Smart apartments: How to offer better experiences and improve NOI

 

By Robert Gaulden, director of multifamily channel strategy at Allegion

 

Smart apartment technology can attract potential renters and improve your net operating income. Learn more about enhancing the experience with smart locks and other connected smart home products.

 

What is a smart apartment?

Everyone has a vision that comes to mind when they hear “smart apartment.” For some, it’s rooms full of gadgets working together to create the optimal living experience. For others, they picture less-obvious sensors monitoring a space to ensure it is operating efficiently. Some might simply think of a voice assistant that controls their thermostats. But what does it really mean for a space to be smart?

 

In 2016, Coldwell Banker Real Estate released an official definition of a smart home that can also apply to smart apartments: “A home that is equipped with network-connected products (aka “smart products,” connected via Wi-Fi, Bluetooth or similar protocols) for controlling, automating and optimizing functions such as temperature, lighting, security, safety or entertainment, either remotely by a phone, tablet, computer or a separate system within the home itself.”

 

More important than how we describe smart apartments is our understanding of their value. From convenience to productivity, connected spaces benefit both property owners and residents. Though, keep in mind that what’s valuable to your business doesn’t always translate to the end user. For example, water leak detection is a great feature of a smart apartment, but it likely isn’t as attractive to residents as smart lighting.

 

It’s important to consider both aspects when evaluating smart technology for your properties. Often times, the highest value is realized when the smart technology benefits both you and the residents, providing you with a powerful solution that can increase net operating income.

 

Property owners are attracted to features that will lower operational expenses, save time and protect the property against risk. Features that impact energy-savings are attractive because they impact the bottom line.

 

Prospective renters will find value in things that make their life simple, save them time and money and keep them secure. Residents want to feel safe at home, but they also want services like unattended delivery. Smart apartments can help strike a balance between security and convenience when implemented strategically.

Prospective renters will find value in things that make their life simple, save them time and money and keep them secure.

State of the market

Just as the definition of smart apartment has evolved, so has the market. Year over year, innovations emerge. With that, we’ve seen our dependence on technology grow along with our expectations for convenient routines.

 

Three years ago we saw smart devices become increasingly prevalent in single-family homes as people became comfortable adopting this technology. Smart thermostats and lighting that could be controlled by a voice-command assistant were appealing to residents, and connectivity evolved from there. It didn’t take long for the multifamily community to follow suit.

 

 

Early smart apartments were partial evolutions of the smart home; apartment dwellers wanted the conveniences they were seeing from smart home devices, so ad hoc technology was implemented. Often these devices were disconnected, meaning they weren’t communicating with each other. Multiple applications had to be managed. Since then, we've seen more connectivity so that one application can manage all of the devices within the property. 

 

Today, a small percentage of the market has adopted smart apartment technology, with a majority being in new construction. That said, future growth is promising. The interest in smart features is already there. The 2020 NMHC/Kingsley Associates Apartment Resident Preferences Report found that of the 373,000 apartment residents surveyed, more than a third have between five to nine internet-connected devices.

 

The Smart Door Lock Market Assessment from Parks Associates released in 2019 found that “one in four U.S. broadband households intended to purchase a smart door lock in the next 12 months.” This research found that these intentions will expand lock owners to include new demographics and households with more moderate incomes. We’ve seen a lot of crossover from the single-family market, so it’s likely that this trend will be seen in multifamily properties as well.

 

To meet these desires of today’s connected world, properties have already started to implement smart technology practices. In the National Apartment Association’s “Technology in Apartment Living: Are we as smart as we think?” report, it found that the top motivating factor for implementing smart-home initiatives was to attract and retain residents. Second was operational efficiencies, followed by cost savings. Most are focused on technologies benefitting individual units such as smart thermostats, smart locks, lighting and the ability to pay rent online. That said, smart locks for are equally useful to property managers. The auditing capabilities enable more extensive command of the property because they can regulate who has entered a space and when.

 

For multifamily, adoption of smart apartment technology is in its early stages. Three out of five owners and operators surveyed by NAA classified their smart-home initiatives as basic at this point. We expect that to change as property managers overcome barriers and become more comfortable with the technologies available.

