Since 2021, the metaverse has dominated headlines, in part due to social media giant Facebook rebranding to Meta in November, showing its dedication to future technology. In terms of commercial real estate, investors were either quick to snap up land in the metaverse or were skeptical of the outlook. Dozens of platforms, where a version of the metaverse is hosted, are already selling real estate in the metaverse, and several new platforms pop up weekly. The biggest concern among investors is how to go about assessing the value and risk of an asset with an unpredictable future and lack of scarcity.
The purpose of virtual land in the metaverse
For users, these parcels of land, or pixels, are intended to be something that can be built yourself and earn income by playing games or selling products. In its current state, the metaverse functions as a large digital ad space and marketplace for everything, ranging from entertainment to fashion. The global market for goods and services in the metaverse is projected to be worth $1 trillion by the digital currency investor Grayscale.
Between November 22 and 28, $106 million worth of virtual real estate traded in the Big Four metaverse platforms, with Sandbox accounting for $86.56 million of that total. In 2021, The Sandbox’s native token, the SAND, soared 14,000 percent, trading at $5.15. Similarly, Decentraland’s native token MANA increased over 4,300 percent in 2021 to $3.41.
While there is no immediate benefit to buying virtual land in the metaverse, the potential return on investment has piqued the interest of thousands of investors. For a real estate investor, owning a well-used space adds value to an investment. The increasing user adoption in the metaverse is solidifying the future and monetization of virtual worlds. The concept functions similarly to a non-fungible token (NFT), where you own the digital asset, and anyone can verify its authenticity since it exists on the blockchain. The virtual land can be sold later as it appreciates or can be leased out. There are three factors of appreciation:
- Scarcity: There is currently a limited quantity of virtual land. We have yet to see more virtual land produced, therefore the value of virtual real estate is determined by scarcity.
- Utility: What landowners will create with their parcels can affect the value and appreciation of the asset.
- Consumption: How users will interact and consume content created by virtual landlords will equally play a part in valuation.
With the ability to teleport anywhere, location isn’t much of a focal point in the metaverse. Real estate values are determined by what owners create, such as a significant attraction, museum, or feature. While some investors believe location doesn’t play as big of a factor, others still believe location matters. This indicates the possibility that location may play a prominent factor in the future when things are more established and built out in the metaverse.
