What's the Deal with Virtual Real Estate?
An intro to the exciting and rapidly developing world of virtual real estate
Hi readers, welcome to part one of a series I’ve decided to write on the curious world of virtual (digital) real estate – plots of land within digital worlds. This is a topic that really fascinates me (and I hope has the same effect on you!).
The idea of virtual real estate right now is essentially buying land within video games. Over the past few weeks, you may have come across the term ‘metaverse’ – a term that widely sparks excitement, a lot of confusion and (for some), a little despair.
In a nutshell the metaverse presents the idea of users living within a digital world. Through technologies like virtual reality headsets, augmented reality glasses, smartphone apps and other developing technologies, we’d be able to live a virtual life alongside our physical life.
The idea of the metaverse isn’t that new (Neal Stephenson coined the term in his 1992 novel Snow Crash), but talk has heated up recently with moves from Facebook, Microsoft, Epic Games and others to invest significantly into developing platforms catering to the metaverse. Marking its commitment to the metaverse only in October, Facebook rebranded to a new name: Meta.
Facebook's introductory video to the metaverse
With billions of current users across Facebook and Microsoft, and a combined market capitalisation in excess of US$3 trillion, it’s hard to see how the metaverse doesn’t become too big to ignore in the next few years.
So, you might be asking me, what does this have to do with real estate? After all, isn’t the word ‘real’ literally in the name? My answer is simple: virtual real estate within digital worlds is already attracting a lot of real money (and I mean a lot), and as the metaverse grows, so too will the digital real estate market.
Let’s talk $$$
When we think of existing metaverses, popular games like Minecraft come to mind. Minecraft sold to Microsoft in 2014 for US$2.5 billion, and currently has over 140 million monthly active users. Some of the most widely recognised current metaverse projects include Decentraland and The Sandbox.
Decentraland is a blockchain-based virtual world, launched in 2017, where players own plots of ‘land’ that they can use to build ‘scenes’ that are displayed for players to interact with. These can include artworks, mini-games, 3D-rendered animations and so on. Players can use Decentraland’s token ‘MANA’ to trade parcels of land and other items. Currently, one MANA is worth over US$4, giving Decentraland a market capitalisation of over US$7.5 billion. Since Facebook’s announcement in late October 2021, MANA has increased over 400%, and is up over 4500% from a year ago. Only this past Monday (22 November), a parcel of virtual real estate on the platform sold for US$2.43 million, the largest purchase in Decentraland’s history. The land parcel is in the ‘Fashion Street’ area of Decentraland’s map and is intended to be used to sell virtual clothing for players’ avatars and host digital fashion events.
A great video on virtual real estate and Decentraland
The Sandbox launched in 2011, and similarly to Decentraland is a blockchain-based virtual world, which allows users to build, create, buy and sell digital assets within the platform. Like Decentraland’s ‘MANA’, players in The Sandbox can use the token ‘SAND’ to buy and sell land and assets on the platform. One SAND is currently worth over US$6, giving The Sandbox a market capitalisation of over US$5.5 billion. SAND has increased over 750% since Facebook’s announcement a month ago, and is up over 14,000% from a year ago (a $1,000 investment would now be worth over $140,000). In November 2021, The Sandbox closed a Series B funding round of US$93 million, led by Softbank.
What’s the future of virtual real estate look like?
Right now, the value of virtual real estate within metaverses like Decentraland and The Sandbox is driven by foot traffic. Almost everything can be sold and traded within these metaverses, and as their popularity grows, the volume of sales on these platforms will no doubt grow with it.
To this end, what value can high levels of foot traffic drive? Well, for one, advertising (advertising within video games is already a multi-billion-dollar industry). Undoubtedly companies would want to position their advertisements (which could be interactive, the new wave of ‘cool’, experience-oriented marketing) in central locations. Another clear example is artists or collectors, who might want prime pieces of virtual land to house an art gallery or museum to display their art. A third example of extracting value from land is charging admission for entry, e.g. if a player has a game or exhibit being showcased on their land.
Given the above, the ties to real-life real estate are there. You can collect rent, develop buildings or amalgamate plots of land. You could build an entire neighbourhood if you wanted to. The residential component to these metaverses is obvious too: players want a place to call home, that they can decorate as they choose, and use as a space to hang out with friends.
The roundup
With the growth of investment into metaverses over the coming years, there is no doubt an opportunity to be a relatively early-stage mover to virtual real estate. In the future, virtual real estate could provide a strong opportunity to drive investment returns and could give a new meaning to the idea of diversification within real estate portfolios.
Stay tuned for Part 2 and Part 3 of my virtual real estate series, where I’ll delve into the world of NFTs and discuss virtual real estate businesses and investment funds.
If you’ve enjoyed this, please don’t hesitate to reach out for a chat!
About the author
Raphael is a young property investment professional at AMP Capital. He has had previous experience in healthcare investment, investment banking and boutique private equity. Outside of work he loves all things investing, a good crypto call, poker, basketball, getting outdoors and keeping fit.
Connect on twitter @raphaelsebban1