Commercial real estate (CRE) is an ever-changing industry where trends quickly come and go. But one constant is that it is historically viewed as a tangible commodity. CRE has always been something you could touch, whether dirt, pavement or bricks-and-mortar.
But the rapidly expanding global phenomenon known as the metaverse presents real estate in a new light. The metaverse is an array of technologies, including non-fungible tokens (NFTs), virtual reality (VR) and augmented reality (AR).
Defining the metaverse
The metaverse combines the physical and digital worlds. While you can buy a painting and hang it on your wall, you can also purchase an NFT of the same artwork to have a digital copy. NFT sales for 2021 were estimated between $25 billion and $41 billion, compared to $250 million in 2020.
More and more real estate is being presented in the same way, virtual, not physical. Last November, investors bought 116 parcels of “virtual land” for $2.5 million on a leading metaverse platform called Decentraland. The site offers 90,000 virtual plots.
How does investing in the metaverse work?
Sales of virtual property are becoming more common. Sotheby’s created a digital auction house to sell goods after buying space on Decentraland. Other platforms allow investors to buy virtual versions of actual real estate. Owners can share in revenue made from business conducted on the physical property, plus they can create commerce opportunities in the virtual world.
Understand the risks and the unknowns
If all this seems a little out there (pun intended), the risk factor for investing in the metaverse is extreme. Any investment typically involves risk vs. reward. But how can you measure the risk if no one is sure whether a virtual asset will keep its value? The value of an NFT, for example, is generally set by those involved in the transaction agreeing to a price and not by an independent appraisal.
CRE investors considering the metaverse are advised to be just as thorough with research as they would be for any other investment. Forbes Business Council calls the metaverse the “digital Wild West.” The potential for significant gains is there, and many CRE investors may want their piece of the pie. But whether it will be a boom or bust remains to be seen.