Real estate in the metaverse age

The metaverse may seem like a mystifying place for many people, but when you begin to see the parallels the metaverse has in relation to IRL real estate, you begin to see a clear vision of why the two really aren’t that different. 

There has been a lot of emphasis on the land portion of virtual real estate in recent months and although that can be an exciting venture, we view that in a very similar way that we see physical land in the real world. Real-world land will typically hold higher values when it is near other high-trafficked areas or near attractions that people tend to visit often. We see the exact same thing with virtual land. Everyone wants to be right next door to Snoop Dogg or Atari instead of out in the middle of nowhere on a tiny 1x1 island.

Property valuations in Miami by desiribility

If we take Miami, and any other city in the world, we tend to see that certain neighborhoods are much more valuable due to their location, which creates greater demand, leading to a higher floor price for homes, condos, and other properties.

Property valuations in The Sandbox by desiribility

We see this exact same thing happen in the virtual world, too. As we can see from the above example of The Sandbox map, land prices that are in the center of the map hold a much higher average than the plots that are on the outskirts and not in high-traffic areas.

Virtual real estate explained

When all things are taken into consideration virtual land is simply coordinates (or parcels) within a larger map. These land parcels can be bought and sold on marketplaces like OpenSea between stakeholders. Depending on different factors (i.e. proximity to top experiences, utility, etc.), the land will have a different floor price. 

Currently, the virtual land market holds a valuation of ~$1.6 billion across eight major metaverse platforms:

• Otherside

• The Sandbox

• Decentraland

• Worldwide Webb

• NFT Worlds

• Metroverse Genesis

• Cryptovoxels (Voxels)

• Somnium Space

To compare growth rates, between 2019-2022 the real world real estate market experienced growth of approximately 39%. Over that same period, the virtual land market grew 879%, per Chainalysis. 

We view virtual land as being just like a URL would be for a website hosted within a larger ecosystem. There is no reason to believe that eventually, you will be able to register your plot of land on a website like GoDaddy for a handful of bucks per year. 

Now, just like a great URL, having great pieces of land that are established with age, and near high-profile plots, will always hold value, so we would never argue a case that land would ever be worthless. Where things begin to get exciting in the cycle of real estate is when you start to draw out the similarities of building something on the land. This goes for both real-world real estate and virtual real estate.

Developing activations on virtual land 

In both real-world and virtual cases we see landowners coming together with designers and architects to map out incredible builds that consumers will love to visit. We see that they both try to create partnerships with brands and other service companies to participate in the development and stay on long-term as lessee. We also see that, just like in the real world, there are people deep in the ecosystem of virtual lands that try to front-run development and buy up the most desirable land where they think they will be able to make a profit. All these activities run very closely alongside real-world developments. However, the best way to make a profit with virtual land is by monetizing it. This is just like the real world where businesses are built on top of plots of land to increase the value of said land. In the metaverse, we’re already seeing different ways of utilizing virtual land. These include but are not limited to:

• Virtual Conferences

• Social Events

• Remote Work / Work From Home

• E-learning

• Competitions (i.e. races, games, etc.)

• Marketing and Product Placement

• Sports and Entertainment

• E-commerce

It is exciting that we are now seeing major brands and property developers view virtual land and virtual real estate as a legitimate investment. We see property management firms taking on traditional leasing activities trying to get retail brands to rent space from them to promote their products through e-commerce and advertising. This creates some very interesting dynamics when it comes to financial modeling because we are on the cusp of being able to calculate virtual land NOI (net operating income) and even determine if there are cases where lending and mortgages could be appropriate. 

There will always be spaces within the metaverse that are just seen as hangouts and open land for people to enjoy. Just like in the real world many investors don’t view those with huge financial value, but they are needed to create a balanced ecosystem and layout when it comes to virtual municipal planning and organization. We view the best way to get a major return on your land investment is to build a commercial use case activation. This could be in the form of a game, retail space, token gated clubhouse, or any other possible use case in which you can generate revenues long-term.

Job opportunities in virtual real estate

As the future continues and more of these types of builds are being put into motion there are more opportunities for people to earn money from a creation standpoint. Whereas real-life real estate has a very high barrier to entry and usually takes specialized licensing, virtual real estate could be put into motion all while sitting behind your computer and networking with a few friends to build incredible income-producing activations. 

Some of the real-world real estate positions we see eventually translating over into virtual real estate employment opportunities could include:

• Land Owners: The individuals or companies who will sell their raw land to developers to build out some incredible virtual space.

  
  

• Land Planning & Design: These individuals or companies typically decide on how to best break up the land itself from a top-down view, how the buildings will look and feel, where they should be placed within the land, how to create walking flows, and add areas of landscaping.

  
  

• Property Developers & Architect: Typically work hand in hand with the Land Planner to ensure their design and square footage requirements are met for who their potential tenant will be or are proposed to be. In virtual real estate, the architect is not bound by earthly mathematics, so this can make for some very fun and interactive builds you simply cannot do in the real world.

