Virtual certainty

As we enter the age of the metaverse and become increasingly active in the digital world, has virtual real estate now also become a thing? If so, what exactly is it? And could it be worth investing in?

In October 2021, Mark Zuckerberg changed the name of his company, Facebook, to Meta in a relaunch accompanied by a promotional video starring both himself and his own avatar. Facebook, which as just about everyone who’s ever used the internet surely knows, was at that point still one of the biggest success stories of the internet era – an all-conquering behemoth that had crushed all rival social networks. In this respect, it was emblematic of the Web2 era, when internet users had shifted from generally being passive consumers of online content to creating their own online presences, via social network profiles and blogs. We are still living in Web2, but we are also supposedly moving towards Web3 – which, with the help of blockchain technology and non-fungible tokens, could see the liberation of the internet from the control of the big tech corporations. This decentralised version of the web is one that we will increasingly “inhabit”, in the guise of our avatars – whether this is for gaming purposes, for work or business, for socialising… given the ongoing advances in such technology as VR goggles and artificial intelligence, the possibilities would appear to be endless. Another term that has been coined for where the internet is going is ‘the metaverse’, which is meant to encapsulate the idea of a fully-immersive virtual world. Mark Zuckerberg is one of the most prominent advocates of this new conception of the internet, hence the name-change to Meta and the company’s huge metaverse investment (about USD 10 bln annually). However, the rebranding of his company was at the time met with a good deal of scepticism if not downright derision, and its share price has since tumbled by 60 pct. Teething problems with Meta’s Horizon Worlds virtual reality game haven’t helped, while the use of its business meeting equivalent, Horizon Workplace, is still only picking up slowly.

From pixels to 3D

Whether or not Zuckerberg has jumped the gun in the metaverse race, what all this does show is that companies are already seriously investing in virtual worlds – and another way of putting that, is that they’re investing in virtual real estate. The term might immediately strike you as something of an oxymoron, but in fact we’ve all been users, tenants or buyers of virtual real estate for many years. “Broadly speaking, virtual real estate may refer to any digital asset,” explains Mikołaj Sznajder, the director and head of advisory and transactions in the office agency at CBRE in Warsaw, “As I was involved with computers since the early 80s, I witnessed most of the advancements in technology – from 8 bits to 16 bits, from modems and bbs’es to internet and broadband, and the emergence of the internet. In the 90s and 00s, people were buying and selling domain names for a profit and when websites got traction, they offered virtual space to be leased which now we all know as ads. Both of which represent a form of owning and leasing a digital asset.” And then there was the example of UK student Alex Tew, who in 2005 launched his ‘Million Dollar Homepage’, selling blocks of pixels to advertisers to fund his studies. He quickly sold every pixel and became a millionaire almost overnight. “These days, however, with VR and AR, we have more of a 3D and immersive experience rather than just pixels. But it’s still all digital and virtual, in terms of people selling you something,” adds Mikołaj Sznajder. Indeed, it is the notion of the metaverse and its virtual worlds that leads us to look at these transactions as analogous to trading in physical real estate.

Tomas Nascisonis, the founder and CEO of London and Vilnius-based virtual real estate developer Crypto House Capital, puts it much the same way: “In the metaverse, virtual real estate is digital space, while cryptocurrency represents digital money. It’s more like a fixed virtual asset – you own a piece of the virtual space, for example, a game, a part of the metaverse. And you can also use it – you can go into it and explore it with your friends.” His company, which was founded in January 2022, describes itself as: “a forward-thinking venture focused on attaining attractive risk-adjusted returns via the development, acquisition, management, leasing and sale of virtual property on blockchain-based metaverses in the form of non-fungible tokens.” Clearly, Tomas Nascisonis has few doubts about the future potential of investment in real estate in the metaverse, even though he does point out that it’s still early days for this concept: “The first thing to say is that virtual real estate is still in its infancy. When the internet emerged in the early 90s, some people back then even said that we didn’t need it – but now we can’t even imagine our society without it. Now the metaverse is set to completely change the way we use it. We are moving towards Web3, which will be decentralised and will belong to the users, encouraging greater creativity than the web’s previous iterations. Imagine that the metaverse is like our universe and that we are building it. We give it virtual galaxies, stars and planets – and on them, we put virtual buildings. This starts with virtual land on which to build these properties – houses, schools, and so on. These are then meta-real estate projects. They can also be grounded in reality – a building, a space existing in reality that also appears in the metaverse. It is basically about connecting real places to digital twins.”

However, there are some obvious differences between virtual and physical real estate, as Mikołaj Sznajder elaborates. “When we think about the metaverse it is worth mentioning that there are many metaverses, just like there are many different social networks. So someone who imagines what the metaverse will be like in 5 or 10 years is just speculating, rather like people did about the future of the internet back in the 90s. You can buy the virtual ‘land’ in the metaverse, but as with social networks, the question is which metaverses will survive. So, in this way, it is quite different from physical real estate. When you think about real property, you regard it as stable – a plot of land in some country that will continue to exist and is naturally limited in supply. The prices for physical real estate are subject to change, but the value is quite stable, which is why investment funds are interested in them.”

