If analysts are correct, 2018 is shaping up to be a watershed year for smart apartment technology. Sales of smart devices are gaining momentum, giving users greater control over their homes. Control not only means improvement in home security and opportunities for renters to save money, but also offers numerous advantages for landlords, although a few kinks remain to be worked out.
By the end of this year, sales of smart home devices are projected to rise 31 percent year-over-year worldwide to 643.9 million shipments, according to market research company International Data Corporation (IDC). Moreover, by 2022, the entire smart home market is expected to encompass nearly 1.3 billion devices. This increasing presence will soon be too big—and too beneficial—for multifamily investors to ignore. Smart technology can attract residents, make property management more efficient, and potentially lower insurance and tax payments (a result of taking safety precautions and being more green). But to take full advantage of the technology, careful selection and management of smart apps is crucial.
Demand Rising for Smart Apartment Technology
Residents can obtain and use much smart technology with only limited landlord involvement. The most popular products among consumers, according to IDC, are video entertainment devices, such as smart TVs and adapters like Google’s Chromecast and Amazon’s Fire TV. Smart Speakers (virtual personal assistants—VPAs) are next and are easily installed in homes that have the electronic infrastructure. IDC also found that the market share of home monitoring and security devices is rising.
In contrast, a 2017 survey of renters conducted by Software Advice revealed that the technology renters indicated as “compelling” was quite different:
- Thermostat: 20 percent
- Lighting: 19 percent
- Video monitoring: 18 percent
- Locks: 17 percent
- Outlets: 14 percent
Most of these smart devices cannot be installed by residents themselves. While smart thermostats and smart lighting increase comfort and can potentially reduce energy costs, the draw of a smart outlet is convenience as well as practicality. Residents can turn on home appliances via a mobile device, saving money by reducing standby consumption.
Smart technology, such as noted in the Software Advice survey, is here to stay—50 percent of respondents between the ages of 26 and 35 said they would be somewhat more likely to rent a unit with those features—and the list of reasons renters have for liking it is sure to keep growing. This means that landlords will do well to take notice.
Benefits and Challenges of Smart Apartment Technology
Luxury apartment amenities can be brought up to date with a typical suite of smart technology; by adding two or three upgrades for under $1,000 per unit, justifying a rent increase that would recoup those costs in 12-18 months, according to one property management executive. Perhaps more impressive are the ways property managers can benefit from the same technologies. Smart thermostats can be used to keep vacant units and common spaces at energy-efficient temperatures, while smart lighting can reduce power usage. The spread of CCTV has shown the effectiveness of smart security applications. Smart locks allow managers to do away with racks of keys and, at the same time, increase control over who has access to vacant units and other restricted spaces. Many smart systems can also gather information on energy usage for analysis and systems optimization.
Although the benefits are many for multifamily investors, there is one serious drawback in practice: a lack of centralization. If every smart device in a complex is controlled independently, landlords have to impose on residents to download a set of apps for use. Each app will have to be learned, which could cause inconvenience and, possibly, reluctance. When a resident moves, the smart technology in the apartment has to be factory reset to maintain security.
The solution to these problems is to manage all of the smart systems from a single, integrated platform. There are several smart home automation systems on the market. They range in capacity from a solution that can combine several controls in a single unit, as Amazon’s Alexa or Google Home can do, to systems like PointCentral that combine all the units in an apartment community and interface with property management software like Yardi. More smart technology management platforms are likely to emerge on the market soon and their use is bound to increase as smart technology spreads and residents demand more user-friendly controls.
Multifamily property investors have been cautious about retrofitting existing communities with smart apartment technology, and rightly so. Thorough market research is needed to determine whether rental increases can support the cost of implementing smart technology and whether the technology is popular with current residents and will be in demand among prospective residents. Nonetheless, smart technology use is spreading very rapidly and multifamily landlords must pay close attention in the months and years ahead.
At CWS Capital Partners, we are a fully integrated multifamily real estate investment management firm that offers everything from due diligence and multifamily real estate valuation to transaction support and property management. We specialize in assisting our clients with 1031 exchanges, acquisitions, repositioning, and development. We also own and manage luxury multifamily investment communities in major markets around the country and employ a team of experts who can help you hone your investment strategy.
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