 

Market reluctance

Smart devices are relatively new to the multifamily market, so there are still hesitations among many in the industry. The NAA report found that costs to implement, incompatible technology and future-proofing are among the top factors impacting their smart-home technology initiatives. Properties don’t want to be the first to implement and they want to see a return before they invest.

 

I anticipate we will see adoption gain traction in the coming years now that properties have taken the first step, proving that the investment is worth it.

 

The industry has already started to tackle compatibility challenges. Many manufacturers are—or should be—encouraging the use of open, interoperable technologies. Open technology makes it easier to connect devices and systems, which helps future proof technology. It also gives you more opportunities to customize your properties based on specific needs. Closed solutions are more restrictive as they only integrate with select hardware and systems.

 

Additionally, we’ve seen companies integrate their systems so everything works together under one database. While still relatively new in the multifamily market, we’re seeing an increasing number of integrations coming together with the goal of technology consolidation on the backend to make the operator experience seamless.

 

For example, Stratis has integrated with RealPage and Brivo. These customers have Stratis technology on unit entries, Brivo on the perimeter and RealPage to help manage the business. The tenant information just needs to reside in a single database, eliminating the need to manage another system.

 

By seamlessly integrating your property management system and your access control system into one application, you can start to add additional services like dog walking and grocery. You can charge a premium rent because you're essentially unlocking services and amenities to residents that make their tenant experience better, especially when mobile is used.

Looking ahead

NAA’s findings showed that 54 percent of owners and operators planned to ramp up smart-home initiatives in 2020. As more residents become comfortable with smart technology in their units, it will become the new norm. They are going to expect the same efficiency and convenience when they look for future apartments. Properties that aren’t evolving with the market now will already be behind for these tech-savvy renters.

 

Mobile transformation

Multifamily properties will soon be positioned to boost the experience for their residents through mobile adoption. In addition to accessing their own apartment, residents will be able to grant temporary access to visitors. This sets the stage for services to occur in a convenient, safe and secure way.

 

The rise of the gig economy proves that residents want services like house cleaning, pet services, food delivery and more. Multifamily properties that make it easy for these to take place will catch the eye of potential renters.

 

In the current state, mechanical access leaves residents uncomfortable letting these services into their apartments. If smart technology is applied, these hesitations can be overcome. Residents want these services, but they need the resources to make them accessible. Mobile makes services more attainable and secure because temporary access can be easily granted, monitored and revoked.

 

Smart locks with mobile credentials form a new multifamily experience, ultimately generating more revenue. Your property might be able to charge more for that essential piece of in-unit service and package delivery.

 

Overcoming hesitations: The impact on NOI

Adding smart features arbitrarily won’t have a dramatic impact on your net operating income. But it can when done strategically, with operating costs and tenant retention in mind. Two questions to consider when evaluating smart technology:

1. How can smart technology lower my operating costs?

2. Can I add new features and amenities so I can attract new renters to my building?

 

Here are some of the ways smart apartment features can positively impact your income.

 

Operating costs
 

Leak detection
 

Smart sensors can detect leaks early, which can significantly mitigate risk and reduce the costs of ripping out damaged materials. Additionally, leaks often introduce mold, which any property manager knows presents major risks.

 

From water heaters to bathroom fixtures, leaks can be costly if undetected. Take a look at some stats from the Water Defense Fund.

 

Energy savings

Using smart thermostats to remotely control temperature unit-by-unit is more efficient than sending someone around to check each one manually. Apartments that aren’t being used can remain at 62 degrees, then adjust to 70 degrees during showings.

 

Similarly, you can adjust lights and use sensors throughout the property to reduce costs. Like hotels, smart features in the apartment are designed for energy savings when the space isn’t occupied.

 

Tenant retention

The experience residents receive plays a big role in keeping your properties operating efficiently. You know that it’s best to keep a resident versus finding a new one. Can a smart apartment package encourage residents to stay in the unit another year or two? It might if the resident finds that the smart devices improve the living experience. Many in the industry are betting that better experiences will allow them to retain a customer longer. It’s up to you to figure out what features you can add to make the experience valuable to your residents.

