Will The Metaverse demolish your property investments?

 

Even the best educated and most wealthy people can be short-sighted or dismissive about innovations which subsequently change our lives.

In 1943, Thomas J Watson, former IBM Chairman said: “I think there is a world market for maybe five computers”. Microsoft founder Bill Gates reportedly said, while at the 1994 Comdex conference in Atlanta: "I see little commercial potential for the Internet for at least 10 years". In July the same year, former hedge fund executive Jeff Bezos founded Amazon.com and the rest is history.

Much has been written about the Metaverse, how it might impact consumers, how early investors such as Meta Labs (formerly Facebook) and Microsoft could control and profit from its growth potential. According to Peter Levine, General Partner at Andreessen Horowitz: "The metaverse is the next big thing after the internet. It will change the way we interact with technology and with each other, and it will be a game-changer for business and society".

Accenture has launched it's "Nth Floor"
virtual meeting space

But what about small investors in property? If, like me, you hold a substantial chunk of your pension in the shares of property companies (in my case, REITs), should you be scaling back your investments, or looking at ways to exploit this brave new world, or both?

The Covid-19 pandemic accelerated changes in corporate working practices which have already negatively impacted commercial property valuations. Long leases, signed before 2020, still conceal the full impact of the changes. But the trends are clear. The immediate push to home working drove the adoption of video conferencing technologies such as Skype, Zoom and Teams. Within weeks, office space was vacated at scale, across the world. Since the peak of the pandemic passed, many corporations have pushed staff to come back to the office, with a mixed reception. Could Metaverse-based conference spaces fill the gap between the office and video conferencing? Global companies such as Accenture have already made substantial investments, with their “Meet me on the Nth Floor” virtual conferencing facility, based on Microsoft’s Mesh technology.

If companies can hold team meetings and even larger conferences in the Metaverse, exploiting all the integrated tools and capabilities which make the experience feel so much more ‘in person’ than a video call, why would they maintain their current levels of office space? Why would they hire huge and expensive conference venues for 10,000 or more people for events like Microsoft’s Worldwide Partner Conference? Huge venues in many cities across the US and elsewhere could soon be gathering dust, while investors take a hefty haircut.

On the flip side, are there opportunities for investors, in this new digital universe? Organisations such as Decentraland have been online since 2017, enabling companies and individuals to purchase, trade and even rent out ‘land’ in their Metaverse. According to Dieter Shirley, CTO of Loom Network: "Decentraland is a digital world where you can own your own land and create anything you can imagine".

You can buy and then rent out
virtual land on Decentraland

This raises questions, such as: How can the value of land appreciate if it’s possible to ‘mint’ land at the touch of a button? How do you prove that you own a piece of digital land?

While the question of proof of ownership has been resolved, thanks to NFT and Blockchain technologies, the valuation of virtual land is driven by the market. Just like in the physical world, the three most important drivers of virtual land value are: location, location and location. With global brands such as Nike establishing virtual HQs in the Metaverse, why wouldn’t other businesses aspiring to align with those brands want to have their virtual premises next door? When the marketing dollars of brands like Nike draw consumers to their virtual presence, those consumers will ‘hang out’ near your door too.

Do REITs exist that have at least some of their property portfolio in the Metaverse? Specialist funds exist that allow investors to own a piece of companies developing Metaverse technologies. However, I have not seen funds that allow investment in virtual real-estate. Will there be in the future? Quite likely. Would I invest in one? Well, let’s see how things pan out. 

As with any investment – be sure to Do Your Own Research before investing.

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21 Nov 22