Meta-real city living

In December 2022, Crypto House Capital launched the pre-sale process for 50 virtual apartments in what it describes as the metaverse’s first “meta-real residential skyscraper” – Skylum. At the time, Tomas Nascisonis stated: “The private suites can be designed and turned into whichever space the owner desires: it can be their home, their office, a meet-up space, a gaming arena (...) The option to shape it however one likes allows each user to create a personalised virtual experience that would bring them the most benefits.” It is this experience that the investors in these apartments are buying and then maybe later selling. The virtual apartments, some of which have already been sold, range between 25 sqm and 80 sqm, while they are priced at between EUR 5,700 and EUR 12,300. According to the company, the launch of Skylum is the first step towards its plan to offer different kinds of space in ‘metareal cities’, such as stadiums, shops, fashion shows, nightclubs, art galleries, and so on, while the city itself “will also provide users with new ways to express their creativity, since – being in close digital proximity and without real-world limitations – users will have a new-found freedom to connect and create.”

While the 3D immersive experience is all important, there are also a number of practical applications for such space. It could be used as a recruitment tool, by allowing candidates to take a virtual tour around their prospective offices and introducing them to the staff by means of their avatars. Architects can also have their buildings constructed virtually and test out the user-experience in them, before anything is built in the real world. “I was talking to a local council who wanted to build a school and they wanted a model of how this would work, including the tender, proposed designs, drawings and visual aids,” reveals Tomas Nascisonis, adding that “architects can build in the metaverse first, so everyone can go inside the building and see what it’s like and what might need changing. VR and AR can also be used by builders and has different advantages for different industries.” One example of the latter is BMW, which in April 2021 launched a virtual factory planning tool to help in the design and construction of its car plants and production lines. With this they are able to move the production lines, adjust the ceiling heights, and make other improvements at the planning stage. “A university could also come to us and ask us to develop a virtual campus to help them build one in the real world. So we select which virtual world to use and then select real architects to design the project,” adds Tomas Nascisonis. Another important use he points to is that it could help in meeting sustainability targets: “The data obtained by developing virtual real estate can be used to measure the environmental impact of the future physical building, by gamifying the data, making it easier to understand.” However, the investment so far in such emerging tools tends to be in the research and development side of them, rather than in any fully-realised virtual space.

The race not to be the new MySpace

So far, so utopian. But utopias, when we try to realise them, can often leave us feeling disillusioned or worse. There are certainly risks involved in investing in virtual real estate while it’s still at such a nascent stage. “Similar to physical real estate, where if you build something miles away from any major highway, virtual real estate will fail. What it needs is a community of users. What we can’t predict is what newcomers will emerge, just like Facebook became bigger than MySpace, by attracting more people,” points outs Mikołaj Sznajder of CBRE. But, as he goes on to explain, risks can also be worth taking, if your gamble comes off: “If we remember the days before Google, Altavista was the biggest search engine of the 90s. But those who bet on Google won. There are many metaverses now, but we will have to wait to see who wins. The same goes to virtual real estate. For now we know is that it has completely different characteristics than real property – it ia volatile, risky and is theoretically unlimited in supply.”

Another issue that might affect the perception of investing in the virtual world is that people might be put off by associations with crypto-currency, which has seen not only huge devaluations recently but has also been dogged by a number of scandals. However, Tomas Nascisonis is quick to distinguish between the two: “The only similarity with cryptocurrency is that virtual real estate investment can be done with blockchain – but it will be the community that uses it that decides how it is done. Crypto-currency is speculative and has been getting a bad reputation, which is why I don’t support it now. The metaverse is not a revolution, but an evolution in the way we use the internet,” he insists. He also adds that: “90 pct of our buyers use real money for their virtual real estate investments.”

Not missing the virtual boat

Also, as can be seen from the reaction to the promotional video for the launch of Meta, the technology has perhaps not yet reached the level of development required for it to take off in a big way. “If you ask gamers today about the metaverse, few are impressed by it. Games are already much more sophisticated. So maybe the metaverse is simply not good enough at the moment,” admits Mikołaj Sznajder. “However, the concept can only grow,” he adds, “not as a replacement for reality, but as an extension of the hybrid between reality and what we already use computers for. The potential is like that of the internet but in 3D.” And given that the tech is here to stay, perhaps the most important thing is not to miss the virtual boat and get left behind by this latest stage of the internet’s development. “With the expansion of virtual worlds, more brands than ever are establishing their landmarks in this expanding space. In these times when technology is advancing at an unprecedented rate, it’s important that we stay ahead and don’t miss out on the opportunities associated with new trends that have the power to shape how people will live in the future,” concludes Tomas Nascisonis of Crypto House Capital.