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The Next Frontier: CRE and the Metaverse

Andrew Phipps • 7/28/2022

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Commercial real estate (CRE) is probably not the first thing that comes to mind when you hear the word metaverse. After all, commercial real estate is property primarily used for business purposes—and it’s typically physical, not digital. However, major companies are placing big bets that the metaverse will be a place where real estate investors, the businesses that use real estate, and the people who visit will be spending more time. It’s too soon to tell, but given the opportunities the metaverse represents—from new revenue streams and unique brand experiences, to improving experiences and physical real estate itself, to enabling a new future of work—those bets may pay off. 

WHAT IS THE METAVERSE, ANYWAY? 
The term metaverse is complex and largely still being defined. In general, it refers to a new way to consume information and experience virtual representations of people, places and things. The tech behind the metaverse is based on gaming technology—so effectively, it’s not new—but the metaverse has shed some of the gamification. It’s more of a choose-your-own-adventure experience. Armed with a screen, Virtual Reality or Augmented Reality device and a web connection, anyone can jump into the metaverse (in avatar form, of course), move through these new environments, find new and unique experiences, interact with virtual objects and, through shared experiences, connect with others who come from near, far and everywhere in between. 

HOW DOES THE METAVERSE FIT IN FOR COMMERCIAL REAL ESTATE?  
In part, the metaverse mirrors the physical world. For example, investors can purchase parcels of digital land. Wondering who in their right mind would pay for the rights to a virtual plot of dirt? As it turns out, plenty of speculators—early investors are paying big dollars, too. According to some reports, 2021 saw more than 65,000 land transactions in the metaverse totaling $350 million dollars, including 116 parcels that sold for $2.5 million in virtual world Decentraland. Blockchain company Tokens.com recently paid $1.7 million for a 50% stake in Metaverse Group, one of the world’s first virtual NFT-based real estate companies. Metaverse Group owns an extensive portfolio of virtual NFT (see NFT side bar) real estate properties in metaverse communities such as Decentraland and the Sandbox. It also offers virtual property development, property management and marketing services. 

What is an NFT?  
A Non-Fungible Token, commonly referred to as an NFT, is a kind of digital, tradable financial asset that represents physical world items like artwork or real estate. An NFT has a unique digital identifier that’s recorded in a blockchain, and thus can’t be copied or replaced—it’s one of a kind. In terms of commercial real estate, each plot of land within the metaverse is represented by an NFT, which can then be sold on the open market. 

Investors who buy digital properties are banking on the idea that once they own a piece of digital land, they can lease it or sell virtual ads much in the same way online advertising works—that is, the way advertisers pay popular websites to display ads to visitors. Likewise, owners of digital land in the metaverse can lease kiosks, billboards or prime locations to big brands who want to advertise.  

For property owners and developers in the physical world, the metaverse represents another kind of opportunity. Analyzing how people behave in the virtual world can give CRE investors a rich seam of intelligence around what people engage with and for how long. Owners, investors and developers can then take these learnings and apply them to physical real estate. For example, they can plan a workplace and its amenities all based on insights from the metaverse. Through this kind of application of the metaverse, developers can reduce risk and take bolder steps in the creation of built environments.  

Are these virtual land acquisitions investable opportunities like physical commercial real estate assets? Likely not for now, given so much is yet to be determined with respect to laws and jurisdictions governing metaverse transactions. But we may see it one day as organizations like the Metaverse Standards Forum are signing up major corporations to help establish some of these guidelines to help protect users and ensure a positive experience. 

FOR BRANDS IN THE METAVERSE, IT'S ALL ABOUT EXPERIENCE AND CUSTOMER INSIGHTS  
While CRE investors may be looking on from the sidelines for the time being, other commercial real estate players have opportunities in the metaverse today. Major retailers and brands, for example, are turning to the metaverse, hoping to create a place people want to visit to experience something unique. We've already seen major brands create virtual storefronts to enable visitors to engage with their products, promotions and services. Whether it’s Estee Lauder participating in a metaverse fashion show or Fortnite sponsoring an Ariana Grande concert, attracting visitors and giving them a reason to come again is the name of the game.  

That said, the metaverse isn't a replacement for brick-and-mortar environments. Rather, it enhances and complements physical locations, and brands are looking at the metaverse to position themselves with a new audience. Shoppers can try on the latest denim, create custom sneakers or sport the latest shades— then purchase their favorites as NFTs for their Avatar’s wardrobe. This is where the metaverse can intersect real life, as shoppers can also purchase these items in the physical world. Further, by revealing shopper behavior in a virtual world, the metaverse can offer a wealth of retail intelligence to brands, helping them better anticipate buyer habits in the physical world. That innovation gives brick and mortar companies insights that their online counterparts have enjoyed for more than a decade. 

THE OFFICEVERSE  
For real estate occupiers, especially for organizations that use office space, the metaverse can enable a new workplace experience. What is being coined as the Officeverse is a potential solution to the tug of war between office workers who want the flexibility to work remotely more often and companies that prefer their employees to be in the physical office. The Officeverse is a private virtual space that recreates the office experience for the employee. Spaces are available in 2D or 3D formats, and both deliver specific benefits to the company and the employee. For example, the Officeverse can help facilitate unplanned meetings and replace the water cooler effect, fostering casual employee interactions. For the employee who may be working remotely, or even the hybrid employee who isn’t in the office every day, those interactions can promote a sense of connectedness to colleagues and to the company itself. For the company, those moments can foster a host of beneficial outcomes, whether it’s culture building, positive employee experiences or spontaneous ideas. When employees come to work in the Officeverse, they interact with familiar colleagues and coworkers. But perhaps more importantly, they may encounter new colleagues, develop new connections, and find new opportunities for mentorship. All of these interactions enhance a new employee’s experience in those critical first few weeks of joining an organization.  

The metaverse also provides a viable approach to leveling the playing field for various segments of employees who may feel disadvantaged in the physical workplace. Think of working parents, disabled colleagues, employees with long commutes or employees who suffer from medical conditions. In addition to increasing their sense of equal participation—for example, being able to casually drop in to speak with a senior leader or feel part of a planned meeting in a virtual conference room rather than dial-in participant for meeting in a physical conference room—the metaverse can give people the ability to be represented the way they want to be seen in the workplace. 

WHAT’S NEXT FOR THE METAVERSE AND CRE?  
Although the exact future of the metaverse remains uncertain, curious and ambitious speculators are seizing the opportunity to embrace this digital world, brands are exploring how it can complement the experiences of the physical world, and major employers are investigating how it might be part of the future of the workplace. How much of an impact the metaverse will have on commercial real estate and how quickly it will take place are two of the great unknowns.  

For now, you might consider getting your feet wet. Set up a profile in a virtual world. Create a wallet. Buy some NFTs. Explore shops. Try meeting colleagues at a virtual office—a few are available for free. If you’re feeling bold, maybe even buy some land. At the end of the day, the best way to understand the metaverse and its potential is to experience it and learn from it. If you do, no doubt you’ll be ahead of the curve.  

See you out there. 

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