Metaverse real estate sales boom as businesses try to stake a claim in a 'risky' virtual world

Cosmos, a half-century-old greasy spoon known for its house omelette with bacon, ham, salami and sausage, isn't exactly synonymous with cutting-edge technology.

But the new owner, David Minicucci, wants to bring his Montreal restaurant into the fledgling three-dimensional realm of the metaverse.

Minicucci envisions customers in different cities using virtual reality headsets to get together in a 3D version of the restaurant even enjoying Cosmos' signature dishes, prepared in kitchens set up across the country and delivered to your door.

"Just like we got onto UberEats or went on to other technology platforms that help us increase sales or get our name out there it's just the next level of that," said Minicucci.

While the metaverse concept was coined in Neal Stephenson's 1992 novel Snow Crash, the idea that interconnected, immersive virtual worlds could be the next phase of the internet has gotten a lot of attention lately particularly after Facebook rebranded itself as Meta.

For Minicucci, who has owned Cosmos since 2020, that meant purchasing a plot of virtual land in a digital world called Decentraland, paying the equivalent of $15,000 in cryptocurrency.

Metaverse real estate transactions worth millions

And he's not the only one willing to spend money on land that doesn't actually exist.

A recent report by the Centre for Technology, Finance and Entrepreneurship in the U.K. found that land transactions in the metaverse last year hit an average of $100-million US each month.

WATCH | Metaverse investment a risky proposition, expert says

Dining out in the metaverse

3 years ago

Duration 0:41

The owner of a Montreal diner lays out his vision for the metaverse version of his restaurant

In Decentraland those sales were worth $110-million US, the report says, and in another virtual world, The Sandbox, they hit $350-million US.

A subsidiary of Toronto-based company Tokens.com, which invests in digital assets linked to the metaverse, recently paid nearly $2.5 million US for virtual land in Decentraland's fashion district.

At the end of March, the company will host Decentraland's fashion week, with avatar models showcasing NFTs, which are unique digital assets like art or media,and virtual products from brands such as Tommy Hilfiger and Dolce & Gabbana.

"A lot of people were scratching their heads at how much money we spent on it," said CEO Andrew Kiguel, who sees an opportunity for digital advertising and more.

The fashion show, he said, is an example of how his company could make money off its virtual land.

"It's being hosted on our land, so we're being compensated for that," he said.

"We own the peripheral land around the fashion show, so we're working with various groups to set up pop-up shops to get some of that peripheral traffic. And we also own the rights to any of the advertising that happens on this property."

Decentraland's land plots are non-fungible tokens, or NFTs, which means that each one is unique and cannot be replicated. Part of their value comes from the fact that the organization behind Decentraland created a finite number of plots: 90,000.

Skepticism amid the hype

For enthusiasts, the metaverse will be home to virtual spaces where you can wear a virtual reality headset and have your avatar shop for clothing, visit an art gallery, or go to concerts and fashion shows with friends.

But some experts caution that the user experience is still years away from fully immersive worlds that aren't awkward or clunky, where users can move seamlessly between different virtual platforms.

"The zeitgeist is hot right now for the metaverse," said Rabindra Ratan, associate professor of media and information at Michigan State University. Despite all the attention, Ratan sees virtual real estate as a high-risk investment, at least for now.

"I am definitely in favour of the development of the metaverse, but I also believe we are so far from realizing this vision that the virtual real estate thing is just too risky, in my opinion."

Ratan points out there are multiple digital worlds, all vying to become the dominant space with the most traffic and no one knows which of them, if any, will win out. The use of cryptocurrencies and a lack of regulation can add further volatility and risk.

"We'll see, probably, some bubble busts in real estate, but that doesn't mean the metaverse is dead," Ratan said. He sees land as "the worst investment" in the metaverse right now.

"Don't go buy a plot of land and then figure out what to do with it. Think first about what you want your users to do in the metaverse."

Henry Kim, associate professor at the Schulich School of Business in Toronto, said investors are drawn to what the metaverse may become, but have no guarantee it will take off.

"It's either pure, pure speculation and gambling," he said. "Or it's a very, very risky investment to something happening in the future."

Kim recognizes the potential the metaverse has to transform how we interact, looking at it as a way to add 3D space to social media.

"If social media is very popular and people see great opportunities with that, then imagine if you could do that in 3D," he said.

"Imagine all the promises and benefits that come with that. The issue really is that no one really knows what that's going to look like."