Real estate in the metaverse

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March 2023

Will we be able to buy real estate not only in the real world but also in the virtual world in the future? The expansion and continuing popularity of the Metaverse - which was so important to Facebook founder Marc Zuckerberg that he unceremoniously renamed the entire company "Meta" - at least suggest that there will be numerous opportunities for companies and private individuals alike to invest in digital real estate in the future. But what is the hype all about? Is the investment worthwhile even today? And what is the real potential of the metaverse? And what is the real potential of the metaverse?

What is a metaverse?

A metaverse is a three-dimensional digital space in which people can interact as they would in the real world. Anyone who has ever experienced a virtual environment using VR glasses can roughly imagine what this looks like: an almost tangible digital space that feels real.

The Metaversum is intended to go far beyond this virtual reality experience. The idea is that people can come together there in the form of their avatar and interact with each other. Social media and video game companies in particular are setting their sights on the metaverse. The former Facebook group, now simply called Meta, for example, has shifted the focus of all its work to the metaverse.

The future of the Internet?

For tech giants like Meta and its CEO Mark Zuckerberg, the metaverse is the future of the Internet. If he has his way, we'll all be living in digital worlds in the future. The hype around it is huge, but is it really? The consulting firm Avison Young, at least, sees an increasing relevance of the metaverse for the real estate industry as a trend for 2023. The first companies trading real estate and land in the metaverse already exist.

During the pandemic, as personal life shifted more and more to the digital, the meta-future seemed closer. At least the (theoretical) possibilities are manifold: Shopping in a virtual department store? Going to the office or attending meetings via virtual reality? Visiting concerts and museums digitally that may be too far away or difficult to access for other reasons? All of this has become (virtual) reality.

A piece of land in the virtual sandbox

But what does all this have to do with real estate? Since virtual worlds are supposed to be a digital image of the real world, these worlds can also be divided into parcels of land and these parcels of land can be developed with virtual buildings and their facades used as advertising space, for example. Individual plots of land often have a uniformly defined size, although the virtual units of measurement are difficult to compare with real units. In addition to celebrities, many companies not only from the video game and film industries but also beyond have secured virtual properties in many a metaverse.

Examples of metaverses are The Sandbox, Decentraland or Axie Infinity - brands that don't sound like serious investment opportunities at first, especially not for real estate. Instead, even the largest and best-known of them come with names that are more reminiscent of video games or failed amusement parks. Some of them are actually based on video games, such as Minecraft or Second Life, and can also be "played" like a video game.

Even though digital worlds can theoretically be unlimited, at least the largest and best-known metaverses have limited their available plots. These plots are unique, by the way. Non-fungible tokens (NFTs) are used to ensure that no plot is sold twice.

Revenues are already considerable today

Landlords, tenants, buyers and sellers can act as players in virtual spaces just as they do in the real world. In this way, a functioning real estate market can also emerge in the digital space. The first real estate agents who specialize entirely in virtual business already exist.

The sales figures are impressive. One of the most expensive transactions for an investment in virtual land to date is a purchase in the sandbox metaverse for the equivalent of just under 4.4 million euros. Yet there is more: According to MetaMetrics, the volume of transactions in the metaverse in 2021 already amounted to almost 500 million US dollars. If one considers that CBRE estimates the revenue for all medical centers, hospitals and rehabilitation clinics traded in Germany in 2021 at 508 million euros, the potential of the metaverse becomes clear. After all, virtual properties are still a niche, while healthcare properties are a booming asset class in Germany, the second largest real estate market in the world.

Hold off on the investment

Is an investment in virtual real estate worthwhile right now? At some point in the future, there could be no way around it, but the timing is probably still a bit premature. At the moment, the technology is in a state of disarray, and there are still too many technical and legal imponderables. Which metaverse will prove to be the most popular, for example? If a platform runs out of users, this is likely to have similar effects on the virtual assets invested there as on the stores in a suddenly empty city center.

There are also unresolved issues such as what happens to real estate when a metaverse closes. Will they then simply be deleted at the touch of a button? Theoretically, a metaverse could also suddenly expand the actually limited virtual building land. Unlike in reality, virtual space is only artificially limited. The virtual reality experience part of the technology is also not yet fully developed. In other words, there is still a lack of "experienceability" of the metaverse. Until that happens, there is no guarantee that investments in the virtual world will retain their value. In short, the volatility is still too great. But the industry should keep an eye on the metaverse. When the technology has matured and important questions have been clarified, an investment in the metaverse should not be missed.

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