Month: December 2023

• What might happen in 2024

  Yesterday we looked in the rear-view mirror. Today we’re looking forward:

  • The market consensus right now is that this cycle of interest rate increases has come to an end, and that we should see rates start to come down next year. Having confidence that rates won’t go any higher in the near future is what markets need in order to start making more decisions. So this is, of course, positive. At the same time, I don’t think anyone should expect a return to ultra-low rates. Rates today are still low when viewed historically.
  • Lower rates are good for levered assets such as real estate, but I don’t think that our industry has fully felt and processed the impacts of higher rates. Unfortunately, I think that things will get worse (in 2024) before they get better (maybe toward the end of 2024 or perhaps in 2025). This is when a “risk-on” approach will return in commercial real estate. A year ago today, I thought 2023 would be the year for this, but as I said yesterday, I was overly optimistic in terms of my timing.
  • On the residential resale side, I think we will see greater optimism sooner, certainly for the most in-demand cities and areas. There is pent up demand waiting on the sidelines and, once we can get past the current bid-ask spreads and deadlock, I believe we’ll return to a more balanced market in 2024. To be clear, I’m not expecting bidding wars and the like. And because of our housing affordability crisis, I also think the Bank of Canada will be more resistant to lowering rates compared to other central banks. This will help the Canadian dollar.
  • If you’re a buyer of real estate, I generally believe that 2024 will turn out to be a pivotal year for you. Roughly speaking, you win acquisitions in one of two ways: either (1) you pay the most or (2) you believe in something that most other people in the market don’t. This second approach is harder to achieve in bull markets. But in slower markets, the door is open and history has taught us that it can be the foundation in which great fortunes are made.
  • As I mentioned yesterday, I agree with the prognostications that hard costs will soften further next year (perhaps even more than 5% on average). Obviously every market is different. But here in Toronto, I just don’t see us returning to the level of construction starts that we have seen over the last number of years.
  • Since 2021, I have used my hyper scientific Jimmy the Greek Reopening Index to keep tabs on office utilization and the overall return to office. And based on this, 2023 was a positive year. Initially, souvlaki consumption appeared dramatically lower on days like Monday. But I noticed discernible increases as the year went on. However, if you look at actual data, such as what we have from swipe cards, the great return to office seems to have stalled out at around 50%. I don’t think this will hold, though. I continue to believe that of the people who work in offices, most will spend > 50% of each week there. And we will see that in 2024.
  • 2023 was the year of AI. But Fred Wilson makes an excellent point, here. AI is 40+ years in the making. Last year only became the year of AI because a consumer-facing app — ChatGPT — was revealed that captured everyone’s attention. Crypto will eventually have this moment, but it will likely need to marinate a bit longer. Instead, I think 2024 will be the year of augmented reality (AR) and a further blurring of our offline and online worlds. Think digital art, fashion, and other collectibles (such as NFTs).
  • Right now, autonomous vehicles feel like they’re in the trough of disillusionment (within the hype cycle). There were moments last year where it felt like we were finally moving beyond this phase. But then some very suboptimal things happened. I think AVs are our reality in the next 5+ years, which means that for next year we likely want to be focused on the inputs: vision/LIDAR, battery tech, etc.
  • Zooming out, we should be thinking about the above two trends in the context of a broader shift toward greater automation. I think it will feel more insidious than immediate (certainly in 2024), but the longer-term impacts are going to be profound for our society. The so-called gig economy is likely to be impacted first. Eventually the overall economy will create new jobs, but we are still going to need to manage this transition toward more automation.
  • TikTok Shop is where to look for the future of shopping. I think the platform will continue to see strong adoption and ultimately prove to be a dominant e-commerce platform throughout 2024. Amazon, Meta, and others will see this, and try their best to catch up and copy it.
  • At the time of writing this post, the total crypto market capitalization is about $1.74 trillion. This is down from nearly $3 trillion at the peak of the market in 2021. The recent gains suggest that the so-called “crypto winter” might be over, and so combined with lower interest rates and more real-world use cases, I think that 2024 will be another strong year for crypto. Total crypto market cap at the end of the year will exceed its 2021 peak.

  And there you have it. My current thoughts for this upcoming year. I should note that I’m not an economist, analyst, or an expert on souvlaki demand for that matter. But I enjoy writing this post as an annual discipline. It forces me to think critically about the topics that interest me. And in the paraphrased words of Howard Lindzon, it gives me an archive that I can go back to and either cringe at or think to myself, “hey, I could have been a somebody!”

