WSJ: In Real-Estate Tech Firms, Europe Plays Catchup With U.S.

By Alessia Pirolo on April 28, 2015.

Startups in Europe’s real-estate market that offer virtual-reality tours, online leasing marketplaces and other technology services are catching investors’ eyes, but they will have to outmuscle more established, better-funded U.S. companies to succeed.

London-based Virtual Walkthrough offers real-estate agents and developers digital visits of properties for sale or rent. The company secured its first £800,000 ($1.2 million) of funding in January 2014, said co-founder James Morris-Manuel.

Appear Here, a London-based online market for temporary retail shops, has more than 600 spaces available for short-term listings directly from landlords. In November, it raised $7.5 million of new funding. London-based Hubble, launched in early 2014, offers office landlords an online space to market short leases. The firm so far has raised £525,000, according to co-founder Tushar Agarwal.

But the European companies must contend with U.S. companies that have the first-mover advantage. The best example is Washington-based CoStar Group Inc., a dominant provider of data in the U.S. commercial-real-estate market.

CoStar, which booked $575.9 million in revenue in 2014, expanded to the U.K. in 2003 and is the pre-eminent player in that country, tracking 400,000 properties.

Over the next five years, CoStar plans to expand to other major European cities, said Chief Executive Andrew Florance.

A London startup, Deal-X, uses a crowd-sharing model to gather data on leases and tenants with a points system that awards subscribers who provide information by giving them access to additional data. The firm launched in August 2014 and has 140 clients across 16 European cities including London, Paris, Berlin and Madrid, said co-founder Joseph Kelly, a former Real Capital Analytics executive.

But New York-based Compstak Inc., a firm that has been active since 2012 and offers a similar service, plans to launch in London this year and is considering other European markets, said Michael Mandel, the company’s chief executive.

“We spent over three years perfecting our model,” Mr. Mandel said. “We’re in a position to capitalize off of that.”

Other U.S. companies that have entered Europe or have plans to do so soon include four-year-old, New York-based VTS (formerly View the Space), which provides landlords and brokers with tools to track leasing data and portfolio performance. The company, whose financial backers include Blackstone Group LP, is planning to open a London office by the third quarter, said Nick Romito, VTS’s chief executive.

Technology experts say U.S. companies’ leadership in the real-estate tech world reflects the broader dominance of the U.S. in technology. American companies have had access to more capital than overseas competitors and to a large market with one currency, language and set of regulations.
In 2014, venture-capital investments in real-estate technologies globally quadrupled from 2013, to roughly $680 million, according to New York real-estate and technology consulting firm Re:Tech. In Europe, the total investment for those two years was just $84.8 million, Re:Tech said.

Tech startups have a harder time growing in Europe because the continent has many markets and languages.

“In Silicon Valley you have the fourth, fifth generation of startups; in Europe you are at the beginning,” said Simon Schaefer, a real-estate entrepreneur and founder of the Factory in Berlin, which leases spaces to technology startups.

But there is growing support for technology entrepreneurs focusing on the real-estate business. In London, a venture of real-estate services firm Cushman & Wakefield and Faisal Butt, a venture capitalist, recently launched Pi Labs, short for Property Innovation Labs, which provides space and support for startups focused on real-estate and technology innovation.

Meanwhile, some U.S. companies have struggled in the fragmented European market.

In 2014, online real-estate marketplace ended its German and broader European activities after just over a year. The complexity of expanding operations on a country-by-country basis “was underestimated,” said Executive Vice President Rick Sharga.
Honest Buildings, an online marketplace connecting building professionals with property owners, experimented with a London location for about a year but then refocused solely on New York.

“It is challenging for young companies to grow in multiple cities at once,” said Riggs Kubiak, Honest Buildings’ CEO.