As we enter the final quarter of a year that many hoped would be a return to normalcy following the global health crisis, normal remains elusive. Investors are facing one of the most challenging years in memory, and Europe is facing its biggest geopolitical crisis since WWII. But the flip side to challenges are opportunities.
Today’s geopolitical, social and economic challenges are creating additional tailwinds for the growing smart home market. However, as of late last week, the market is also benefiting from a significant leap in technology. Let’s dive right in.
What's Disrupting the Smart Home Market
Remote Work
While the global health crisis is increasingly in the rearview mirror (fingers crossed), remote work is here to stay. According to a June 2022 Gallup Poll, around 70 million U.S. workers (56% of the full-time workforce) are capable of remote work. Of those, 50% are working hybrid (part remote and part on-site), 30% are exclusively remote and only 20% are entirely on-site. Long-term, fully remote work in the U.S. is expected to settle at around 300% of what it was in 2019, with a scant 6% of respondents reporting that they want to work entirely on-site. This isn’t just a U.S. phenomenon. 56% of global companies are fully remote or hybrid.
Interest Rates
The shift to remote work drove eye-popping increases in home prices that are now starting to reverse course as higher interest rates make the purchase of new digs more expensive. The average 30-year mortgage rate is up more than 120% over the past year. This means that the only upgrade option for many will be to improve their existing home rather than face a higher monthly mortgage payment for even less of a home. Now the money that would have gone into purchasing and furnishing a new home can be funneled into making their current home smarter.
Energy Costs
Inflation dominates the headlines, but hikes in energy costs in Europe are even more jaw-dropping than the increase in grocery checkout receipts as the region faces its worst energy crisis since World War II. For example, Italy’s average monthly electricity wholesale prices have risen from €67.65 per megawatt-hour in January 2019 to €543.48 in August 2022, a mind-boggling 700% increase. Higher energy prices make smart home energy management devices relatively less expensive as the magnitude of the potential cost savings rises.
Demographics
People are living longer and having fewer children, which means globally, the pace of population aging is much faster than in the past. Between 2015 and 2050, the proportion of the world’s population over 60 will nearly double from 12% to 22%, and in 2020 the number of people aged 60 and over outnumbered those under five years of age. Smart home technologies can make in-home care for the elderly safer and staying in a home they know can be less emotionally disruptive than being forced into a care home, which are in short supply.
Putting it all together:
- Many are spending more time at home.
- Most are more likely to upgrade their existing home than to trade up for a new home.
- Everyone is looking for ways to curb their energy usage.
- Seniors and those caring for seniors need their homes to do more for them.
Smart Home Tech Trends
Arguably the most significant advance in smart home technology this year isn’t a new device but rather an IP-based, open-source standard that works over Wi-Fi, supports all major control platforms and acts like a universal language through which smart home devices can communicate. Initially referred to as Project Connected Home over IP (CHIP), Matter is a royalty-free, open-source home automation connectivity standard under the Apache license, announced on December 18, 2019, with version 1.0 of the specification published on September 30, 2022.
Matter is the result of a collaboration between Amazon (AMZN), Apple (AAPL), Alphabet (GOOG), Samsung SmartThings (SSNLF) and the Zigbee Alliance. For consumers, this means easier setups and integration, fewer marital disputes and fewer returned products. Other members of the alliance include Ikea, Infineon (IFNNY), Kroger (KR), Latch (LTCH), LG (LGLD:LSE), Lutron, Nordic Semiconductor (NDCVF), NXP Semiconductors (NXPI), Schneider Electric (SBGSY), Silicon Labs (SLAB) and Texas Instruments (TXN).
Understanding the Smart Home Market Future
According to Mordor Intelligence, the smart home market in 2021 was valued at $79.13 billion and is expected to grow to $313.95 billion by 2027, with a compound annual growth rate (CAGR) of 25.3%. Grandview Research put the markets at $62.7 billion in 2021 and forecasts a CAGR of 27% through 2030. According to SafeWise, the average American spent $1,200 on home tech between May 2021 and May 2022 - 75% bought a smart home device, 65% purchased a smart home security device and 46% purchased a smart TV. Overall, 44% reported spending more money on home tech this year than last.
The market is segmented by geography and by product type, which includes:
- Comfort and Lighting
- Control and Connectivity
- Energy Management
- Home Entertainment
- Security
- Smart Appliances
One of the smart home market's most significant growth areas is HVAC, primarily driven by new government efficiency regulations that force the replacement or retrofitting of existing systems. Starting next year, all new residential central air-source heat pump systems sold in the US will need to meet new minimum energy efficiency standards; the last standards went into effect in 2015.
Grandview Research expects the smart kitchen segment of the smart home to grow the fastest, a CAGR of 30.5% from 2021 to 2030, driven by smart appliances such as automatic composters, water purifiers, smart refrigerators, and other smart cooking/food prep devices. While the kitchen may be seeing the fastest growth, the highest revenue share of the smart home market goes to security and surveillance, accounting for 31% of the total in 2021.
The Competitive Landscape
The smart home market is moderately competitive, with several major players dominating the market. These players include:
- Amazon, one of the original collaborators for the Matter Alliance, recently introduced its Astro home robot, which is currently only available by invitation, to augment its Ring and Alexa suite of smart home products. This year Ring added the Always Home Cam drone which can learn a flight path around the home and be triggered either manually or by other Ring alarm products.
- Emerson Electric’s (EMR) Sensi smart thermostat is used in residential and commercial buildings and is considered one of the more dominant players. On October 5, it was announced that the company is in talks with Blackstone Inc (BLK) to sell part of its commercial and residential solution business assets for somewhere between $5 billion and $10 billion, depending on what is included in the transaction.
- Honeywell International (HON) offers a full suite of smart home products ranging from temperature controls and air quality monitoring to complete home security and safety, including leak detection,
- Latch is a publicly traded member of the Matter Alliance, and while a relatively small player, with a market cap of under $150 million, it is one of the few pure plays in this space.
- Schneider Electric SE is a member of the Matter Alliance and offers a range of energy management solutions for temperature, electricity usage, and home security solutions.
- Another founding Matter member, Samsung offers a SmartThings app that connects to its smart devices (including ranges, refrigerators, TVs, robotic vacuums, washers, and dryers) and a wide range of other companies’ connected devices and voice assistants.
- Siemens (SIEGY) is a massive industrial conglomerate that, like Samsung, offers a smart home app that works with its smart home appliances.
Advances in technology are making homes safer, more efficient, more comfortable and more enjoyable, saving homeowners time and money. With the launch of Matter, the DIY smart home market will benefit from easier installation and integration, reducing aggravated calls to help desks, saving one’s sanity and possibly even a few marriages along the way.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Lenore Elle Hawkins
Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.
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