  And with that, a big thanks to everyone who has read this daily blog over the last year. This year marked its 10th anniversary. I wish you much success and happiness in 2024. Happy new year!

  2023.12.31

• What happened in 2023

  As per tradition around here, I like to bookend the new year with two posts: a post that revisits my random predictions for the year and a post that talks about what might happen in the year to follow. Today’s post is the former. So let’s see how I did:

  • I thought the interest rate hikes would come to an end in Q1-2023. But that didn’t happen until the summer. I also thought this would lead to a mild recession in Canada. Technically, we are not actually in one, but according to some, we kind of are.
  • I thought the real estate sector would start seeing some distress in the first half of the year, and that a new equilibrium would be found in the second half. This proved to be overly optimistic in terms of timing. A lot ended up being on pause for the entire year, and I now think that my forecast was at least a year too early. The sea change is still underway.
  • Given the overall slowdown in real estate, I felt that construction costs had to see some softening. This did, in fact, happen with some of the “earlier trades”, such as shoring and excavation, and we did see some specific trade pricing, such as concrete formwork, come down by as much as 30%. The smart cost consultants we work with now expect to see overall hard costs come down by a further 5-6% next year in Toronto. This makes sense given construction starts are way down.
  • With me expecting the interest rate increases to stop in Q1, I thought that pre-construction condominium sales would return in a meaningful way by the spring. While we did see some buoyancy around that time, it was short lived. Sales remained nearly shutoff for the entire year, but for maybe a handful of projects. The more successful projects tended to be outside of the Toronto core and at lower price points.
  • With respect to home prices in more tertiary/fringe markets, my sense then, as it is now, was that these prices would remain below the peaks for many years. In addition to the upward momentum created by low rates, my view was/is that some of this pricing was the result of a bet on urban decentralization. I don’t think that has played out as many expected it to, so that’s why I think it will be many years before the pricing we saw in early 2022 returns.
  • The momentum around “expanding housing options” in our low-rise neighborhoods is many years in the making. And a lot of progress was made in 2023. Here in Toronto, we adopted new multiplex policies that now allow fourplexes plus an accessory dwelling (so 5 homes in total) on an as-of-right basis. I continue to believe that this momentum is only going to grow. I also think we will see the arrival of more mixed-use opportunities.
  • I believed that, broadly speaking, urban transit ridership would remain below pre-pandemic levels for all of 2023. This proved to be the case for most US and Canadian cities. But things are improving. For Canada as a whole, it looks like we’ll see full recovery sometime in 2024 based on this trend line.
  • I thought 2023 was going to be the year I took my inaugural ride in an autonomous vehicle. Sadly, this didn’t happen. The sector as a whole also saw some setbacks. Hopefully I’ll get a chance next year.
  • I assumed that Apple would finally release its augmented reality device. And though they didn’t technically release Vision Pro, they did announce it. So I guess that counts for something. I also thought that 2023 would be a big year for “phygital” goods. Maybe it was. Or maybe it was more of a building year. A lot of people are curious to see how Vision Pro does in 2024. It’s not set up for the mass market, just yet, but I think it will do exactly what it is supposed to once it’s out in the wild.
  • Finally, crypto. I know that a lot of you like to skip over these posts, but it is something that I feel strongly about. A year ago, though, I was pretty bearish on Solana. Boy was I wrong. Solana ended the year as the best performing major crypto asset — up 933% at the time of writing this. Oops! However, Ether is also +91%, and I continued to dollar-cost average in all throughout the year.

  Next up: What will, or more accurately, what might happen in 2024.

  2023.12.30

• When do iconic chairs actually become iconic?

  

  Search for the most iconic chair designs in the world and you’ll likely come across a list that includes:

  • Wassily Chair by Marcel Breuer (1928)
  • Barcelona Chair by Mies van der Rohe (1929)
  • Grand Consort by Charlotte Perriand, Le Corbusier, and Pierre Jeanneret (1928)
  • The various Eames Chairs (starting in 1945)
  • Wishbone Chair by Hans Wegner (1949)
  • Wiggles Side Chair by Frank Gehry (1972)
  • And the list goes on.

  Most of these chairs also look as if they were just designed yesterday. Meaning, they’re timeless and have stood the test of time. But they are mostly older designs. Which raises an interesting question: How much does the passage of time play in a role in determining whether or not something is “iconic”?

  There are some more recent designs that you could call iconic. The Roly-Poly Chair by Faye Toogood (2014) and the Louis Ghost Chair by Philippe Stark (2002) come to mind. This suggests that really great designs can become immediate classics. (Though, this latter example is a reinterpretation of a classic French chair that in and of itself is an icon.)

