the fact that certain real estate sectors like hospitality, retail, residential and industrial, are well-positioned for technological transformations aimed at correcting operational inefficiencies, is resulting in a rise of consolidation.

Through our cross-industry and practice area collaboration, and by leveraging our existing reputation as leaders in the tech and real estate spaces, Goodwin can provide clients integrated, forward-thinking service that adapts along with their needs. To learn more about Goodwin’s PropTech capabilities, please visit our website or email PropTech@goodwinlaw.com.