Metaverse real estate sales surged during 2022 and are expected to grow through 2026, according to a New York Times article.[1]  What are some factors driving virtual real estate sales?  How may investors gain exposure to companies that may benefit from the anticipated growth of the metaverse?

Virtual Real Estate Sales Have Grown Rapidly

Sales volume of virtual land reached $1.4 billion in 2022.  This was a 180% increase over 2021’s sales volume. 

The metaverse is made up of multiple virtual worlds, with Decentraland and Sandbox being prominent examples.  A good portion of 2022’s sales volume, specifically $900 million, came from the creation and sale of newly minted virtual real estate in Otherside, a new virtual world.  The Sandbox and Decentraland accounted for 11% and 5% of 2022’s virtual real estate sales, respectively.

Factors Driving Sales

Many factors that drive real estate sales and values in the digital world also apply to virtual real estate.

Supply and demand drive both physical and digital real estate activity.  Within the metaverse, there are a finite number of virtual worlds which have been carved into a limited number of parcels. Given the fixed supply of virtual real estate, demand will likely dictate price and value.

Additionally, it is often said that the three most important factors in real estate are location, location, location.  The same is true of virtual real estate.  Prices in virtual real estate are also dictated by location. For example, after Snoop Dogg purchased parcels in the Sandbox and created “Snoopverse,” one buyer paid $450,000 to be his neighbor.

Physical Companies Rushing In

In many virtual worlds, companies in the physical world have rushed in to purchase digital land.  Global corporations, including Adidas, Atari, and Warner Music Group, have bought spaces to create entertainment, sell goods, launch virtual headquarters, and host immersive gatherings for employees and fans.

Physical Builders

Companies involved in physical real estate are also becoming involved with virtual real estate.  In January 2023, U.S. homebuilder KB Homes, launched a community on Decentraland where buyers can enter, explore, and toy with customization options of three of their model homes.

One builder in Florida created a virtual twin of an 11,000-square-foot mansion he built and is listing it for sale.

Offering Options Not Available in the Real World

Virtual worlds are not held to real-world physics or laws of science, allowing for the creation of real estate that is distinctive and not achievable in the physical world.  The Row, a collection of digital homes, is marked by melting Salvador Dali-esque angles and dreamlike floating spheres. 

Virtual Real Estate Is Projected to Grow Rapidly

Virtual real estate is expected to grow at a compound annual growth rate (CAGR) of nearly 62% over the 2022-2026 period, increasing by $5.37 billion.

[1] All data sourced from: Kamin, Debra, The Next Hot Housing Market Is Out of This World. It’s in the Metaverse, The New York times, 2/19/23; 2022 Annual Metaverse Virtual Real Estate Report, Parcel, 1/20/23