  What I think is the mostly right answer is that, yeah, sometimes you can catch lighting in a bottle. The Louis Ghost Chair, for instance, is one of the top selling chairs of the 21st century. It’s a clever and modern take that used new technologies (as is often the case) to revisit an old classic. Starck nailed it.

  But more often than not, you probably need time. Time is what allows the object to form cultural associations in our mind and to prove that it is, in fact, timeless. However, if this is truly the case, then it makes it difficult to determine if we’re still producing as many design icons today as we did in the past. We won’t really know until they become old.

  Image: Louis Ghost Chair via Knoll

  2023.12.29

• Solar power as art

  

  The past week has felt more like a London winter, than a Toronto one. It has been mild, rainy, and gray. So right now feels like an opportune time to write about this solar-powered light/art piece called Sunne. Created by Marjan van Aubel, the light has been designed to hang right in front of a window using two simple cables. There’s no need for an external power source, because it has an integrated battery that harvests sun during the day. The light then automatically turns on at sunset, and has the ability to simulate some pretty stunning sun experiences.

  Now, if you happen to live in a place with a roof that gets good sun exposure, I suppose you could just install a bunch of solar panels and use them to generate power for cool-looking things in your home. But if you don’t have the ability to do that — for instance, maybe you live in a multi-family building — then this feels like a clever and extremely beautiful way to harvest some amount of sun. I’m sure that, eventually, we’ll have building facades that can generate a meaningful amount of solar power, but until then, you’ve got devices like Sunne.

  P.S. For what it’s worth, I’ll take cold, snowy and sunny, over mild, rainy and gray, any day of the week.

  Image: Sunne

  2023.12.28

• Living vs. just visiting — do these two things require different built environments?

  

  Many years ago I was in a community meeting talking about a proposal we had to add retail uses adjacent to a park. Residential was the highest and best use, but we were excited by what retail could do for the project and area. We were imagining something like a Parisian cafe where everyone would sit facing outward toward the park.

  Much to our surprise, the community was vehemently opposed. And when we eventually asked who had been to Europe and sat outside in a nice cafe, the response we generally got was, “yeah, we have, and it’s obviously nice there, when on vacation. But that’s Europe. It won’t work here and it’s not appropriate for the area.”

  Hmm. This raises all sorts of interesting questions. But for today, let’s ask this one here: Why is it that some people choose to live in places that are so different than the ones they visit when on vacation?

  Is it because we, as humans, want fundamentally different experiences when we travel? i.e. We want to escape from our current reality. “Oh look how novel this is.” In this case, I guess you could say that our markets are fairly efficient and people are getting the kind of lifestyles that they truly want, both at home and abroad.

  Or, is it because, for a variety of reasons, we’ve created rules and obstacles that force certain built form outcomes? We think the other ways won’t work. I often find myself in this latter camp, meaning that when I travel, I at some point end up thinking: “This is a good idea. I want to both move here immediately, and steal this idea and bring it back to Toronto.”

  How about you?

  Photo by DAT VO on Unsplash

  2023.12.27

• The Boxing Day move

  We moved into our new apartment today, so I don’t have a lot to say other than that moving is a good way to remind yourself that you have too much stuff. I was in my last place accumulating for over a decade.

  I try my best to live minimally and there is certainly something liberating about this mindset. But there is also a part of me that is a collector at heart. (A great number of our boxes are filled with things like books.)

  It also turns out that Boxing Day, or some other time over the holidays, can be an excellent time to move. Streets are calm. Buildings are quiet. The email firehose is off. And nobody else wants to move at this time.

  Most importantly, though, it affords you some time to get your life back together. And that’s exactly what I’ll be doing for the rest of this week.

  2023.12.26

• Automated checkouts

  I did something this week that I don’t often do: I shopped for (non-grocery) things in person. Like, in a physical store. So I recognize that this isn’t entirely bleeding edge. Still, I am thoroughly impressed by the self-checkout process at Uniqlo.

  All of their items now include RFID tags, which means you don’t need to scan anything. You just place your basket or items down, and then everything shows up automatically on the screen. Done. The most frictionless checkout that I have ever experienced.

  

  My understanding is that this was done more for supply chain management and that it is now possible because the cost of these tags have come down to something like a few cents per unit; but the added benefit is that they have greatly improved checkout throughput and the overall experience.

  This has been a part of the promise of RFID tags for many years. And this week I experienced it IRL for the first time. It was awesome. Now I hope this same experience comes to grocery stores in the near future.

