Why real estate businesses should care about the metaverse

While there are legal risks for businesses to navigate when engaging with the metaverse, perhaps the greater risk for real estate businesses that do not engage with the metaverse is being left behind by those that are able to harness its potential.

The metaverse and its potential for real estate

The concept of the metaverse is still very much in its infancy, with several businesses battling to define, develop and operate it. However, the term broadly refers to the convergence of physical and digital worlds in a way that augments reality.

In the context of real estate, the metaverse offers several opportunities.

For example, creating digital versions of physical property in the metaverse would help prospective tenants or buyers ‘visit’ the property virtually, with scope to provide immersive and interactive property experiences – visitors could, for instance, open doors, walk through floors, and climb stairs, in doing so getting a better sense of the space they may be acquiring. This technology could be especially beneficial for international or distant buyers, expanding the reach of real estate agents.

The metaverse is also becoming the home to leisure and event spaces. Ariana Grande and Justin Bieber are among the popstars to have already hosted concerts in the metaverse, recognising that the metaverse can lift restrictions that associate with physical events – including on the number of people who can attend. For real estate companies, the potential to deliver leisure and event spaces in the metaverse offers scope to expand revenues and enable them and their customers further their brand visibility.

The creation and operation of real estate assets in the metaverse can also support architects, designers, engineers and construction contractors. It could, for example, enable architects and designers to explore different potential layouts and design options interactively, while engineers and contractors could remotely survey and plan construction sites in a realistic digital environment, minimising errors as well as the time and cost of travel.

At a time when the balance between office working and remote working has shifted, the metaverse also offers scope to provide immersive collaborative workplace environments that extend beyond geographical boundaries.

Cutting costs and emissions, enhancing customer experiences, and generating new revenues – including from digital rights that can associate with creating metaverse versions of existing real estate assets – are further benefits on offer.

Opportunities run across the real estate sector

Property owners and managers, designers and contractors, retail tenants, and developers of and investors in real estate assets, all have opportunities linked to the metaverse.

Property owners, for instance, may be able to retain digital metaverse rights in property even if they sell, lease or licence rights in the physical land – or demand higher fees for selling, leasing or licensing rights in the land together with the metaverse rights.

Owners of a shopping centre, for example, could grant a lease of a plot in the centre together with a licence in respect of the same plot in any metaverse equivalent. The rights under the licence could, for example, bundle together rights to put up signage or advertising on the facade of the physical and metaverse equivalent of the building, as well as confer rights to project images onto the physical building and/or rights to make commercial use of the space in augmented reality applications. 

Property managers and operators could use virtual reality technology in the metaverse to improve or distinguish their operational services for end users. For example, those operating offices could provide hybrid working solutions to tenants using such virtual reality technology. There are also likely to be opportunities for property managers to improve the way they manage buildings by operating technologies such as ‘digital twins’ in the metaverse. Many operators are already using cloud-connected devices to help them monitor and meet property owner clients’ planned preventative maintenance (PPM) requirements. It is likely that there will be further developments in this sector and in the future, it may be possible for operators to leverage multiple different technologies in order to provide a single unified metaverse solution for clients.

For designers and contractors, there is an opportunity to enable the integration of spaces into the metaverse. For example, architects could use virtual or augmented reality technology or create digital twins to inform the design of buildings, allowing clients to explore and experience proposed buildings in a virtual environment before they are built.

Retailers that occupy physical premises on the high-street or in shopping centres can also turn to the metaverse to enhance the customer experience – by delivering a ‘3D’ digital environment in which online consumers can browse and shop to challenge even the best online retail experiences rivals can offer.

Developers and investors in the real estate sector can look to all of those opportunities for scope to maximise returns.

Risks for real estate businesses to navigate in the metaverse

While there are enormous opportunities, legal and commercial risks attach to engaging with the metaverse. Real estate businesses should note that legal 'ownership' of rights in the metaverse is not currently capable of legal protection in the same way as rights over physical real estate. In the future, it may be possible to protect metaverse ownership rights via methods such as registration within a centralised database, similar to the protection that is available for physical real estate rights in most jurisdictions, or through the use of non-fungible tokens (NFTs) or other blockchain technology. However, it is unlikely that the relevant regimes will operate in the same way going forward, and it is important to be clear at the outset that whilst physical real estate ownership is very clearly established and understood, that is not currently the case in the metaverse.

When engaging with the metaverse, real estate businesses will want to ensure their contracts are clear as to their scope, provisions and what they are referring to within core definitions. A lack of clarity in contracts is a common cause of disputes, and in the context of the metaverse could give rise to disputes over access rights and obligations. Coexisting physical and virtual rights may create confusion if they are not properly addressed in agreements. It will be important for agreements to be future-proofed as far as is possible to mitigate the risk of legal challenges as the metaverse evolves.

Inadequate contractual arrangements for marketing initiatives could also lead to disputes over commissions, allocated space, and appropriate advertising content in respect of digital real estate assets being operated in the metaverse. Non-compliance with advertising standards and associated guidance could also cause other risks to materialise, such as regulatory actions and reputational damage.

Intellectual property (IP) rights can also attach to the creation and operation of digital real estate assets in the metaverse. Businesses may, for example, have scope to trade mark unique buildings if the public associate the shape of those buildings with their brand. A failure to protect and enforce IP rights in virtual properties and marketing content could provide third parties with scope to use the IP in ways that harm the reputation of the brand. Inadequate technical measures and contractual assurances can expose parties to IP disputes and financial liabilities.

A further risk to navigate is that digital real estate assets – or the systems that they exist within – are operated in a silo. A lack of interoperability, whether through contractual or technical limitations, may limit potential partnerships and collaborations. Failure to address data sharing and conflicts of laws across jurisdictions could also lead to legal uncertainties and hinder cross-platform initiatives.

It is also possible to imagine that the personal data of staff or customers will be processed by real estate businesses as those individuals engage with digital real estate assets in the metaverse. Real estate businesses must develop appropriate privacy policies and practices, implement adequate data security measures, and address risks associated with transferring personal data to other jurisdictions – among other data protection issues – to avoid severe financial penalties, damages claims, and reputational harm that can result from non-compliance.

Businesses also need to be cognisant of the fact that they will need to include ‘change of law’ provisions in their contracts to operate effectively in the metaverse. This reflects the fact that regulation of digital worlds is evolving rapidly: a failure to monitor and address regulatory developments could expose parties to legal uncertainties and liabilities.

Without putting in place appropriate commercial contract protections, real estate businesses that engage with the metaverse risk losing money, control over their IP, and other legal risks arising. The answer, however, is not to withdraw from exploring the possibilities the metaverse offers – those that do that risk being left behind by competitors who do.

Co-written by Charlotte Tsang and Santos Hau of Pinsent Masons.