Address the Uncertainty with Proptech
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Amidst the soaring interest rates and swollen costs of living, everybody’s eyes are set on real estate trends 2023, or where the world’s most asset-heavy industry worth $340 trillion (2022) is heading.
To provide a clear, unbiased real estate forecast 2023, we have asked multiple thought leaders to share their perspectives on the real estate market trends 2023, technology- and business-wise.
Our emerging trends in real estate 2023 report represents the outlook of a wide range of industry experts, including investors, fund managers, advisers, and consultants and reflects their consensus opinion on the following questions:
With almost USD $340 trillion in global assets (79% of which is in the residential sector alone), real estate is the biggest industry the world has ever seen. Just to compare, the value of all gold ever mined stands at $12.1 trillion – just 4% the value of global property (source).
Apart from gold, real estate is more valuable than all global equities and debt securities combined, and almost four times that of global GDP.
Starting from 2019, the real estate economy has been pulled in all directions by inflation, Covid-19, and now by the unfolding cost-of-living crisis and soaring interest rates. And if a couple of years ago, the real estate industry weathered the storm relatively well, and this is—at least partially—owing to proptech advancements and tools that supported all stakeholders during these tough times – the upcoming turmoil seems much more worrying.
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“ It took some time for inflation [in the USA] to show up, and it could be argued that the FED should have raised rates in smaller increments starting sooner, but the increase of the FED funds rate and consequent 10-year treasury from 1.5% at the beginning of 2022 to a high of just over 4.2% in Oct / Nov 2022 has had a major impact on financial markets and transactional volume. ”
The most evident real estate trend 2023 will bring is soaring interest rates that are going to seriously sap real estate transactions.
Just look at the property market in the USA, where the increase of the FED (The Federal Reserve System) funds rate and consequent 10-year treasury from 1.5% at the beginning of 2022 to a high of just over 4.2% in Oct / Nov 2022 has had a major impact on financial markets and transactional volume, says Nick Buchanan, the President of Cape Point Development and a Member of Tech Coast Angels Orange County.
The real estate market’s reaction was immediate, he says – as home sales, commercial building sales, and construction starts have all slowed down precipitously – which is exactly what the FED intended.
The impacts of this slowdown are tangible in different sectors:
These gloomy real estate trends are going to persist throughout the whole of 2023 and beyond.
A major crash in the real estate market so far seems unlikely – an abundance of demand and a housing shortage will keep home prices from descending in most markets, including the United States and the United Kingdom.
However, now that interest rates have reached their record high – 6.78% in the UK and 7.32% in the USA for a 30-year fixed mortgage – the demand for housing is set to drop and cause house prices to fall.
We have already witnessed house prices falling slightly month on month. And this is further amplified by the unfolding cost-of-living crisis, rising inflation, and tax rises, chipping away at disposable income people would spend on buying houses. Considering all the above, home price predictions for 2023 look gloomy as never before.
“ Areas with strong job growth and or limited housing supply should hold up better than markets where there is a lot of apartment supply coming on line. The better markets will be ok and once the near-term supply is worked through we’ll be back to having a limited supply with rents increasing again, but the same can’t be said for markets that have a bigger supply demand imbalance. ”
Real estate expert and investor Nick Buchanan believes that areas with strong job growth and limited housing supply should hold up better than markets where there is a lot of apartment supply coming on line.
As an example, Phoenix, the US, has an average of 16,000 apartment units per year coming on line for the next 3 to 5 years, which will impact vacancies and rents in existing properties, while a coastal California market like Orange County has only 3,200 units a year.
The better markets will be ok, and once the near-term supply is worked through, we will be back to having a limited supply with rents increasing again, but the same can’t be said for markets that have a bigger supply-demand imbalance.
One of the sweeping real estate trends 2023 according to Deloitte, is the industry-wide reduction in real estate tech expenses amidst soaring inflation, growing labor costs, and ongoing supply chain uncertainty.
Many in their real estate forecast 2023 envision some level of technology-cutting, and around half don’t envision any budget movements at all, especially in Europe.
The lack of technology can, of course, put the whole industry back into the age of “tech blindness and illiteracy,” but on the other hand, the reluctance to adopt the technology of some may translate into a myriad of opportunities for others. By others, we mean those eager to add value to their business with the help of proptechs – usually software companies that offer technology innovations for traditional property companies.
