Real Estate in the Metaverse


Real Estate in the Metaverse

Risk or Opportunity?

The highest price paid to date for a plot of ‘land’ in the Decentraland virtual world is US$2.4 million. The metaverse is the talk of the town, with everyone from major corporations to innovative startups buying, building on and finding novel ways to exploit virtual land – a craze that is also creating opportunities for the traditional real estate industry.

Real estate in the metaverse still finding its feet

In these virtual worlds, users are free to design and monetise the land they own in any way they choose. For example, users have hosted concerts and opened art galleries, and a number of big retail brands have taken initial steps to set up virtual experiences too.

The three largest platforms – The Sandbox, Decentraland and CryptoVoxels – generated US$458 million of transactions in 2021. Despite these three currently dominating the market, the past has shown that not all pioneers manage to survive. The fact that there are open interfaces enabling virtual assets (such as fashion) to be used on every platform suggests we could end up with a fragmented market.

New players are still flooding into the metaverse, hoping to profit from the current hype. And big brands that have already amassed considerable market power and built a big user base are eager to seize the opportunity that comes with first-mover advantage. They have the scale to develop competitive products in-house, as well as the financial scope to mount a targeted M&A strategy for existing platforms.

Real Estate in the Metaverse

Great potential, but success comes with strings attached

In principle, a lot of business models in the traditional real estate sector have excellent potential in the metaverse. Investors can generate income by renting out their properties – for example, to companies looking to host a special event – and profit as the value of the digital land appreciates. As in the real world, certain spaces within the metaverse will attract more virtual crowds than others, meaning the value of the real estate and land nearby will increase.

Success, however, comes with certain strings attached – not least that the metaverse needs to become a lot more user-friendly. Handling cryptocurrency is still a complex endeavour, and the ability to transfer virtual goods between platforms is currently limited. The choice of location within a platform will also be decisive; much like real-world properties, the number one rule in virtual real estate is ‘location, location, location’. But the main risk is the future popularity of the metaverse platforms themselves. New players could displace the current heavyweights with a more attractive range of features, and cause the value of investments on the old platforms to crash.

Avoid speculative deals, and keep a sharp eye on market trends

The virtual property market is clearly speculative; investors could lose everything. To minimise risk, a potential strategy is to make targeted small investments across different platforms as part of your innovation budget. This gives you an opportunity to try out different approaches or ideas, gathering experience in the metaverse in the process.

You also need expertise. Your options are to acquire the skills you need by engaging service providers or partner companies, or you can recruit the required specialists onto your own staff. Many will be professionals you have not needed to date: experience designers, 3D architects and community managers are just a few examples from a long list of possible positions. Since there are unlikely to be many direct synergies with your traditional core business for the moment, it is important to take a reasonable, proportionate approach.

You may also consider collaborating with tech companies. This will not only provide the requisite additional expertise, but also help to identify promising investment opportunities in good time.

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