  
  

• Contractor & Sub Contractors – The Builders: These can be main structure builders and the subcontractors can include people that specialize in landscaping, interiors, fixtures, textures, etc., and in our case game designers and activity builders. The interesting thing with virtual builds, just like traditional real estate, is there are already people that specialize in very specific in-game items and designs. This is already running in parallel with the real world.

• Property Management: Sometimes a third party or sometimes part of the Property Development company, they are typically responsible for rent collection, maintenance of common areas, customer service, tenant services, and questions, marketing and leasing, and tracking of foot traffic and performance of the overall build. We see this as a huge aspect of building in the virtual platforms because we already see it with live ops and maintenance in gaming. Most brands want their environment to change by season or when a new product drops. Virtual property management may be one of the most exciting things that we see happening in the very near future.

• Committees: In many real-world real estate builds, property managers will create committees of tenants to enact voting mechanisms on certain items like closing times, holidays, types of allowable businesses, etc. These have been fading away more in recent years because they tend to get into gray areas in terms of discriminatory practices. However, could be used thoughtfully through a DAO function which is how we see this function being moved into virtual building.

• Brokers: Those who would want to be middle persons to facilitate buy/sell transactions of major properties. If we wanted to sell a 1x1 in The Sandbox we could call a broker who has a qualified list of known buyers, and they would take a commission for that introduction and facilitating the transaction. These are helpful in real-world real estate because some people have brokers representing their transactions so they can remain anonymous. We know this will happen in virtual real estate because we have already seen this broker function happen with blue-chip NFT sales.

• REITs: Once there are established financial models and portfolios of properties to do analysis once we fully believe that virtual REITs will exist. A REIT typically makes large investments in specific verticals for multiple developments at once, usually within their investment thesis. For example, there are several industrial REITs that only invest in warehousing, several retail REITs that invest in large shopping centers, et al. They will typically bundle a specific vertical within their portfolio, let's say for virtual worlds it is "Influencers and Entertainment - vREIT" and if they have calculated that bundle of 60 properties kicks off an annual return of 11% on average, they will then create an investment offering for their REIT stating they typically return an 8% yield target to be safe for advertising purposes, gather multiple investors into the REIT and generate income from a lock-up period, their own participation, and management fee. Thus, spreading their risk, but still participating in their thesis themselves.

What’s needed to accelerate the growth of the virtual land market

Once you begin to think of virtual real estate in the same fashion that you think about the internet and websites themselves, it all begins to make sense. There are a lot of websites built for income generation and e-commerce and there are also some that just have pictures of cats and memes; I think we will see the same thing play out in the metaverse over time. What the metaverse needs right now though is an acceleration of build capabilities. During the initial internet revolution, there were massive bottlenecks that were only alleviated by protocols and creators stepping in.

In the early stages of the internet, the coders who understood how to utilize HTML were building their own websites and hosting them on servers they had access to. Once they had these websites built, getting them discovered was incredibly difficult. The process simply took ages. But then WordPress had a profound idea. "What if we set up the software needed to create a website and made it easy enough for anyone to build?" So, in 2003, they released their open-source software. Tens of thousands of talented people have made contributions to make it into the great software that it is today. Developers can contribute patches and fix bugs, and users can suggest new features.

When you involve creators, and foster and create self-serve ecosystems and protocols to allow users to build how they see fit and be rewarded for it, the participation velocity is undeniable and creates generation transformation in wealth and economies of scale. Even in real-world real estate, there were bottlenecks in everything from materials production to labor to specialized areas that people needed to work in that were only overcome by people coming together and creating acceleration processes. Coordinated labor is what built many of the tallest skyscrapers in the world. Over time that coordinated labor was augmented and fueled further by technology. Powerful tools, machines, and computer-generated design all sped up the build processes. We see this as being no different than what is going to happen with virtual worlds.

First, comes collaboration and building coordination protocols and standards. Then as other technologies, such as protocols and AI capabilities are layered onto the process, the cost is driven down immensely and it creates an ecosystem of equality where everyone can build, interact, transact, and play. It also creates higher income opportunities for long-established land and building investors. Imagine being in the position to own the land and create some of the first buildings that would eventually become Manhattan. That is how early we are in these virtual worlds.

Virtual real estate is here to stay

While right now it may seem like a far-fetched idea, we must remember that an entire generation is being born today that doesn’t know a world without technology, A.I., virtual reality, games, and immersive environments. Just as Generation Z became the first social media-native generation, Generation Alpha will become the first metaverse-native generation.

Generation Alpha expect it for the future, and they place true financial value on it too. That is why we want to provide all the tools and resources to help them enjoy, interact, and build the future they want for themselves. Virtual real estate will be just as real as the wood and stone-built real estate in the future. We already see it happening.