 

Role of smart locks

Locks have traditionally allowed properties to lower operating costs by mitigating risks. Every time someone moves in or out, that’s a cost to the property. On average, a locksmith visit costs $153 and rekeying typically runs between $50-100 per hour. During busy months when people are moving in and out around the same time, these costs add up. With a smart lock, this can all be done electronically.

 

Smart locks can show if someone was in the apartment besides the tenant. For example, if a watch goes missing from a tenant’s unit, sometimes properties have to offset the risk of being accused by offering a replacement, free amenities or rent. An audit report from the connected smart lock can show if anyone from the property management team entered the unit.

 

This is true beyond unit entry, as seen in this Multifamily Executive article, The Benefits of Combining Smart Locks and Cameras at Apartments. It discusses how, together, smart locks and cameras help improve security at a property and give operators more visibility into amenity use, access logs in case incidents do occur and the occurrence of unsanctioned sublets.

 

Mobile credentials take this a step further. Instead of residents loaning out physical keys or fobs, they can easily request temporary access for guests through an application. Through that, you have visibility and control over who is entering the property.

 

Unattended showings

As mobile adoption ramps up in multifamily, unattended showings will likely gain traction. We saw this in single family as well. Using smart locks, potential residents can tour a property and unit without having a property manager there. It’s easier to schedule and doesn’t require the same staffing. You can repurpose staff to work on more important things instead of waiting for someone to show up for a showing.

 

While this could be done with a lockbox and mechanical keys, it is possible that visitors might share the punch code or copy the key; there is no audit control. Similarly, it’s possible with a keypad lock, but this requires the code to be changed frequently to ensure security. If the visitor shares that code, your property loses audit control again. There are flaws that can be designed around, but a smart lock that uses a mobile credential that is texted to the induvial and only activated during specific hours is ideal.

 

Mobile access is just the beginning of the story. If the lock is integrated with a smart apartment, the entire experience becomes more efficient and personable. The renter is expected at 2 p.m., so 30 minutes prior the apartment “wakes up,” meaning it adjusts the lights, cools or heats the apartment, plays soft music to set the mood. This experience is going to feel vastly different than walking into a chilly, dark apartment.

 

New revenue opportunities

Will adding smart features allow your properties to charge more in rent? Similar to improving tenant retention, the idea is a more attractive offering will improve profitability. It comes down to the experience these devices bring to life.

 

NAA’s “Technology in Apartment Living: Are We as Smart as We Think?” report also found that 58 percent of residents found smart home technology to be beneficial. The top reason reported was it makes their lives more efficient. Convenience and control were also highly noted by participants, “with residents in some metro areas willing to pay up to $35 more per month in rent for amenities that offered some sort of convenience factor.” A 2018 Entrata study claims this figure is closer to $20 for a smart-apartment package, while another found that resident might be comfortable paying $30 for devices like smart locks. Regardless of the report, it’s clear that residents are interested in properties that have smart devices in the offering, and they are willing to pay for those.

 

Smart locks ranked in the top five features residents are willing to pay more for, along with security cameras and smart thermostats and lighting, according to the NAA findings. Keyless entry has grown in popularity from higher ed campuses to multifamily buildings. Smart locks improve security, encouraging peace of mind for the resident because they know they can monitor the status of their entry door. It also improves convenience, which, as stated above, is important to residents today.

 

As smart-apartment devices integrate into more systems and third-party services, the living experience becomes more seamless and efficient, which allows properties to charge a premium.

 

Summary

Smart locks and smart apartment technologies allow properties to offer enhanced experiences and take advantage of new ways of working, like unattended showing and remote monitoring. These things can contribute to leases increasing, which means more revenue from operating at a higher efficiency. It also contributes to lower operating costs because staff can be used in new, more efficient ways.

 

To learn more, visit multifamily.allegion.com. I’d like to hear from you. Let me know your thoughts on smart apartments and smart locks on LinkedIn.