By Mark Jamison and Matthew Glavish

Metaverse real estate sales surpassed $500 million last year, and nearly half of this amount came
after Mark Zuckerberg’s October 2021 rebranding of Facebook to “Meta.” (One piece of metaverse
“land” went for $4.3 million alone.) This year, the metaverse real
estate market has continued to boom, with sales reaching $85 million in the
first month of 2022 alone. Some analysts believe total sales could reach $1 billion
this year.

The surge in metaverse real estate values is impressive. But
are these values real, or is this a bubble that will soon burst? And should
anyone really care? The answers are “yes,” “yes,” and “yes.”

What is metaverse real
estate?

The metaverse is a network of online spaces — some of which interconnect —
that are three-dimensional and where people engage in entertainment, meetings,
social activities, and the like in real time. Real estate in the metaverse is
digital property where people can create game experiences, host events, develop buildings and other features, and rent to others.
In some instances, property ownership gives people voting rights on the rules
governing the metaverse space they are in.

In terms of real estate options, the four primary metaverse spaces are Cryptovoxels, Decentraland,
Somnium, and The Sandbox. People buy and sell digital assets in these virtual
worlds and have begun experimenting with ways of turning a profit.
At this time, much of what happens in the metaverse has physical-world
parallels, such as virtual and physical art, but that will probably change as
people become more comfortable with treating their online experiences as real.

What determines the
value of metaverse real estate?

Like everywhere else, prices in the metaverse are driven by
demand and supply. A significant difference for the metaverse is that it has
fewer immutable physical laws than does the offline world. For example, a
building’s height in the metaverse is limited by computer code, not gravity,
materials, forces of nature, and the like.

As with physical property, the demand for metaverse land is
determined by its utility. For example, in The Sandbox, Snoop Dogg is developing “Snoopverse,” where he will be throwing digital
parties and concerts. Presumably, the reasons he chose The Sandbox over other
spaces include its popularity, functionality, governance rules, and ease of
transactions. People who own land in The Sandbox set governance rules through participation in a decentralized autonomous
organization (or DAO). Ease of transactions relates to The Sandbox’s use of a
utility token called
SAND and the features of The Sandbox’s Marketplace, where users buy
and sell digital assets called non-fungible tokens (NFTs). Other metaverse
spaces have similar features.

Proximity also affects land value. The opportunity to be
near Snoopverse led one fan to pay $450,000 for a digital parcel next door. Proximity also led
Portion, a metaverse auction house and marketplace, to pay $1.2 million for virtual real estate near a major plaza
where other brands were buying land.

On the supply side, the developers of the four
aforementioned metaverse spaces each chose to limit the amount of available
real estate. But that is not an immutable constraint, as new metaverse
developers are popping up and creating more land. Whether these new developers
create popular alternatives to the four leaders will depend on their abilities
to create valuable in-world functions, governance systems, networks of people,
and financial systems.

Is this a bubble that
will burst?

As with the “dot-com” prices in the bubble of the late 1990s, some
metaverse real estate and NFT prices will collapse — but not all. Just as
Amazon, eBay, and Priceline emerged from the dot-com crash as innovative,
entrepreneurial companies with sound business models, some metaverse developers
will likewise emerge as new tech leaders. What’s different in the metaverse is
that there are more variables at play. Today’s tech leaders expanded access to
information, commerce, and social connections. The new tech leaders will
redesign who sets rules and how, the valuable experiences people have, how
users represent themselves, and the ways economies work.

What should be done? Creative entrepreneurs should step into
the metaverse and experiment. Investors and users should also engage, — but
with caution, as there will be more failures than successes, with some failures
being quite large: The Nasdaq index lost
more than 75 percent of its value in the dot-com bust. And those who see
today’s tech leaders as enduring monopolists should think again: General
Electric, General Motors, Exxon Mobil, Ford, and International Business
Machines (IBM) led the Fortune 500 in 1990. But then technology changed.
And by
2021, Exxon Mobil was the only one of these firms remaining in the top 10.
And the only tech company in the 1990 top five — IBM — had dropped to 42nd place by 2021.

Some metaverse values are real, but some aren’t. And there
is much to learn.

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