While some cut their technology budgets, thus inevitably sacrificing operation performance, others will move ahead of the pack by embracing one of the major emerging trends in real estate 2023 – proptech.
According to the above-mentioned report, real estate firms of all sizes set their sights on outsourcing their back-office functions to technology companies specializing in real estate (aka proptechs). Of particular interest in this real estate forecast 2023 are customer relationship management, internal data management, property management, and reporting.
“ As real estate transactions are slowing down following the soaring rise of interest rates, less people can afford to buy a new home. This is why I think that the focus is going to be on renting instead of homebuying and selling. In the new reality, it is going to be tough for some companies to survive, but it definitely is going to be a huge opportunity for new ones. ”
As mortgage rates keep growing almost universally, more and more people turn to long-term rentals as opposite to homebuying. This real estate trend 2023 has been manifested in the Zillow real estate forecast 2023 and by our respondents from Plug and Play – a global platform matching investors, startups, and corporations.
Elena Ruiz, a global investor and innovation expert representing the above-mentioned firm, says that this emerging trend spurs a lot of opportunities for numerous proptech startups redefining how people search for rentals (e.g., a Canada-based startup Properly), build credit for rent, pay for their home, etc.
Elena also points out that in the light of this emerging real estate trend 2023 toward rentals many smaller proptech companies initially focused on mortgages and homebuying will have to recalibrate their business model – or they will simply not survive this storm.
This real estate trend 2023, however, will not hit long-established iBuyers and home listing platforms like Zoopla, Rightmove, and Opendoor, as they have enough resources to withstand the change of paradigm.
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“ No longer will the focus be so much on the building, but on how the building impacts the productivity of people working or living in it. By building I mean the physical space itself and people working behind to bring it to market, i.e., real estate brokers, property managers, contactors, etc. ”
This real estate trend 2023 is what Forbes calls “tenant experience,” which is the sum of every aspect that impacts property occupants during their time in a building (source). These can include services and amenities, maintenance and cleanliness, and of course, quality communication with a real estate service provider.
As tenant expectations evolve, however, ensuring decent tenant experience becomes almost impossible without an industry-wide shift in mindset in how firms engage with tenants, end-users, investors, and developers. Deloitte refers to the new business model as Real-Estate-as-a-Service, which implies not only physical space but digital services combining data, technology, and strategic changes.
Real estate leaders and investors can unlock additional value from the REaaS model by implementing the following real estate technology trends:
“ Smart Cities, or Urban Tech, is an umbrella term for energy, IoT, construction, mobility, GreenTech, and ClimateTech solutions. Within green and climate technology space, the investment is flowing more toward heavy industries, mostly to assess and reduce the production of emissions. In the residential space, these solutions are focused on the optimization of energy consumption in homes, especially given the soaring gas and electricity prices across Europe. ”
Smart City technology, i.e., modular construction, ClimateTech, GreenTech (Artificial Intelligence, Internet of Things, and Big Data) will largely define what will the housing market look like in 2023, according to Elena Ruiz from Plug and Play.
In her real estate forecast 2023, she envisions that over 50% of all proptech investment will be routed into startups that embrace new “green” ways of developing, constructing, and utilizing the property.
As this area of real estate has been seriously underinvested for decades despite the fact that real estate as a whole is actually responsible for around 30% of all emissions, there is a lot of low-hanging opportunities for both proptech innovators and investors.
The most lucrative possibilities for proptechs, given the skyrocketing gas and electricity prices in Europe, arise from the need to reduce energy consumption (e.g., London-based Carno.io addressing the heating issues by providing an easy tool for heat loss calculations and design), transition to solar panels (Pine Gate Renewables), etc.
“ Fractional ownership and fractional investment is already being pretty massive because it is democratizing the real estate space. Everybody is going to be able to invest in real estate if they have a hundred dollars in their pockets. And this is going to push big players towards rethinking the way of doing things. ”
There isn’t and will not be a single real estate owner anymore, says Elena Ruiz. Blockchain is helping to democratize and spread the ownership of a single property between multiple stakeholders through the conversion of real estate assets into tokens, like Bahnhofstrasse building in Zurich and Britain’s Greenwich Peninsula project.
