The past year has been another one of turmoil across the real estate and technology sectors. Much of the market had recovered from COVID-19 by the beginning of 2022, but with the Fed hiking interest rates to curb inflation, the economy took a big hit. With borrowing costs on the rise, real estate transaction activity slowed, and similar macro trends affected the flow of venture funding to startups. Here are some of the trends we expect to dominate the real estate technology space this year.
Multifamily Operators Will Focus on Technologies With Clear ROIs
More than $50 billion of capital was invested into hundreds of real estate technology companies over the past five years. But while every real estate tech platform is designed to deliver value in some capacity, the nature of that value—and the time frame in which it will be realized—varies dramatically.
With the economy struggling, fewer real estate owners and operators are looking at technology with a 10-year time frame. Instead, they’re aware of slowing rent growth and a challenging labor market, and they are seeking tools that can have an immediate impact on operations and profitability.
Technologies that eliminate actual inefficiencies in workflows and building energy use are ideally positioned for success in 2023. For example, we expect to see continued deployments of smart-home tools, ubiquitous Wi-Fi solutions, online leasing, and tech-enabled maintenance and operations tools as owners flock to solutions that drive clear operational improvements.
Similarly, tech platforms with a business-to-business-to-consumer component—such as property insurtech tools that ultimately sell to resident end users—typically provide properties with a fresh revenue stream and will be among the technologies most likely to be deployed in the year ahead.
Multifamily Tech Users Will Be Discerning About Vendors’ Corporate Stability
One of the realities that has prevented broader adoption of real estate technology is a concern about the business stability of the companies behind the tech. Any technology deployment requires a significant outlay of time and money. When the platform is being sold by a young, undercapitalized startup whose long-term future is in question, it is understandable that enterprise-level users are hesitant to adopt it.
This was always something of a concern, although it became less pronounced as the real estate tech sector solidified over the past half decade. However, now the economy is turning. Venture funding has slowed significantly, and numerous real estate tech companies have struggled, so corporate stability is once again an important factor in the vendor evaluation process. In 2023, we expect to see multifamily owners and operators vetting vendors’ corporate profiles almost as much as they assess their technology. Because of this, startups who are able to impress upon potential clients their stability will have a significant advantage when it comes to growing their client base. Critical factors real estate firms will consider before tech deployment include the startup’s commercial traction, the viability of its business model, its access to capital, balance sheet quality including financial leverage, and the track record and credibility of the startup’s venture capital backers.
Real Estate Technology Will See Significant Consolidation
Because of the challenging funding environment right now, some real estate tech companies that expected to raise another round in the typical 12 to 18 months after their last raise will likely be unable to do so. Most startups have already begun cutting costs as they try to extend their runway. But while that will work for some companies, there’s no question that this is a business environment ripe for consolidation.
On an industry level, an uptick in M&A is probably a good thing. From the technology users’ perspective, the number of real estate tech platforms is staggering, and consolidation should lead to a more streamlined tech stack. M&A is also a common exit strategy for startups in any market. In late 2020, our portfolio company CheckpointID was sold to MRI Software. In early 2022, our portfolio company SightPlan was acquired by SmartRent. In each case, a best-in-class point solution was integrated into a larger real estate tech offering, providing a better user experience to multifamily professionals.
Given current realities, 2023 will likely see more M&A than most people would have anticipated before the market soured—but there’s room for optimism that this will leave the real estate tech sector in a better position to address the needs of multifamily owners and operators.