  2023.12.25

• Merry Christmas

  For those of you who celebrate, I wish you a Merry Christmas.

  This year has been a hectic year for many; certainly for those of us in real estate. I’ve heard a lot of people tell me that they’ve “never worked so hard only to feel like they have accomplished so little.”

  Looking back at what I wrote on the first day of this year, I was wrong about many of my 2023 predictions. I thought the interest rate hikes would be over by the first quarter of the year and that the spring would bring greater optimism for new development projects.

  This was partially true — we did see some buoyancy around spring — but then further increases over the summer really quashed the pre-construction condominium market and overall developer sentiment for basically the rest of the year.

  I also thought that we would see distress within the industry in the first half of the year. That didn’t quite play out, as far as I can tell, and I now think that 2024 will be the year for this.

  All of this said, I do feel that 2023 was a highly productive year. I’m proud of what I accomplished both personally and professionally. And this holiday season, I’m looking forward to slowing things down, spending time with family and friends, and catching up on some life management.

  Hopefully you are all able to do something similar. Merry Christmas, everyone.

  2023.12.24

• Are shared e-scooters now dead?

  

  I first wrote about Bird, the electric scooter company, back in March 2018. At the time, they had just raised $115 million and their pitch was that they were going to solve the last-mile mobility problem. This is a real problem, and so lots of urbanist-type people, including myself, were excited. I then rode my first shared scooter in 2019 in Lisbon, and I had a ton of fun. I wrote: “Now I know what all the fuss is about.”

  But it wasn’t all puppy dogs and ice cream. People started getting annoyed by the clutter that dockless scooters were creating in our cities (see above photo). Safety also became a great concern, and so they started getting viewed as a nuisance. Toronto never allowed them (despite my insistent blog posts) and Paris — which had arguably become the scooter capital of the world — banned them in early 2023.

  Now there’s this: Bird announced this week that it has filed for bankruptcy. The once unicorn, which had its stock halted back in September because its market cap fell below $15 million for too long, needs cash. According to FT, they have about $3.25 million the bank, but they have an immediate need for $16.8 million to meet some “financial obligations” in January.

  This is maybe not unexpected. But I think the important question is: Is this an existential moment for micro-mobility and shared scooters (i.e. this is a fundamentally bad business), or is it more of a case that money used to be mostly kind of free, and now it’s not? Either way, I think there’s no question that the latter is going to cause further distress throughout 2024.

  But the question remains: Can shared scooters be a sustainable business?

  My day job is not to be a scooter analyst. But I do think that a number of things are true:

  • Riders seem to really like using electric scooters and so top-line demand continues to grow.
  • There are many headwinds for this business ranging from winter usage to politics.
  • Barring regulation, there appears to be low barriers to entry.
  • Lime has already claimed to be the first micromobility company to post a full profitable year.

  These first and last points are important ones. I believe it’s always going to be easier to get people onto electric scooters and bikes than onto regular bikes; people will generally always choose what is easiest. At the same time, here is a company that has allegedly figured out how to offer this service profitably. Assuming these two things remain true, I think we’ll continue to find scooters in our cities.

  Photo by Gemma Evans on Unsplash

  2023.12.23

• Are short-term rentals really a zero-sum game?

  The prevailing view on short-term rentals right now seems to be this:

  

  That is, it’s viewed as a zero-sum game between residents and tourists. There are only so many homes within a city, and so if any of them are to turn into short-term rentals, then it is a direct reduction in the supply of available long-term homes. This can also happen very quickly given the asset-light nature of Airbnb and the fact that these spaces aren’t usually purpose-built.

  It is for this reason that many cities have enacted strict short-term rental laws that basically only allow you to rent out your principal residence when you’re not around or if you happen to have extra space. In the case of New York, you have to be physically present when the dwelling is being rented, and so the use case is exclusively “I have extra space for you.”

  Either way, the basic idea is to stop people from removing homes from the long-term market. I do, however, find it curious that reductions in housing supply seem to be generally viewed as bad, but that increases in housing supply are often met with skepticism. Doesn’t housing supply work in both directions? Why aren’t more people clamouring for new homes to be built?

  Where my head is at on this issue is that I don’t see it as a zero-sum game. I believe that there should be rules and regulations around short-term rentals, but that they shouldn’t stamp out all use cases other than “here’s an air mattress in my living room.” At the same time, I think we should be viewing this as an opportunity. Clearly we need more homes, more hotels, and more short-term rentals.

  It’s only zero-sum if we make it that way.

  2023.12.22