Article | Adaptive Spaces
Enter the Metaverse
The rise of digital worlds and their implications on Commercial Real Estate
August 2, 2022
In today’s world where macro trends such as Covid-19 and a heightened focus on climate change and sustainability are reshaping industries and workplaces, the proliferation of emerging technologies and rapid digitisation are further transforming the ways in which we transact, manage and use commercial real estate.
One area where the future of real estate is being reimagined is in the Metaverse – a fully realised and immersive digital world that connects with our physical lives, where users can work, play, learn, create and interact with one another, and with businesses and brands. Virtual real estate in the Metaverse is also fast emerging as a viable investment.
Virtual real estate in the Metaverse can be purchased, allowing investors and owners to build on their land and create interactive touchpoints for users and communities, or rent out their land, for example to businesses seeking to establish a brand presence and create a new place for people to explore, experience and purchase products and services.
Investors are entering in droves and paying sizeable sums for virtual land in the Metaverse. So far, virtual real estate sales have primarily taken place on the “Big Four” platforms – Sandbox, Decentraland, Voxels and Somnium. Real estate prices in the Metaverse rose by 700% in 2021, while sales of real estate topped US$500 million last year and could double this year. Bloomberg estimates that the Metaverse market could reach US$800 billion by 2024, up from about US$500 billion in 2020.1
What are the implications for commercial real estate?
So what are the implications of the Metaverse for commercial real estate? The Metaverse offers a multitude of possibilities for this sector by providing new avenues for investors and immersive real estate tools, enabling easier and faster ways to co-design and co-develop assets, and an enhanced workplace experience.
The expansion of portfolios services is another opportunity. Metaverse real estate will require commercial real estate services such a brokerage advisory, virtual real portfolio management, digital architects and customer experience. The growth of the Metaverse presents an opportunity for real estate professionals to build new capabilities and evolve existing services to support the Phygital world.
Recent virtual land transactions have seen companies across industries invest and enter the Metaverse to capitalise on these opportunities. SHK & Co, a major landlord in Hong Kong and an investor in Animoca Brands – the parent company of The Sandbox – seeks to create an experience bridging finance, sports, art and culture from around the world through its XL Estate. The SHK & Co LAND will include environments to host investor events, exhibitions, exclusive parties and private performances.
Financial institutions are also making a foray into the Metaverse, with some major banks recently announcing new partnerships and acquiring virtual land in The Sandbox to create innovative brand experiences for their clients, employees and the community.
We also continue to see retailers actively building their brands in the virtual world. In January this year, Samsung opened its first store in Decentraland with Samsung 837X, an immersive world and digital twin modelled after its flagship New York City store, allowing users access to a digital experience connecting technology with art, music, fashion and sustainability, and to explore Samsung’s technologies.
Robust growth expected in 2022
These transactions highlight the increasing investment and interest in the Metaverse. We expect the Metaverse to gain mainstream adoption in the next five to seven years. In the more immediate future, Metaverse land sales reached a record high of US$500 million in 2021, and could more than double in 2022.2
Despite strong growth momentum, investors should be mindful of potential market uncertainty and fluctuations in response to industry movements and announcements from key players. For example, as Meta’s shares declined at the beginning of 2022, there were concerns around the sale of digital real estate.
There are also certain risks and challenges associated with the Metaverse that need to be carefully considered and managed, such as cybersecurity, data privacy and regulatory issues, interoperability, access inequality and health concerns.
Nonetheless, we expect to see continued interest from dedicated Metaverse investment firms, large corporates and luxury brands throughout the rest of 2022, and we anticipate more of the Big Four platforms to pick up Metaverse land parcels.
Events on Metaverse land could also become a staple. Most Metaverse platforms already have their own event calendars, with VR offering significant experiential opportunities for hosted events, particularly concerts and art shows.
As the Metaverse continues to grow, evolve and gain mainstream appeal, so too will the opportunities for investors and land owners, as well as businesses to establish a presence in this space, and explore new experiences and channels to engage with users and communities.
Recent transactions and sales volumes indicate that there is certainly no dearth of buyers of Metaverse real estate in the market. While the Metaverse might not be the right fit for all, the implications for the future of real estate are significant. The early movers in the Metaverse – while having to navigate the associated risks – could be well positioned to capitalise on the significant opportunities in this space, access new customers and revenue streams, and create a new brand experience for the future.
Stay tuned for the next article in the series, which will focus on how the Metaverse could reshape the workplace experience.