American vs. European PropTech investment 

The rise of property technology, or PropTech, is unquestionably a global driving force in the real estate market. While the fundamental drivers of investment and adoption are similar everywhere, in this post we would like to offer a comparative analysis of how PropTech capital is deployed in Europe (European Union or EU + UK) and the United States. And there are some noticeable differences. 

As mentioned, on one hand we see similarities in the global factors and challenges that accelerate the growth of PropTech such as: 

• Shortage of staff and rising costs of labor 
• Rising interest rates and inflation 
• Uncertainty around the future of the office 
• Climate change and the need for more sustainable buildings 

However, out of the $19.8 billion invested in PropTech globally in 2022, the US still accumulated the lion’s share. According to a 2022 CRETI survey, the US amassed 43% of the total volume of investments with over 650 deals, way ahead of the EU at 250 investments, and the UK with about 130 investments. To mitigate this, the European venture capital (VC) market is catching up as it grew 6x over the last decade (1.5 times the US rate growth – source Sifted). 

So why does Europe, which is a much larger demographic market than the US at 742 million vs. 332 million people, receive significantly less investment and generate less deals? This can be explained in part by the fractioned nature of the old continent. Indeed, different languages, regulatory systems, and the lack of European-wide incentives for startups tend to create a more local and country focused mindset for entrepreneurs. This translates to smaller scale development plans, attracting less capital and attention from VCs.  

It’s worth mentioning that within the region, the UK sits in a unique situation. As proportionally to the size of its market (67 million people), the UK attracts a lot more capital for PropTech than the rest of the continent. Additionally, UK landlords are generally more tech savvy and adventurous than their EU counterparts, which is evident by the fact that a lot of UK startups very quickly look at the US for expansion due to similar legal systems and language compatibility, creating larger opportunities as these companies scale. At the same time, the UK often is the priority of expanding US tech companies and VCs, offering to the country an earlier and privileged exposure to cutting edge ideas.  

On the other side of the pond, US startups have a much bigger and uniform national market to scale upon, which requires larger capital injections to secure growth opportunities. The US-based VC ecosystem is more mature and developed, meaning more competition among investors, higher valuations, and, therefore, larger funding rounds. In addition to the presence of more PropTech focused VCs, other factors that explain the larger US volume include:

• A generally higher appetite for risk
• Higher operating costs for business (especially in tech hubs such as Silicon Valley)
• A more robust IPO and M&A market, providing better exit perspectives

European PropTech startups are subject to a more stringent regulatory environment than their North American counterparts on ESG standards, data privacy, and emerging regulations on AI, which can hinder product development and adoption. In some cases, however, this can have an accelerator effect for technology. In sectors like the energy transition, the French, German, and UK decrees in particular compel real estate owners and occupiers to drastically reduce their CO₂ emissions. The circular economy – minimizing waste, promoting recycling, reuse of materials – also sees the creation and investment in an interesting new ecosystem of companies.  

Could it be that the European startups might actually lead globally on these pressing subjects? Only time will tell. 

Written by Arnaud Bouzinac, Growth Principal at JLL Spark based in Paris.

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