The real estate downturn hits the Metaverse

A couple of years ago the Metaverse was hot property, but just like in the real world, virtual real estate is also in decline.

At the end of 2021, when the Metaverse, crypto and NFT hype was at its peak, a Decentraland plot of land sold to Metaverse Group for US$2.43 million, according to The Block.

Currently, weekly trading volumes are down to about US$50,000 a week, which is a long way from the $1 million per week trading volumes consistently seen through the beginning of last year.

Switching to The Sandbox Metaverse, and at the end of 2021, a digital investor paid $4.3 million for a block of land in that virtual reality.

Metaverse architect Hunter Swihart said demand for virtual real estate had been waning after the highs of recent years.

“Everybody saw prices skyrocketing with big businesses buying land for millions of dollars, which now, in retrospect, was a terrible mistake,” Mr Swihart said.

Even attendance at Decentraland’s Fashion Week has seen a steep drop in interest, down from 108,000 attendees in 2022 to 26,000 this year, despite showings from well-known brands.

According to The Block, gaming platforms, like Fortnite and Roblox, are going strong, while Metaverse platforms like The Sandbox and Alien Worlds are now starting to struggle.

One of the main reasons for that is that gaming platforms are fun and the average user usually knows what they’re supposed to do there, in contrast to the obscure nature of the Metaverse.

Digital land has seen a big run-up in only a short period of time, with the first-known parcel selling in 2017 for just US$20. Four years later, a plot of Metaverse real estate was selling for US$6000, with aftermarket prices considerably higher.

Secondary sales also dropped in the back half of last year, according to a report from Web3 gaming marketplace Parcel.

But, according to an article in Fast Company, many smaller virtual worlds are planning to release parcels this year, which it expects will result in exponential increases in the secondary trading market.

Parcel said the future remains positive for the Metaverse.

Despite the recent falls, Parcel said the market for virtual homes was still valued at $1.4 billion, which is still 180 per cent higher than the US$500 million it was at in 2021.

Virtual real estate was the top-performing category among NFTs last year and while Parcel’s price index fell 63 per cent, it’s still up 78 per cent compared to 2020.

“The outlook for the virtual land market remains bright, with increasing attention and investment being made in the Metaverse,” the company said.

“As Web3 gaming and digital fashion continue to expand and mature in 2023, virtual land will undoubtedly play a crucial role in shaping the way we interact, play, work, learn, and conduct business in virtual spaces.”

But it seems not everyone agrees. Billionaire Mark Cuban, who has been a long-time crypto investor believes that virtual real estate is a mistake.

“People are buying real estate in these places and that’s, like, the dumbest shit ever,” he told Altcoin Daily.

“Dumbest. Dumbest. Did I say it was dumb? That’s not strong enough. . . . It’s not even as good as a URL . . . because there’s unlimited volume you can create.”

YouTuber Dan Olson agreed with Cuban.

“In practice, it’s a bad video game made up of smaller, worse video games wrapped in real-estate scheme cosplaying as The Matrix,” he told The Block.

But, perhaps if real estate in the Metaverse really is like property in the real world, the market will pick up again.

Watch this space.

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.

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