Pi Labs research finds wide gap between Metaverse expectations and reality
Pi Labs, has published ‘Unreal Estate: Metaverse, extended reality and the future of our physical world’, the real estate sector’s first ever report on current perceptions of the metaverse within the industry and its future impact.
As with the world in general, interest in the metaverse within real estate has escalated following Mark Zuckerberg’s Meta rebrand last year. Pi Labs’ report provides insight into adoption to date, with a comprehensive overview of instances where IRL (In Real Life) collides with the digital world and the way we design, build and experience physical space.
As part of the research, Pi Labs polled 151 mid-to-late-career real estate professionals, posing questions around how the metaverse will impact real estate and what steps are being taken to prepare for it. The findings showed that 40% of respondents said they expect the metaverse to have a positive or extremely positive impact on the real estate sector in the coming 0-4 years. However, the majority (54%) expect the metaverse to have no impact at all, showing a clear split down the middle within the sector.
Almost half of respondents are expecting a positive impact, however, only one in five reported their organisation taking any action on the metaverse (either creating and delivering or actively participating in the metaverse). This suggests a clear gap between expectations and action taken to date and is somewhat surprising given the real estate sector has been experimenting with new technologies such as extended reality (XR) and blockchain for some time.
Faisal Butt, CEO and Founder of Pi Labs, said:
“This paper demonstrates how the metaverse is in the throes of a speculative hype cycle, with companies containing ‘metaverse’ in their descriptions tripling between 2020 and 2021. However, there are also exciting longer-term projects underway with genuine use cases.
“While there has been an explosion of new players and micro applications, like in other emerging categories, we expect that a few large, valuable players will emerge in this space and those that fail to achieve product-market-fit will likely fall by the wayside. Amongst the noise, we should see some worthwhile new investment opportunities arising, with a sizeable amount of smart money going into long-term metaverse projects.”
“The report also demonstrates the breadth of activity being defined as under the metaverse banner. Within this, there are innovations in extended reality and virtual space that symbolise a genuine disruption in the way we use and interact with our physical spaces.”
The report aims to assess the likelihood of the metaverse attaining its evangelists’ projections by looking at the latest data showing how different generations view themselves when online. It points to a survey by The New Consumer, which found that nearly half of Generation Z respondents reported feeling more like themselves online than offline. With the figure remaining over 40% for Millennials, the report concluded Generation Z’s attitude towards their online lives is unlikely to change as they transition through early adulthood, which strengthens the case for investment.
Examples within the report of metaverse applications in real estate include various attempts at asset tokenisation through blockchain technology; virtual tours of built and yet-to-be-built spaces; interior design applications such as IKEA Place; and many others.
Pi Labs has split the main content of the report into two sections:
1. Extended Reality
Extended reality (XR) is an umbrella term encompassing augmented reality (AR), mixed reality (MR) and virtual reality (VR). They can be plotted along the reality-virtuality continuum. XR has a chequered past—with bankruptcies and discontinued products as legacies of a 1990s hype cycle.
VR training providers claim the technology improves knowledge retention, which sheds light on educational applications. There are also applications in construction—where professionals could walk through a site in real time, identifying defects earlier. The range of XR use cases raises the question of whether it serves to enhance or replace our physical world. For example, VR could enable a more immersive in-home retail experience, whereas MR and AR could enable a more immersive in-store retail experience.
2. The Virtual Land Rush
Most investment in virtual land has occurred since late-2021. Just like the physical world, virtual land value is influenced by location—in particular because of ‘peripheral traffic’ from neighbours.
The price per square foot of a Decentraland parcel is higher than agricultural land but lower than commercial and residential real estate in the UK. We propose valuing virtual land by identifying its income-producing potential and applying an appropriate capitalisation rate (also known as the income approach). We illustrate this through a simplified example of a retailer valuing a virtual plot. Scarcity of virtual land is a commonly raised issue. We look at this through two lenses: between-metaverse (proliferation of platforms) and within-metaverse (supply of virtual land on a platform). A key component of the metaverse espoused by its evangelists is ‘decentralisation’, but there are signs of its limitations, such as vested interests, transaction costs, wealth concentration and unequal voting rights. The intersection of digital twins and virtual land appears to be an area of opportunity for the real estate sector.