And despite the recent volatility on the cryptocurrency market, the real estate trend 2023 toward tokenization seems to be gaining momentum with Miami having announced its plan to accept crypto tokens for preconstruction deposits for its Cipriani Residencies project and Jamestown accepting crypto as rent payment for a range of their development across the US with a plan to expand to Europe (source).
“ Early in proptech we saw a lot of fintech businesses around the home purchase transaction. However, with rising rates, I think we can realistically expect to see a retraction there. Instead, look for innovation in and around property management for all real estate asset classes to better manage the supply chain of real estate. ”
Property management has experienced steady growth over the last decades as a field with promising opportunities for modern businesses. While 2009 shows that the property management revenue was around $60 billion, 2022 boasts $99 billion in the US.
With North America and Europe leading the global property market, the industry will keep growing despite the political turmoil and economic fluctuations. And with real estate transactions dropping in the second half of 2022 and early 2023 due to soaring interest rates, real estate professionals need to better manage the real estate supply chain.
In the end, there will be more tasks to solve and more property to manage, especially in the rental property space. Learn how to simplify rental property management with technology.
“ At some point in the next three years, the office market will reach a tipping point … the result will be a relative avalanche of conversions of various kinds... Offices will start to compete directly with housing — by turning into apartments. This will be a marginal issue in most markets, but in some cases, it might have a real impact on the housing supply. ”
Back in early 2020, everyone thought that once the pandemic had ended, we’d all collectively resume our pre-Covid patterns of office-based working. Yet that’s not how things have turned out, and many offices remain vacant.
As Dror Poleg thinks, in the next three years, these workplaces will be converted into residential buildings. Or at least there will be attempts to do so, as the world is suffering from severe house shortages.
One of NYC’s most prominent office landlords announced a new $1.5 billion fund for an “Office-to-Housing push, he says, and Silverstein Properties, the developer behind the World Trade Center, is shifting its attention to converting offices into apartments.
However, this is not going to happen globally because most office buildings are too hard or too costly to convert. But a sizable minority of the current supply can and will be converted.
Despite the serious cuts in technology budgets envisioned by most real estate experts, automation solutions, for example, customer relationship management (CRM) systems, property management platforms, and data management tools, as well as tokenization technology, GreenTech, and multiple listing systems for rentals will still be in demand.
These real estate tech trends 2023 will obviously not be adopted by the vast majority, but only those who have the flexibility and risk appetite to get ahead by exploring new opportunities, often with the help of third-party providers and proptechs.
Let’s take Ascendix as an example. Founded back in 1996 and anchored in Dallas, TX, we have been powering traditional real estate firms, like JLL and Hanna CRE, with award-winning real estate software development services and business intelligence. With our help, JLL managed to elevate their website log-in rates by 200% and double the service delivery speed thanks to their brand-new CRM system and having their data migrated to the cloud.
Check our case studies for more.
Amidst darkening economic clouds and sinking real estate transactions, most of our respondents remain reasonably upbeat in their real estate forecast 2023. Here is a short round-up of emerging trends in real estate 2023:
As a real estate technology innovator and advisor having helped multiple property companies withstand the recession in 2008, the pandemic, and its lingering side effects, to a large extent, thanks to technology advancements, we recommend that real estate firms address the upcoming turmoil with tech intelligence provided by external experts.
By this we mean reaching out to proptech providers, like ourselves, to optimize operational efficiency. For example, we can build:
The world’s biggest real estate service corporations like JLL, Hanna CRE, and Colliers trust us because:
Tell us more about your project and we’ll make sure to provide you with the knowledge and resources to make innovation happen for you and your business.
Hire Ascendix. We’ve been at the forefront of Property Technology for 16+ years.
The must-have real estate technology trends of 2023 will include customer relationship management (CRM) systems, property management platforms, and data management tools, as well as tokenization technology, GreenTech, and multiple listing systems for rentals.
The up-and-coming markets in 2023 are going to be those that withhold the soaring interest rates with a scarcity of housing and increased demand – e.g., the US and the UK.
Alina is a proptech technology expert and a storyteller at Ascendix, investigating the real estate market and sharing her insights and tips with up-and-coming proptech startups, established real estate agencies, and industry stakeholders. She talks about real estate technology, business automation, and industry news.