If you don’t know what the metaverse is all about, you’re not alone. In a nutshell, the metaverse is an alternate virtual 3D reality where people can meet, interact and participate in many of the same activities they enjoy in their real day-to-day lives -- plus enjoy an incredible array of experiences they would never be able to imagine in the real world.
Similar to a video game, users can enter and explore the metaverse via virtual or augmented reality, or even just a PC, a game console, or a phone. Participants have an avatar, which represents them as their “virtual metaverse self,” and can attend social gatherings such as concerts and dance parties, go to a virtual office for business meetings, even meet up with a friend halfway around the world to play a surprisingly realistic game of table tennis or visit a popular metaverse tourist destination together. You can also purchase virtual items within the metaverse such as a pair of Nike kicks for your avatar, a high-end Ferrari to give you an extra edge in a virtual racing simulator, NFT art and… real estate.
A Rapidly Growing Commodity
In fact, real estate in the metaverse has become one of today’s most discussed and hottest commodities. Between the “Big Four” metaverse platforms -- Sandbox, Decentraland, Cryptovoxels and Somnium -- there are over 250,000 parcels of virtual land of varying sizes that have been made available for purchase through cryptocurrency. On Sandbox, 96 m x 96 m parcels each sold for the ether equivalent of $12,700 in December, while Decentraland’s 16 m x 16 m parcels fetched the ether equivalent of $14,440 each.
READ: Do You Need a Real Estate Agent to Buy Property in the Metaverse?
Overall, real estate sales in the metaverse topped $500M in 2021 and some analysts predict this figure to double to $1B by the end of 2022. The purchasing frenzy was ignited in the third quarter of 2021 when Facebook announced that it was rebranding as Meta with a focus on growing the metaverse. Additionally, the metaverse real estate market is expected to grow at a compound annual rate of 31% from 2022 to 2028, according to a report from BrandEssence Market Research.
How is Metaverse Real Estate Valued?
It should be noted that the fundamentals of virtual property ownership are, in some ways, the opposite of physical property ownership. To begin with, real land is finite; hence the old saying “They’re not making any more of it.” Meanwhile, virtual land can simply be created with code on any of the existing platforms, and there’s no limit to how many new metaverse platforms will be invented and released in the future.
There’s also debate around another of the old sayings: “location, location, location.” While Janine Yorio, CEO of the metaverse investment platform, Everyrealm, says that “you can teleport anywhere so location isn’t as important,” Lorne Sugarman, CEO of the Toronto-based virtual real estate company, Metaverse Group, claims that properties in Decentraland’s Fashion District have greater value than properties elsewhere in Decentraland. Then there’s the phenomenon of someone paying $450,000 to own the property next to Snoop Dogg’s virtual mansion in Sandbox.
READ: It’s Time to Think Outside the (Condo) Box
Already there has been some crossover between physical and virtual real estate sectors. Yorio was a former partner at a private equity firm and real estate developer for Standard Hotels. Sugarman admits that his Metaverse Group “wants to be the Brookfield Properties of the virtual real estate world.” Closer to home, the architectural firm, Bjarke Ingels Group (BIG), that is behind the KING Toronto condominium development by Allied Properties and Westbank Corp has already worked on a handful of virtual projects for clients. The talent, instincts and reflexes that have been developed in the real world definitely have currency in the virtual one.
With a technology this new and with such upward potential, the lure to invest in metaverse real estate may either seem irresistible or too good to be true; it depends on how full or empty your glass looks. There are lots of caveats to investing: digital real estate isn’t backed by a tangible asset, the deals are made in cryptocurrency which itself is incredibly volatile, and, unlike the Toronto real estate market, there’s no guarantee you’ll be able to resell your property later at a higher price. On the other hand, big players like Meta/Facebook, Microsoft and Nvidia have already invested heavily in the metaverse and even multi-national apparel brands such as Nike and Adidas are creating virtual clothing users can buy for their avatars.
The metaverse offers a world without limitations and an extension of the realm we live in. While this is still a difficult concept to grasp for some, we have yet to see what our future holds in the metaverse and what it will mean for the future of real estate.
