Internet of Things (IoT) devices have become a critical part of the commercial real estate ecosystem. Automatic lights, locks and thermostat controls are just a few examples of what CRE owners can enjoy in their building if they have good enough in-building connectivity. According to financial data and software company Pitchbook, venture capitalists (VC’s) viewed IoT as the future of CRE, too. VC’s invested $5.1 billion into the IoT sector during the first half of 2020—a 17% increase in capital invested year-over-year.
The IoT enthusiasm cooled a bit since then, in part due to the COVID-19 pandemic. Deals in the IoT industry have decreases over all, and the industrial, smart retail and software subsectors saw dramatic declines. Only IoT security seemed immune, as it emerged as a reliable investment opportunity within the overall software space.
It appears IoT is only down, not out according to Pitchbook’s H1 2020 Emerging Tech Research report, which focused on the industry. COVID-19-related challenges have stalled IoT growth, but demand is expected to recover in a significant way. Meanwhile, VC exit value is expected to set records this year after security specialists CyberX and Armis were acquired. The report’s other key takeaways included that Microsoft and Google are compounding their advantages in the industrial IoT and consumer device markets, respectively through mergers and acquisitions.
Key factors for an IoT resurgence
Cost will always play into any industry’s success or failure, and the cost to produce IoT hardware is likely to continue to make it an attractive investment. The price of IoT sensors, bandwidth and processing and storage are all dropping, according to Pitchbook’s report. The firm noted sensor costs have declined approximately 50% since 2010.
“These declines make IoT devices cheaper to build and more marketable, which enables the ‘razor and blades’ business model common in the industry,” the report said.
The connected buildings market is one of the most promising for the IoT industry, according to Pitchbook. It projected the market would be worth $85.3 billion in 2019 and forecasted a 15.6% growth to $131.8 billion 2023.
“These estimates have dropped substantially because of COVID-19, which we believe is a net negative for the digitization of physical spaces including offices and retail stores,” the report said. “The smart home has become the biggest part of this segment due primarily to the high growth of the smart speaker market. We forecast 16.7% growth out to 2023 in the segment. Smart retail and connected commercial real estate should recover to achieve double-digit growth rates going forward.”
Potential for IoT disruption
Device, network and connectivity protocol fragmentation have prevented the smart home as well as connected real estate markets from reaching their full IoT potential, according to Pitchbook.
“In commercial real estate, common building management systems (BMS) fail to provide digital optimization for mechanical systems through correlation of disconnected datasets,” the report said. “Building occupancy measurement is an underutilized technology that can unlock excess value in energy efficiency through correlation with HVAC and lighting.”
Meanwhile in smart homes, assistants like Alexa and Google Home can’t automate smart home devices as well as industrial automation platforms can. While the products offer a user interface to smart home devices, they can’t learn how to manage those devices without a user’s input.
“This lack of functionality provides startups with an opportunity to offer a true universal control solution,” the report said. “Startups can leverage innovation in middleware to offer enhanced automation and improved user experiences. While incumbents are innovating in this space, we see a relative lack of startups addressing some of the shortcomings of legacy solutions.”
Joe Dyton can be reached at email@example.com.